Contract analysis

I. Executive Summary This memorandum sets forth our analysis of the federal income tax treatment of the proposed asset-backed securitization transaction (the "Transaction") involving Quorum Receivables Funding 2022-1 LLC ("QRF 2022-1" or the "Issuer"). The Transaction contemplates a $500,000,000 issuance of asset-backed notes (the "Notes"), to be offered in a Rule 144A / Regulation S private placement, secured by a p

II. Transaction Overview A. Parties and Structure The Transaction involves the following principal entities and participants: Quorum Insurance Holdings Corp. ("QIH") is a Delaware corporation that is publicly traded on the New York Stock Exchange under the ticker symbol "QIHC." QIH is headquartered at 400 Atlantic Street, Suite 2200, Stamford, Connecticut 06901. QIH's Employer Identification Number is 82-4391067. QIH

III. Entity Classification of QRF 2022-1 A. Check-the-box Election Under Treasury Regulations §§ 301.7701-1 through -3 The threshold federal income tax question in structuring the Transaction is the entity classification of QRF 2022-1 for federal income tax purposes. Under the "check-the-box" regulations promulgated under Sections 7701(a)(2) and (3) of the Internal Revenue Code of 1986, as amended (the "Code"), the c

IV. True Sale Analysis for Federal Income Tax Purposes A. Significance of True Sale Characterization The characterization of the transfers of receivables — from QPF to QRH, and from QRH to QRF 2022-1 — as "true sales" versus "secured financings" is a fundamental structural question in any securitization transaction. The distinction has significant implications for bankruptcy law, UCC law, accounting treatment, and, i

1. Benefits and Burdens of Ownership. A fundamental factor in the true sale analysis is whether the economic benefits and burdens of ownership of the receivables have been transferred from the seller to the purchaser. In the Transaction, QRF 2022-1 (as the ultimate holder of the receivables) bears the credit risk on the receivables, subject to the credit enhancement provided by subordination, overcollateralization, a

2. Transfer of Legal Title and Control. The RSA and the RTA provide for the assignment and transfer of legal title to the receivables from QPF to QRH and from QRH to QRF 2022-1. UCC financing statements will be filed to perfect the transfers as sales (or, in the alternative, as grants of security interests). QRF 2022-1, through Calvoneth Trust Company, N.A. as Custodian, will have possession of the receivable files,

3. Risk of Loss and Opportunity for Gain. The risk of loss on the receivables is borne by the noteholders and the retained interest holder. If obligors default on their premium finance loans, the resulting losses reduce the collections available to pay the Notes, with the retained interest absorbing the first losses, followed by the Class C Notes, the Class B Notes, and ultimately the Class A Notes. QPF does not bear

4. Arm's-Length Pricing. The purchase price for the receivables under the RSA is intended to reflect the fair value of the receivables at the time of each transfer. The purchase price will be determined as a percentage of the outstanding principal balance of the receivables, with a discount from face value to reflect credit risk, servicing costs, and the time value of money. The arm's-length nature of the pricing is

5. Intent of the Parties. The Transaction documents expressly characterize the transfers as "true sales" for legal, accounting, and tax purposes. The RSA and the RTA include precautionary "back-up" grants of security interests in favor of the purchaser, which are standard market practice in securitization transactions and are designed to protect the purchaser in the event that the transfer is recharacterized as a fin

6. Recourse. QPF does not provide recourse or a guaranty of the performance of the receivables beyond the standard representations and warranties in the RSA (including representations as to the eligibility, enforceability, and accuracy of the receivables). QIH will execute a Performance Guaranty in favor of QRF 2022-1, but the Performance Guaranty covers only QPF's obligations as Servicer and Seller (e.g., the obliga

V. Debt vs. Equity Treatment of the Notes A. Significance The treatment of the Notes as debt — rather than equity — for federal income tax purposes is a critical element of the Transaction's tax structure. The consequences of debt versus equity characterization differ fundamentally: If the Notes are treated as debt for federal income tax purposes, QIH (as the tax owner of QRF 2022-1 through the chain of disregarded e

1. Class A Notes ($375,000,000) The Class A Notes are the most senior tranche in the capital structure and present the strongest case for debt characterization. We analyze the relevant factors as follows: Fixed Maturity. The Class A Notes have a legal final maturity date of 42 months from the closing date. The obligation to repay the principal of the Class A Notes is definite and unconditional, subject only to the av

2. Class B Notes ($75,000,000) The Class B Notes share many of the same structural features as the Class A Notes but occupy a subordinate position in the payment waterfall. We analyze the relevant factors as follows: Fixed Maturity. The Class B Notes have the same legal final maturity date as the Class A Notes — 42 months from the closing date. The obligation to repay the principal of the Class B Notes is definite an

3. Class C Notes ($35,000,000) The Class C Notes are the most junior rated tranche in the capital structure and require the most careful analysis under the debt-equity framework. We analyze the relevant factors as follows: Fixed Maturity. The Class C Notes have the same legal final maturity date as the other tranches — 42 months from the closing date. The presence of a definite maturity date supports debt characteriz

4. Overcollateralization / Retained Interest ($15,000,000) The $15,000,000 overcollateralization/retained interest represents 3.0% of the total capital structure and is unrated. This interest is subordinate to all three rated tranches of Notes and absorbs the first losses on the receivables pool. The retained interest is entitled to residual cash flows remaining after all obligations to the noteholders have been sati

VI. Tax Consequences to QIH as Sponsor A. Interest Deductibility Because QRF 2022-1 is a disregarded entity of QIH (through the chain of disregarded entities), the interest payments on the Notes are treated as interest expense of QIH for federal income tax purposes. QIH is entitled to deduct interest payments on the Notes as business interest expense under Section 163(a) of the Code, subject to the following limitati

Section 163(j) Business Interest Limitation. Section 163(j) of the Code, as amended by the Tax Cuts and Jobs Act of 2017, limits the deduction for business interest expense to the sum of (i) business interest income, (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the taxable year, and (iii) floor plan financing interest. For taxable years beginning after December 31, 2021, ATI is computed without the