Insurers in the London market performed well during 2012 despite large losses from Superstorm Sandy and a challenging economic environment, according to a report by A.M. Best Co. Inc.

In the report published Monday, Best said that London market insurer and reinsurer results were boosted by modest rate rises and better-than-expected investment returns in the second half of 2012.

While catastrophe losses in 2012 were less extreme than in 2011, Superstorm Sandy caused net claims before tax of about £1.35 billion ($2.07 billion) for the Lloyd's of London market alone, Best said. Insurer and reinsurer results also were affected by crop-related losses arising from the drought in the Midwestern United States and the sinking of the cruise ship Costa Concordia, among other things, according to Best.

In the London market, most Superstorm Sandy-related losses fell on reinsurers, although marine and direct property accounts also were affected, according to Best, and “losses from this business have been difficult to estimate.”

Plentiful reinsurance capacity dampened the impact of Superstorm Sandy losses at the Jan. 1, 2013, renewals, Best noted in the briefing note entitled “London Market Insurers Focus on Capital Management in a Difficult Environment.”

Large rate increases at Jan. 1 mostly were restricted to loss-affected catastrophe treaties, the rating agency noted.

There has been a continued uptick in rates in the U.S. commercial lines market in 2013 but these rate increases likely will be moderate because of the effects of stagnant economic growth on demand for coverage.

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As domestic U.S. insurers come under increased pressure to refocus on their core business in the wake of several years of competitive pricing, catastrophe losses and less favorable loss reserve development, London market insurers could see growth opportunities as moderate to higher-hazard risks return to the surplus lines market, according to the report.

For 2013, the impact of reserve releases on results is expected to be lower than in previous years, Best noted.

In response to challenging economic conditions, there has been a strong focus on capital management across the London market, according to Best. While some concerns remain about the market's ability to recapitalize after a major event, “overall, the market is sufficiently well-capitalized to meet its short-term capital needs,” the report noted.