Lehman Brothers, has set up offices on the Island with a staff of four at the new building on Reid Street near the Bank of Butterfield head office.

Another 31 staff are based outside the Island at Lehman Risk Advisors in New York.

The Bermuda office is headed by Ed Betteto who is in charge of the life and annuity side of the insurance and reinsurance operation and Rob Lee Womack will underwrite the property catastrophe business. Mr. Womack moved over the Lehman Re from Bermuda-based LaSalle Ltd.

Lehman Risk Advisors will deal with finite and political risk and the investment trading end of the insurance and reinsurance venture.

With the set up of the Bermuda operation Lehman is making a big bet on the convergence of the banking and insurance sectors. Lehman is targeting the growing demand for insurance securitisations by backing the venture with $500 million, ten percent of the firm's capital equity.

Lehman Re will be in competition with Arrow Reinsurance Co. Ltd. a similar venture set up in Bermuda by Goldman Sach's. The companies, nicknamed transformers in the industry, directly challenge the traditional insurers.

Many, like XL Capital Ltd., are also working to bring together the convergence of the financial and insurance sectors.

Lehman has rented out the whole second floor of The Exchange building so as to be ready to add staff as the business grows.

Lehman Re president Michael Gelband has said he expects further consolidation between the investment banking and insurance sectors as a logical extension of a developing market.

He countered criticisms against Lehman's move to set up a company in Bermuda by saying the investment banks had the ability to enter the market and distribute the products.

"Our view of how we operate is that we take an insurance risk and we can either hold it up, use the capital markets which is the bulk of what we do, or we can retrocede it,'' he stated in a recent article. "We were set up and are using our capital to take on risk and using our distribution network and risk management capabilities where appropriate to put our capital at risk.'' Lehman Re is licensed to underwrite property and casualty, and life and annuity insurance risks. The company employs six senior underwriters and has already completed a number of transactions he said.

Mr. Womack said the operation first started out in a small office and then moved into the Reid Street offices when construction had finished on the building.

"We are a fully fledged risk taker,'' he said. "It's just a delicate balance of growing in a soft market.'' Meanwhile, David Govrin, chief underwriting officer of Goldman Sach's Arrow Reinsurance, referred all questions to a Press officer who did not return a telephone call. Mr. Govrin is based in New York. He did not wish to state how many people were in the Bermuda office or where it was located.

"We do not speak to the Press,'' he said.

The Bermuda office of Arrow Re appears to be just that so far -- an office with one staff member to answer the telephone. The office is located at 108 Pitts Bay Road.