UPDATE 1-Crisis to strengthen insurers vs banks -Munich Re

HAMBURG Oct 15 (Reuters) - The credit market crisis will shift the balance of power within the finance industry towards insurers and away from banks, the Chief Executive of the world's biggest reinsurer Munich Re (MUVGn.DE) said.

German insurers are also unlikely to make use of the 500 billion-euro ($683 billion) rescue package for the financial sector expected to be adopted by parliament this week, Nikolaus von Bomhard told the Hamburg business journalists' club late on Tuesday.

"We ourselves will have nothing to do with it, from today's point of view," von Bomhard said.

Fellow reinsurer Hannover Re (HNRGn.DE) has also said it does not plan to make use of the package, while Europe's biggest insurer Allianz (ALVG.DE) says it is well capitalised and has "no direct need" to use the fund.

Von Bomhard said expectations for banks to deliver in some cases a return on equity of 20 percent and more in recent years had been clearly overdone. Such expectations had led banks to take on high risks despite their often inadequate risk management.

In their dealings with credit derivatives, for example, banks had blindly relied on the judgement of credit rating agencies, von Bomhard said.

The insurance industry was now set to gain ground relative to banks and funds, following their massive problems, he added.

"In my view, life insurance is going to experience a renaissance because it is secure," von Bomhard said.

The government rescue package, approved by Chancellor Angela Merkel's cabinet on Monday and due for a vote in parliament on Friday was "very positive" and "absolutely necessary," von Bomhard said.

However, not all problems have been resolved by the package, with inter-bank lending still sluggish, although this could change as early as next week if parliament agrees to the deal as expected, he said.

"When liquidity comes back, the markets will recover. But it won't happen overnight," von Bomhard said. (Additional reporting by Jonathan Gould; Editing by Greg Mahlich)