John Charman, former chief executive of ACE International, will head up a new Marsh & McLennan Companies (MMC) insurance subsidiary.

The new insurance and reinsurance company, Axis Specialty, has been formed to take advantage of the capacity shortage in the insurance industry resulting from the New York tragedy.

Since September 11, rates have risen tenfold on certain lines of business and brokers are finding it increasingly difficult to place risks.

Charman, who recently signed a six-month contract to oversee the run-off of managing agency Newmarket, has been appointed chief executive officer for the venture. Robert Newhouse Jr, former chairman of Mid Ocean, will be chairman.

Axis Specialty will begin underwriting in Bermuda during the fourth quarter of this year. It will have approximately $1bn (£676.5m) of capital.

Trident II, a fund managed by MMC Capital, will be the lead investor.

MMC Capital is a global private equity firm which targets investments in the insurance, reinsurance and financial services sectors.