European Union states are giving guarantees to credit insurers in a bid to keep coronavirus-hit companies afloat, as some firms cut cover for trade involving bloc members such as Italy and Spain, sources said.

Without insurance, companies can be reluctant to buy or sell goods or services to others, with a rise in insolvencies expected among European firms forced to halt operations due to lockdowns aimed at slowing the coronavirus pandemic’s spread.

Atradius, which like rivals Coface and Euler Hermes sells protection to companies against the risk of default by their customers, forecasts a 2.1% rise in insolvencies in western Europe this year, compared with a 0.2% fall in 2019.

Credit insurers, which are often the frontline for absorbing loan losses, are already lowering credit limits and are heading towards “withdrawal of coverage for places like Italy and Spain,” one industry source told Reuters.

The $11 billion trade credit insurance sector has a bigger exposure in Europe than in Asia, where the coronavirus pandemic began and where brokers say insurers have withdrawn cover.

When risks of bankruptcies grow, credit insurers tend to reduce coverage for future sales in countries that are most hit.

During the 2008-2009 financial crisis, credit insurers pulled the plug on some clients, such as car manufacturers, prompting governments to adopt some emergency measures.

In France, the finance ministry said credit insurers had vowed not to cut or curtail cover, in return for a reinsurance backstop worth up 10 billion euros to be set up by the end of the week.

And on Tuesday, the French government announced 2 billion euros ($2.2 billion) in short-term aid as part of a package to help French exporters with credit insurance.

“It would be needed to convince credit insurers not to massively reduce the lines, otherwise we will have problems, especially if there is a delay in payments,” a member of the French association of corporate treasurers, AFTE, said.

AFTE last week said that some of members had reported credit insurers were reducing cover in countries like Italy and Spain.

“I was not satisfied with the situation last week. There were unacceptable blockages that could simply block the financing of our economy,” French Finance Minister Bruno Le Maire said on Tuesday when asked about credit insurance.

Italian insurers were aware of an issue with France’s Coface, which was reducing cover for credit lines involving Italian counterparts, and were working on possible ways to address it, one industry source told Reuters.

Coface said that it continued to issue guarantees in Spain and Italy, both for domestic and export-oriented clients, to prevent risks for them in a deteriorating economy.

Euler Hermes said that the basis for insurance was always based on an individual analysis of a company.

Atradius declined to comment.

Uniform System

Robert Nijhout, executive director at the International Credit Insurance & Surety Association (ICISA), said discussions were taking place about the issue at national and EU level.

There had been no request for governments to support the credit insurers, with talks aimed at avoiding a situation where the industry has to pull cover on companies if things do not improve in the next few months, Nijhout added.

Europe lacks coordination on supporting export-oriented companies, with each country having its own approach, something Nijhout said ICISA had asked for both the European Commission and European insurance regulator EIOPA to address.

“Our call is for a uniform system as much as possible and a system where the existing cover can stay in place,” he added.

In Germany, insurers are also holding talks about state guarantees for commercial credit insurers. In return, the industry would pledge to keep their credit limits, or the maximum amount of risk they accept from a client, stable where possible, a source familiar with the matter said. ($1 = 0.9117 euros) (Reporting by Toby Sterling in Amsterdam, Carolyn Cohn in London, Maya Nikolaeva and Gwenaelle Barzic in Paris, Alexander Hubner in Munich; Tom Sims in Frankfurt, Elvira Pollina, Stefano Bernabei and Valentina Za in Milan, Jesus Aguado in Madrid; Editing by Alexander Smith)