View from the top: A hard market is coming

We are, however, experiencing a different type of hardening environment to that seen after 11 September 2001. This time there has been no black swan event. Instead, there is evidence of sustained reductions in capital through multiple small to mid-sized events; a case of 'death by 1000 cuts'.

To put this in perspective, 2011 has already seen a heavy US catastrophe toll, with tornado losses of more than $10bn (£6bn) in April alone, adding to earlier events in Australia, New Zealand and Japan. To compound matters, these losses follow a succession of disasters in 2010, including Chile and New Zealand's first quake and a particularly severe US winter. Add to the mix another US tornado, flooding in May and forecasts of an above average hurricane season, and the industry is, without doubt, braced for more losses.

The initial upward impact on rates has been localised to Asia, with Europe and the US seeing a more gradual turn. Initially this is focused on the short-tail lines, but there are already signs that longer-tail exposures will become unsustainable at current pricing from 2013.

As rates increase it will be interesting to see whether the larger brokers' focus on contingent commissions continues. In my view, current margins should be enough to ensure a profitable return if a business is run efficiently. In a soft market, such strong-arm strategies may pay dividends, but in a hard one brokers may find insurers unwilling to pay.

So, what does rate hardening mean for the London market? Following London's pricing discipline during the soft market, it is now returning to price competitiveness as rates harden. This, coupled with a need for additional capacity, means the first signs are emerging of regionally retained business coming back to Lloyd's.

Global brokers with delivery-orientated networks and first-class client service will also benefit first from the new conditions. History shows that, when rates harden, businesses need experts with an in-depth understanding of the global market and changing insurance landscape. I don't expect any different this time around.

Toby Esser, group chief executive officer, Cooper Gay Swett & Crawford