Contract analysis

I. Executive Summary This memorandum addresses the ceded earned premium underreporting allegation raised by Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "PARL") in connection with Treaty Year 2022 ("TY 2022") under the aggregate excess-of-loss reinsurance treaty designated Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty"). Through its counsel, Hargrove, Fitch & Calloway LLP ("HFC"), Pinnacle Atlantic alleg

II. Scope and Limitations This memorandum is limited to the analysis of Treaty Article 3 and the premium reporting dispute arising thereunder. Cross-references are made to other Treaty articles — specifically, Articles 5, 6, 7, 11, and 22 — where necessary to provide context for the premium provisions, the dispute resolution mechanism, and the termination rights analysis. This memorandum does not address the three ot

III. Factual Background A. The 2019 Treaty — Overview On July 1, 2019, QC&S, as cedent, and Pinnacle Atlantic, as reinsurer, entered into Treaty No. PA-QCS-2019-EXL-0044, an aggregate excess-of-loss reinsurance treaty covering commercial general liability, excess and umbrella liability, and professional liability policies issued by QC&S during the treaty period. QC&S is a New York-domiciled stock property and casualt

Article 3 of the Treaty establishes the comprehensive framework for premium reporting, calculation, and adjustment between the parties. The premium provisions are structured in five subsections, each of which bears on the current dispute.

Article 3.1 — Quarterly Premium Reporting. Article 3.1 requires QC&S to report ceded earned premium to Pinnacle Atlantic on a quarterly basis within forty-five (45) days following the end of each calendar quarter. Premium reports are transmitted through the intermediary broker, Broadreach, in accordance with Article 9 of the Treaty. The quarterly premium bordereaux submitted by QC&S through Broadreach constitute the

Article 3.2 — Provisional Premium Rate and Slide-Scale Mechanism. Article 3.2 establishes a provisional treaty premium rate of 42% of ceded earned premium, payable by QC&S to Pinnacle Atlantic on a quarterly basis in connection with the premium reports submitted under Article 3.1. The provisional rate is subject to a slide-scale adjustment based on actual loss experience over the course of each treaty year. The slide

Article 3.3 — Annual and Final Adjustments. Article 3.3 provides that the slide-scale premium adjustment is to be calculated on an annual basis following the conclusion of each treaty year, with a final adjustment to be completed within thirty-six (36) months of the end of each treaty year. The annual adjustments are based on developed loss ratios as they emerge over time, and the final adjustment fixes the treaty pr

Article 3.4 — Definition of "Ceded Earned Premium" and Exclusions. Article 3.4 defines "ceded earned premium" for purposes of the Treaty's premium calculation. Ceded earned premium includes all earned premium on policies within the covered lines (commercial general liability, excess/umbrella liability, and professional liability) during the treaty year. Critically, Article 3.4 provides three express exclusions from t

Article 3.5 — Premium Dispute Resolution. Article 3.5 establishes a two-stage dispute resolution procedure for premium accounting disputes. In the first instance, premium disputes are to be raised and resolved through the intermediary broker (Broadreach) within sixty (60) days. If the dispute remains unresolved following the intermediary resolution process, it is subject to the general dispute resolution procedures o

IV. Legal Analysis: Article 3.4 Exclusion of Run-Off Portfolio Transfer Premiums A. Textual Interpretation of Article 3.4(a) The central question in the premium reporting dispute is whether the $6.8 million in premiums excluded by QC&S from its ceded earned premium calculation falls within the Article 3.4(a) exclusion for "premiums attributable to run-off portfolio transfer transactions." If it does, QC&S's premium r

Article 3.4(a) provides, in relevant part, that ceded earned premium shall exclude "premiums attributable to run-off portfolio transfer transactions." The analysis begins with the plain language of this provision. The term "run-off portfolio transfer transactions" is a recognized term of art in insurance and reinsurance practice. A portfolio transfer, in its most common form, refers to the transfer of an existing boo

V. Legal Analysis: Does Premium Underreporting Trigger a Treaty Termination Right? A. Treaty Provisions on Termination The Treaty's termination provisions are set forth primarily in Article 14, which governs the circumstances under which the Treaty may be terminated prior to the expiration of its stated term. A review of Article 14, as supplemented by related provisions elsewhere in the Treaty, reveals the following

VI. Legal Analysis: Offset and Premium Adjustment Remedies A. Pinnacle Atlantic's Right to Offset If Pinnacle Atlantic were to establish that QC&S underreported ceded earned premium for TY 2022 by $6,800,000, the appropriate contractual remedy would be a premium adjustment: QC&S would be obligated to pay Pinnacle Atlantic an additional amount of treaty premium calculated by applying the applicable premium rate to the

VII. Tactical Assessment A. Relative Significance Within the Overall Dispute The premium reporting dispute must be assessed in the context of the broader conflict between QC&S and Pinnacle Atlantic. The February 14, 2026 demand letter identifies four distinct grounds supporting Pinnacle Atlantic's claim, and the premium underreporting allegation is the smallest by dollar value: The total demand of $91 million ($78.4