Variable annuity sales rose in 2010 on "continued innovation in product development" by annuity carriers, according to a report compiled by Morningstar and released Wednesday by the Insured Retirement Institute.

"We expect the pendulum to continue the swing back toward more generous benefits during 2011," Kevin Loffredi, vice president of annuity solutions for Morningstar, wrote in the report.

While sales remained "virtually flat" from the third quarter of 2010 to the fourth, fourth quarter sales increased dramatically over fourth quarter 2009. Carriers filed 63 material changes last quarter, according to the report, compared with just 36 in the fourth quarter of 2009. Twelve new contracts and 15 new benefits were issued last quarter, and three insurers – Ohio National, Pacific Life and Sun Life – issued new products.

Fees increased as well, though the report notes this is an indication that carriers are returning to more generous benefits and are "adjusting their prices accordingly."

The move to more generous benefits began in the second quarter, according to the report, when carriers added withdrawal opportunities for younger owners, and issued new benefits, especially living benefits. Of seven new benefits released in the second quarter, six were lifetime withdrawal benefits. In the third quarter, nine of 11 new benefits were lifetime withdrawal benefits.

A few carriers, however, have left the business. ING announced in May that it was formally exiting the variable annuity business, and Genworth announced Jan. 6 that it would discontinue its sales of retail variable annuities and group variable annuities.

A Jan. 12 survey from IRI and Cerulli Associates predicted growth in the annuity industry in 2011, as advisors struggle to prepare their clients for retirement.