BADEN-BADEN, Germany, Oct. 24 (Reuters)—Munich Re backs the ideaof using insurance to help resolve Europe's sovereign debt crisis,a board member of the world's biggest reinsurer said on Monday.

“Munich Re supports the proposal to use the €726 billion ($1trillion) of EFSF funds to insure sovereign debt,” Munich Re boardmember Ludger Arnoldussen told a journalist briefing. The EFSF isEurope's debt crisis rescue fund.

“It's a good way of addressing the immediate problems,” he said,adding that the idea, which is modeled on credit insurance and hasbeen pushed by Allianz, would help mobilize private investment intosovereign debt.

Munich Re is against any solution that would boost the risk oflong-term inflation, such as granting a banking license to theEFSF, Arnoldussen said.

The insurance model would not address the inflation threat, butit would buy time to resolve the bloc's problems, Arnoldussensaid.

“You still have to work on the other issues, but at least youget the chance to work on the other issues,” he said.

Europe would eventually need to move to a fiscal union, with acommon budgetary policy with effective sanctions, he said.

“This ultimately would be a sustainable solution for theproblem, and we need sustainable solutions,” Arnoldussen said.

The debt crisis had created a raft of uncertainties for theinsurance industry, which was now firmly focused on capitalpreservation, he said.

In light of this, Munich Re was not contemplating a return toshare buybacks in the short term, he said.

STABLE REINSURANCE PRICES

Turning to industry developments, Arnoldussen said prices werestabilizing for the risk cover that reinsurers sell to theirinsurance company clients, with prices rising in areas hit byearthquakes and tornadoes.

Munich Re expects the pricing trend seen so far this year tocontinue, as it begins tough negotiations with its insurancecompany clients to renew insurance contracts for 2012, he said.

“We are seeing a general stabilization in prices, coupled withhardening markets in a number of segments,” he said.

Natural catastrophes such as the earthquakes in Japan and NewZealand earlier this year, as well as tornadoes in the UnitedStates, make 2011 likely to be the costliest year ever for theinsurance industry.

Munich Re has pushed through average price rises of up to 50percent in Australia and New Zealand, and 10 percent for the UnitedStates and Latin America, so far this year, it said.

Prices in the rest of its portfolio remained stable, itsaid.

Reinsurers like Munich Re, Swiss Re and Hannover Re helpinsurance companies shoulder the burden of large claims in exchangefor part of their premiums, but industry observers say reinsurersmay not be able to hold prices stable despite the large claims.

“Brokers will be mindful that the sector remains generally wellcapitalized,” said Martyn Street, an analyst at credit ratingagency Fitch.

“With the U.S. windstorm season so far proving to be relativelybenign, capacity remains well supported outside of lines andgeographies directly affected by losses,” Street said in a researchnote last week, adding that reinsurers might not be able tomaintain as strong a pricing power as they would like.(Reporting by Jonathan Gould; Editing by WillWaterman)