Contract analysis

I. EXECUTIVE SUMMARY The purpose of this memorandum is to provide the Board Audit Committee of Quorum Insurance Holdings Corp. ("QIH") with a comprehensive analysis of the reinsurance recoverable dispute with Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "PARL") and to recommend settlement authority parameters for use by QIH's General Counsel, Rachel Sondergaard, in connection with any negotiation, media

II. BACKGROUND OF THE DISPUTE A. The Parties

1. Quorum Insurance Holdings Corp. Quorum Insurance Holdings Corp. ("QIH") is a Delaware corporation headquartered at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103. QIH's common stock is listed on the Nasdaq Global Select Market under the ticker symbol "QIHC." QIH is a diversified, multi-line insurance holding company that underwrites commercial property and casualty insurance, specialty lines, and

2. Quorum Casualty & Surety Company Quorum Casualty & Surety Company ("QC&S") is a New York-domiciled stock property and casualty insurance company, NAIC No. 24891, and the principal insurance subsidiary of QIH. QC&S is licensed in all fifty states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. QC&S underwrites commercial general liability, excess and umbrella liability, professional liability (

3. Pinnacle Atlantic Reinsurance Ltd. Pinnacle Atlantic Reinsurance Ltd. ("PARL" or "Pinnacle Atlantic") is a Bermuda-domiciled Class 4 insurer registered with the Bermuda Monetary Authority under Registration No. BMA-4R-2008-0331. Pinnacle Atlantic's registered office is located at Clarendon House, 14 Church Street, Hamilton HM 11, Bermuda. Pinnacle Atlantic maintains a United States office at 1285 Avenue of the Ame

III. MERITS ASSESSMENT — CLAIM-BY-CLAIM ANALYSIS This section provides C&H's assessment of the merits of each of Pinnacle Atlantic's four claims, including the positions likely to be advanced by each party, the applicable legal standards, the strength of the evidence as currently understood, and probability-weighted assessments of likely outcomes. These assessments are based on our review of the Treaty, the Pinnacle

1. Pinnacle Atlantic's Position Pinnacle Atlantic contends that QC&S violated Article 7 of the Treaty by failing to provide notice of the Meridian Docks mass tort cluster for fourteen months and seven days following the initial establishment of reserves. Article 7 of the Treaty requires QC&S to provide "prompt notice" to Pinnacle Atlantic through the intermediary of any individual claim or loss occurrence that may re

2. QC&S's Defense QC&S's defense to the late-notice claim rests on three principal grounds. First, QC&S contends that Article 7 of the Treaty must be read in conjunction with Exhibit B, which establishes an individual claim reporting threshold of $1,000,000 per claim. None of the individual Meridian Docks claims exceeded $1,000,000 in case reserves until reserve increases were posted in the first quarter of 2022. Pri

3. Probability Assessment Based on our analysis, we assess the probabilities as follows: • Likelihood Pinnacle Atlantic prevails on late notice as a complete bar to recovery of TY 2022 cessions: Low (15–20%). New York courts and reinsurance arbitration panels generally require a showing of actual prejudice in the reinsurance context, and the burden of establishing prejudice falls on the reinsurer. Pinnacle Atlantic's

1. Pinnacle Atlantic's Position The IBNR allocation issue is the core of Pinnacle Atlantic's claim and the primary driver of the disputed recoverable amount. Pinnacle Atlantic contends that $22.3 million in IBNR reserve strengthening that QC&S allocated to TY 2022 (the treaty year running from July 1, 2022 to June 30, 2023) in fact relates to accident-year 2021 loss exposures and should have been allocated to TY 2021

2. QC&S's Defense QC&S's defense rests on the analysis performed by its independent actuarial consultants, Velthorn Actuarial Advisors LLC ("Velthorn"), under the direction of Dr. Stephen Tanaka, FCAS, MAAA. Dr. Tanaka's analysis concluded that the $22.3 million IBNR development relates to accident-year 2022 loss exposures — specifically, claims whose loss development factors crystallized during TY 2022, meaning the

