LONDON, July 30 (Reuters) - Insurers in the European Union are confronted with risks on several fronts that are intensified by the COVID-19 pandemic, and could face lengthy legal battles from claims relating to lockdowns, the bloc's insurance watchdog said on Thursday.
Insurers and reinsurers had a "solid and comfortable" capital buffer going into the crisis, the European Insurance and Occupational Pensions Authority (EIOPA) said in a Financial Stability Report.
However, a high level of uncertainty on the magnitude of economic disruption increases downside risks going forward," it said.
"The COVID-19 has further intensified the pre-existing challenges posed by the prolonged low-yield environment, a fundamental risk for both insurance and pension sectors."
In addition, some insurers run the risk of becoming involved in long and costly legal battles over claims made as a consequence of lockdown measures, EIOPA said.
Some players already face potential multi-million-euro lawsuits from small businesses in the hospitality and leisure industry that allege legitimate business interruption claims have been rejected.
The watchdog has told insurers to temporarily suspend all discretionary dividend payments and share buybacks to preserve capital.
EIOPA said different recovery scenarios should be captured in the design of next year's EU-wide insurance stress test. (Reporting by Huw Jones; Editing by Pravin Char)