Moody’s has given the Australian life insurance industry a positive outlook for next year, but the ratings agency is less confident about life reinsurers.

It says reinsurers’ excess capacity and shrinking demand pose a challenge to pricing and contract terms.

Moody’s MD Simon Harris says life insurance profitability is supported by “accelerated changes in product mix and higher fees on still-rising asset prices… although we note a delayed increase in interest rates and higher asset volatility will intensify risk”.

A growing global economy will support life insurance sales, despite a slowdown in the Chinese economy.

“Low interest rates remain a key credit risk for many life insurance markets globally,” Mr Harris says.

Moody’s believes US and UK central banks will start raising interest rates in the next few months, but the European Central Bank and the Bank of Japan may put their rates in negative territory.