London market insurers performed well last year despite losses from Superstorm Sandy and a challenging economic environment, according to ratings agency AM Best.

Modest rate increases and better-than-expected investment earnings in the second half aided results, it says.

Sandy losses primarily hit reinsurance business. Marine and direct property accounts were also affected but losses were difficult to estimate, according to the agency.

Ample capacity limited the storm’s impact on the January reinsurance renewals, but rates came under pressure outside the US, particularly in Europe.

Marine pricing is responding positively to a poor loss experience last year, the report says.

Rate rises in US commercial lines will moderate as economic stagnation affects demand, AM Best predicts.

Some London market insurers have “modestly” increased allocations to equities and lower-rated corporate bonds in an effort to improve investment returns, it says.

But low-risk assets such as cash deposits and high-quality fixed-income securities continue to dominate.

“In 2013 investment returns are likely to be modest at best, with historically low interest rates and global economic uncertainty expected to persist,” AM Best says.

“Modest rate increases in excess of claims inflation should support underwriting results this year.”