CPP’s milestone in trade talks with watchdog

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SHARES in card insurer CPP Group rose x per cent yesterday after the group said it is making progress with the Financial Services Authority’s investigation into the mis-selling of products.

York-based CPP said that while it is still uncertain about the duration and outcome of the probe, which was launched in March last year, it has agreed a framework with the Financial Services Authority (FSA) for the operation of its regulated UK businesses.

Under the framework, restrictions on new retail sales of regulated card protection and identity protection products will continue and will be extended to other business areas including mobile phone insurance.

CPP’s chief executive Paul Stobart said: “This is a positive step. It’s an important milestone in the turnaround of the business. We’ve established this agreement in principle with the FSA about where we can and can’t trade.

“It’s a new baseline from which to go forward. We hope we can go back to the FSA in the next six months and reapply for those permissions. The onus is on us to get ourselves fit for purpose.”

He added that he is hopeful that the investigation can be brought to a close by the end of this year or early 2013.

The shares rose xp to close at xp despite the group’s warning that its performance in 2013 is expected to be “materially lower than 2012”.

Looking forward, the group believes trading will continue to be difficult, most notably in the UK.

This is due to a combination of the decline in new retail business and the impact of customer compensation, which will hit revenues and renewal rates next year.

Mr Stobart said that the group’s performance for the rest of this year should continue in line with recent trends.

CPP said underlying operating profits have fallen as a result of its UK performance and group revenues fell six per cent in the four months to October 26.

It said the fall in underlying operating profits slowed down compared with the first half as cost-saving measures took effect. The group has announced 150 voluntary redundancies and now employs 990 in the UK and 1,573 in total.

Over the past four months renewal rates have decreased by 0.6 per cent to 74.1 per cent with live policies down by 500,000.

The group has made a £24.9m provision for customer compensation and associated costs of the FSA probe.

As part of the deal with the FSA, restrictions on asset dispositions will be extended to cover both Card Protection Plan Ltd (CPPL) and Homecare Insurance.

CPP said it had also agreed with the FSA that CPPL would not participate in future group borrowing arrangements or offer its assets as security related to the group’s borrowings.

This is expected to come into effect in 2013.

The company said these measures would not affect the security for its revolving credit facility, which is due to expire in March 2013, but that the measures could impact its ability to raise debt finance.

It is assessing a range of financing options with its lenders.

Analysts at JP Morgan Cazenove said in a note: “While the eventual outcome of the FSA investigation remains uncertain, we believe progress has been made in respect of developing a framework for the operation of CPP’s regulated UK entities.

“The framework provides some clarity as to what CPP can and cannot do. The key features include restrictions on new retail sales of mobile phone insurance (in addition to the restrictions on card and identity), restrictions on asset dispositions and the appointment of an external monitor to review complaints and claims handling.

“Current trading continues to follow the trends prevailing at the half year results, although growth has been less strong in North America.”

The FSA’s probe has rocked the company and battered its share price. But yesterday Mr Stobart said the group has made important progress with the FSA while at the same time it has put in place its new, customer-led strategy and is addressing past shortcomings.

“We have a clear road map that will ultimately allow us to establish a market leading customer service organisation in the UK that can offer customers a broad range of innovative, compelling and affordable retail products.

“We are very focused on working closely and co-operatively with the FSA to achieve this.

“Importantly, we continue to trade profitably, with a net funds position and millions of customers who truly value our products and the service we provide to them.”

He added that he is confident the progress the group is making will provide a strong platform to move the business forward.

CPP was founded by entrepreneur Hamish Ogston in 1980.