The US Securities and Exchange Commission has started a formal investigation into leading broker firm Marsh & McLennan?s private-equity unit MMC Capital.

The development intensifies focus on Bermuda companies ? particularly AXIS Capital ? with Marsh?s private equity having been the leading source of funds in the past for some of the Island?s leading reinsurers.

In the filing, Marsh said the regulatory agency has asked for documents and other information about transactions in which an executive, director or five percent shareholder of the company had a material interest in MMC Capital?s Trident funds.

Some executives at Marsh & McLennan also help run MMC Capital and have invested in the Trident funds. While not illegal, the arrangements have raised concerns about conflicts of interest because Marsh has acted as insurance broker to some of the companies backed by the Trident funds.

New York Attorney General Eliot Spitzer, who is probing steering and bid rigging at Marsh and related conflicts of interest in the insurance industry, told a Senate committee last month that brokers? relationships with Bermuda insurers needed to be investigated.

He described how leading brokers, such as Marsh and Aon Corp. helped set up insurers and reinsurance companies in Bermuda when demand for coverage and prices shot up in the wake of the September 11, 2001 terrorist attacks in the United States.

The Trident funds were set up by MMC Capital to invest in new insurance and reinsurance companies ? including Trident II LP being the largest investor in AXIS Capital, one of the wave of reinsurers to set up on the Island after a void in capacity resulting from the September 11 terrorist attacks in the US. Marsh was also previously involved in the set up of ACE, XL and Mid Ocean Re.

While the brokers invested in these new companies, they have also generated revenue from them by acting as their broker.

?This sets the stage for conflicts of interest, steering and self-dealing in insurance and reinsurance markets that we are just beginning to understand,? Mr. Spitzer said in testimony to the Senate Committee on Governmental Affairs.

When AXIS filed for its IPO in mid-2003, the company warned that its founding shareholders and some of its directors were involved in transactions with the firm and its rivals that could ?give rise to conflicts of interest?.

Axis also disclosed that it derived almost 40 percent of its business by using Marsh as its broker.

The firm listed Charles Davis as a director and said that he was also chairman and chief executive of MMC Capital and a vice chairman and director at Marsh & McLennan.