Contract analysis

I. Executive Summary Calderwood & Harkness LLP ("C&H") was retained on August 19, 2025, pursuant to the August 12, 2025 directive of the Audit & Compliance Committee (the "Committee") of the Board of Directors of Quorum Insurance Holdings Corp. ("QIH" or the "Company"), to conduct a comprehensive market-conduct compliance refresh across all of QIH's regulated insurance subsidiaries and its managing general agent affi

II. Background and Engagement Overview A. Triggering Events The current compliance refresh engagement was precipitated by a series of interconnected regulatory and internal events spanning approximately two years. In September 2023, the Connecticut Department of Insurance initiated a coordinated multi-state market-conduct examination of Quorum Indemnity Insurance Company under the National Association of Insurance Co

III. Phase 1 Assessment Findings and Remediation Priorities The Phase 1 assessment, detailed in the Preliminary Assessment Memorandum delivered on October 3, 2025 (Appendix A), involved an exhaustive review of regulatory examination materials, internal audit findings, existing compliance policies and procedures, claims-handling data, advertising archives, and complaint logs across all three carrier subsidiaries and P

1. Claims-Handling Timeliness (6 Findings) The claims-handling timeliness category accounted for six of the fourteen formal findings and represents the single most significant area of regulatory exposure. The examination universe comprised a total of 12,400 claims files processed by QIIC during the examination period of January 1, 2021 through December 31, 2023. The FL OIR examiners selected a statistical sample of 6

2. Advertising and Marketing Violations (5 Findings) Five of the fourteen formal findings relate to advertising and marketing violations, reflecting a significant failure of QIIC's advertising compliance controls. During the course of the examination and the parallel CDI investigation, a total of 43 unique non-compliant digital advertising creatives were identified across multiple digital channels, including Severin

3. Complaint-Handling Procedures (3 Findings) The remaining three formal findings relate to QIIC's complaint-handling procedures. The FL OIR examiners identified failures to log and respond to consumer complaints within the statutory deadlines applicable in three states. The deficiencies in this category are particularly concerning when viewed against QIIC's complaint ratios relative to industry benchmarks. QIIC's 20

IV. Florida Office of Insurance Regulation — CAP Implementation Status A. CAP Timeline and Milestones On July 1, 2025, QIIC submitted a Corrective Action Plan to FL OIR in response to the fourteen formal findings contained in the final examination report. The CAP outlined QIIC's proposed remediation steps, responsible personnel, and implementation timelines for each finding. On July 28, 2025, FL OIR accepted the CAP

V. California Department of Insurance — Order to Show Cause A. Background On June 18, 2025, the California Department of Insurance issued an Order to Show Cause directed at QIIC regarding advertising violations within the State of California. The CDI action is related to, but distinct from, the FL OIR examination findings, and focuses specifically on a subset of the 43 non-compliant digital advertising creatives that

VI. NYDFS Regulation 64 Compliance Posture The New York Department of Financial Services Regulation 64 (11 NYCRR Part 216) governs claims prompt-pay requirements for insurers operating in the State of New York. Regulation 64 imposes specific timeframes for acknowledgment of claims, investigation, and payment, and provides for penalties and enforcement actions in the event of non-compliance. As a property-casualty ins

VII. Financial Summary — Penalties and Remediation Costs A. Regulatory Penalties Paid and Assessed The following table summarizes the regulatory penalties paid and assessed to date in connection with the market-conduct examination findings and enforcement actions: In addition to the penalties reflected above, QIIC faces potential additional penalty exposure arising from the CDI Order to Show Cause. The amount of any

VIII. Training Program Status A. Overview Phase 3 of the engagement — Training & Implementation — is scheduled for November 17, 2025 through December 5, 2025, a window of approximately 2.5 weeks. The training program is a critical component of the overall remediation effort, as it will operationalize the revised SOPs and compliance procedures drafted during Phase 2 and ensure that all affected personnel understand an

IX. Residual Risk Assessment and Anticipated Examinations A. Anticipated Follow-Up Examinations (Q4 2025 / Q1 2026) Based on the current regulatory landscape and C&H's experience with similar multi-state market-conduct matters, the following follow-up examinations are anticipated: The timing and scope of these examinations are not confirmed and may vary depending on regulatory priorities, resource availability, and t

1. CAP Compliance Deadline Risk. There is a risk that certain remediation measures — particularly the technology and systems upgrades requiring $680,000 in investment and coordination with QIH's IT department — may not be fully implemented by the December 31, 2025 CAP compliance certification deadline. The claims management system alert configuration and the centralized complaint-tracking platform deployment both dep

2. QSU and QLA Examination Risk. The FL OIR coordinated examination focused on QIIC. However, the Phase 1 assessment and Internal Audit Report No. IA-2025-017 identified compliance gaps in QSU (licensed in 22 states) and QLA (licensed in 19 states) that mirror many of the QIIC deficiencies. If either QSU or QLA is subjected to an independent market-conduct examination — whether initiated by the domiciliary state, a c

3. Pinnacle Bridge MGA Oversight Risk. The fact that 72.1% of non-compliant advertising originated from Pinnacle Bridge MGA's in-house marketing team highlights a significant governance and oversight challenge. The revised advertising review and filing SOP includes Pinnacle Bridge-specific provisions, and the Phase 3 training program includes dedicated content for Pinnacle Bridge marketing personnel. However, the dec

4. Elevated Complaint Ratios. The complaint ratios across all three QIH subsidiaries remain significantly above the NAIC median. While the complaint-handling remediation efforts (revised SOPs, centralized tracking, training) will improve the Company's procedural compliance, sustained reduction of complaint ratios to levels at or below the NAIC median will require ongoing investment in customer service quality, claims

5. CDI Penalty Uncertainty. The CDI Order to Show Cause hearing has been conducted, but the outcome remains pending. The potential penalty amount is not determinable at this time. A significant penalty, or an adverse finding that imposes conditions beyond those already contemplated in the remediation plan, could require adjustments to the timeline, budget, or scope of the engagement.

6. Additional State Inquiry Risk. The identification of non-compliant advertising in Illinois and Ohio creates potential exposure to inquiries or enforcement actions from the Illinois Department of Insurance and the Ohio Department of Insurance. While no formal actions have been initiated by those states to date, the advertising violations occurred within their jurisdictions, and the FL OIR examination findings have

7. Reputational and Securities Disclosure Risk. As a Nasdaq-listed company (ticker: QIHC), QIH is subject to securities disclosure obligations under Regulation S-K and the Securities Exchange Act of 1934. The existence of material regulatory findings, enforcement actions, and a compliance remediation program of this magnitude may trigger disclosure obligations in QIH's periodic reports (Forms 10-K and 10-Q) and proxy

X. Recommendations for Ongoing Board Oversight and Governance Enhancements Based on the Phase 1 assessment findings, the current remediation progress, and the residual risks identified above, C&H recommends the following governance enhancements to ensure sustained improvement in QIH's market-conduct compliance posture beyond the conclusion of the current engagement. A. Governance Structure Quarterly Market-Conduct Co