Crashing share prices and rising liabilities arising from the World Trade Centre attack have dealt brokers the double blow of soaring rates and shrinking capacity.

David Slade, chairman of Birmingham-based corporate insurance broker Perkins Slade, said: "In 35 years as a broker, I've never experienced anything like this - the combined effects of a stock market crash with a catastrophic loss."

Analyst William Rathbone, of Williams de Broë, said: "The belief is that general insurance prices are going to harden considerably.

"The trouble is that, because of reductions in asset values, insurers are not going to be able to write as much of this better-price business as they would want to."

One underwriter with a leading insurance firm said: "There is considerable pressure on all companies not to take on increased business.

"As your assets go down, in theory you write less business. You get a capacity shrinkage."

Slade said: "We're seeing the early signs of this and it's quite a worrying scenario.

"Some of the capacity you need to place risk is potentially going to be squeezed."

Slade said it was "too early to start talking of panic".

He said: "The factors are beyond any individual's control. When the US sneezes, we catch a cold. That's exactly what's happening here."

He said one way to help protect against further losses would be to ease industry regulations.

Earlier this week, the Financial Services Authority (FSA) relaxed the regulations for life insurers.

Ian Ritchie, director of commercial and corporate broker Stuart Alexander, based in London and Southampton, said: "Capacity for bread and butter insurance isn't going to go away, but more obscure risks could be driven into a specialist area where the rates could be harder."

Rathbone forecast the difficulties could last several months.

Shares showed signs of recovery this week, but not enough to make up the ground they lost last week.

Shares across the insurance sector have tumbled 27% since the terrorist attacks.

Insurers CGNU and Royal & SunAlliance have seen more than £10bn wiped off the value of their own shares since highs earlier in the year.

HSBC insurance analyst David Hudson said the cost of the stock market crash was about six times higher than the direct costs from the attacks.

Other factors could also add to insurers' difficulties.

Many insurers face the threat of lower credit ratings and are revising their forecasts upwards of losses from destruction of the World Trade Centre.

Insurance analyst Christian Dinesen, of ratings agency Standard & Poor's, said those insurers that took the biggest loss from the attacks will have taken smaller losses from the stock market crash.