May 14 (Bloomberg) — Insurance companies that provide protection to Sears Holdings Corp. suppliers have scaled back policies in recent months, people with knowledge of the matter said, following seven years of declining sales at the department-store chain.

Insurers such as Coface SA and American International Group Inc. have reduced the size of so-called trade credit policies for existing Sears vendors or declined to provide protection for new suppliers, according to the people, who asked not to be identified because the matter isn't public. AIG has cut the size of some new policies by as much as 50 percent, one person said.

Insurance companies sell policies to reimburse manufacturers if a retailer is unable to pay for their goods. With less coverage, vendors may decide to sell smaller quantities or even stop supplying products to Sears. They could also purchase credit derivatives, a more expensive way of insuring they are protected in the event of nonpayment.