The European Commission has approved, under EU state aid rules, a UK guarantee scheme to support the trade credit insurance market in the context of the COVID-19 pandemic outbreak.

Trade credit insurance protects companies supplying goods and services against the risk of non-payment by their clients. Given the economic impact of the pandemic, the risk of insurers not being willing to maintain their insurance coverage has become higher.

The UK scheme ensures that trade credit insurance continues to be available to all companies, avoiding the need for buyers of goods or services to pay in advance, therefore reducing their immediate liquidity needs.  The measure has a maximum budget of approximately €11 billion (£10bn). The Commission assessed the measure under Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve state aid measures implemented by member states to remedy a serious disturbance in their economy.

The Commission found that the scheme notified by the UK is compatible with the principles set out in the EU Treaty and is well targeted to remedy a serious disturbance to the British economy.

The trade credit insurers have committed to the UK to maintain their level of protection as before the coronavirus outbreak in spite of the current difficulties,  the guarantee is limited to only cover trade credit originated until the end of this year;  the scheme is open to all credit insurers in the UK, the guarantee mechanism ensures risk sharing between the insurers and the state; and the guarantee fee provides a sufficient remuneration for the UK.

Source: Credit-Connect