3. Probability Assessment This is the most substantively contested issue in the dispute and the primary driver of settlement value. IBNR allocation between accident years and treaty years in the context of aggregate excess-of-loss reinsurance treaties is an area where legitimate technical disagreement exists among actuaries and reinsurance professionals. The Treaty's language in Article 5.2, while not ambiguous on it

1. Pinnacle Atlantic's Position Pinnacle Atlantic's third ground challenges QC&S's settlement of the Veridian Financial Services E&O cluster, which consisted of three related errors and omissions claims arising under QC&S Professional Liability Policy No. PL-2021-15327. The three claims, designated by QC&S as Claim A, Claim B, and Claim C, were settled in aggregate for $34,500,000 on September 8, 2023, structured as

2. QC&S's Defense QC&S will vigorously defend the Veridian settlement on multiple grounds. The follow-the-fortunes doctrine is a bedrock principle of reinsurance law, well-established under New York law and consistently applied by reinsurance arbitration panels. Under this doctrine, a reinsurer is bound by the cedent's good-faith claims-handling decisions, including settlement decisions, and may not second-guess the

3. Probability Assessment • Likelihood Pinnacle Atlantic prevails on follow-the-fortunes challenge: Low (10–15%). The bad-faith standard is extraordinarily difficult to meet in the absence of evidence of collusion, self-dealing, or manifest unreasonableness. Pinnacle Atlantic's demand letter does not identify specific evidence of bad faith beyond the allegation of inflated settlement amounts. Absent a "smoking gun" i

1. Pinnacle Atlantic's Position Pinnacle Atlantic's fourth ground alleges that QC&S underreported ceded earned premium for TY 2022 by $6,800,000. QC&S reported ceded earned premium of $38,400,000 for TY 2022, while Pinnacle Atlantic calculates the correct amount as $45,200,000, based on its own analysis of the policies subject to the Treaty. At the provisional premium rate of 42%, this discrepancy results in a claime

2. QC&S's Defense QC&S contends that the $6,800,000 discrepancy arises entirely from Pinnacle Atlantic's improper inclusion of premiums attributable to a run-off portfolio transfer that QC&S completed during TY 2022. Article 3.4 of the Treaty expressly excludes "premiums attributable to portfolio transfers, novations, or run-off arrangements" from the definition of ceded earned premium. QC&S's reported figure of $38,

3. Probability Assessment • Likelihood Pinnacle Atlantic prevails on premium underreporting claim: Low (15–20%). The Article 3.4 exclusion for run-off portfolio transfer premiums appears clear on its face, and QC&S's premium reporting methodology is consistent with the exclusion. Pinnacle Atlantic's calculation appears to have been prepared without reference to the Article 3.4 exclusion, and its demand letter does no

IV. RISK-ADJUSTED EXPOSURE ANALYSIS A. Scenario Modeling To quantify QC&S's risk-adjusted exposure and inform the recommended settlement authority, C&H has modeled four scenarios reflecting the range of potential outcomes in arbitration or litigation. Each scenario incorporates the claim-by-claim probability assessments set forth in Section III above and applies them to the financial parameters of the dispute. These

V. LITIGATION AND ARBITRATION COST ANALYSIS A. Estimated Costs Through Resolution C&H has prepared the following estimate of legal fees and costs through the conclusion of arbitration or litigation, organized by phase. These estimates assume a contested ARIAS-U.S. arbitration proceeding with a full evidentiary hearing, including witness and expert testimony. Actual costs will depend on the scope and duration of pre-h

VI. FINANCIAL IMPACT ANALYSIS A. QC&S Statutory Surplus Impact The following table summarizes the impact on QC&S's statutory surplus under the settlement range and comparison scenarios: In all modeled scenarios — including the worst case — QC&S's statutory surplus remains comfortably above the $1,100,000,000 minimum statutory surplus covenant contained in QIH's $750,000,000 senior secured revolving credit facility (t

VII. ADDITIONAL STRATEGIC CONSIDERATIONS A. Arbitration vs. Litigation Forum C&H has prepared a separate, detailed memorandum analyzing the relative advantages and risks of the arbitration and litigation forums available for resolution of this dispute (the "Arbitration vs. Litigation Forum Analysis Memorandum," dated March 20, 2026, C&H Matter No. 1025-00005-002). The conclusions of that analysis are summarized here.