Contract analysis

I. Executive Summary This memorandum presents Calderwood & Harkness LLP's analysis of the adequacy of the $75 million aggregate product-liability insurance tower maintained by Nexford Industrial Holdings Inc. ("Nexford" or "NIH") in connection with the 2022-2023 renewal cycle. The incumbent policy period runs from July 1, 2021 through July 1, 2022, with the renewal effective as of July 1, 2022. This analysis was unde

II. Scope and Methodology A. Scope of Analysis This analysis was commissioned pursuant to the C&H engagement letter dated April 22, 2022, which was executed by Douglas Fairchild on behalf of Calderwood & Harkness LLP and by Priya Sundaram, General Counsel & Corporate Secretary, on behalf of Nexford Industrial Holdings Inc. The engagement letter authorizes C&H to conduct a comprehensive review of Nexford's product-lia

III. Current Product-Liability Tower Structure A. Tower Composition (2021-2022 Policy Year: July 1, 2021 – July 1, 2022) Nexford's current product-liability insurance tower consists of four layers, structured as follows: Primary General Liability / Product Liability. The primary layer is placed with Midland Casualty & Surety Company, an Illinois-domiciled insurer. The Midland policy (Policy No. MCS-GL-2021-55671) pro

IV. Historical Loss Experience Analysis A. Five-Year Reported Claims Summary Over the trailing five-year period (approximately July 1, 2017 through the most recent available valuation date in April 2022), Nexford's three operating subsidiaries have reported a total of 12 product-liability claims to the carriers participating in the tower. Of these 12 claims, nine have been closed and three remain open and in active l

V. Catastrophic Loss Scenario Modeling A. Scenario Development Methodology In collaboration with KQAG, we developed three catastrophic loss scenarios designed to stress-test the $75 million product-liability tower against low-probability, high-severity loss events specifically calibrated to Nexford's product lines, operational profile, and risk characteristics. The scenarios are not predictions of future losses but r

VI. Industry and Peer Benchmarking A. Benchmarking Methodology To provide an external reference point for assessing the adequacy of Nexford's $75 million tower, KQAG compiled benchmarking data on product-liability insurance programs maintained by comparable industrial manufacturing companies. The benchmarking group was constructed to include companies with operational profiles, product lines, and risk characteristics

VII. Financial Context A. Nexford Financial Profile An assessment of product-liability tower adequacy is incomplete without consideration of the insured's financial profile, including its ability to absorb losses that exceed the tower's aggregate limit. The following financial data, drawn from Nexford's FY2021 audited financial statements (audited by Pemberton & Associates CPAs, LLP, Chicago, Illinois) and from infor

VIII. Kessler Quinn Advisory Group Actuarial Inputs A. IBNR Estimate KQAG estimates that Nexford's incurred but not reported ("IBNR") product-liability losses, as of the April 2022 valuation date, total approximately $2.1 million. This estimate represents losses arising from product-liability events that have occurred but have not yet been reported to Nexford or its insurers, typically because the claimant has not ye

IX. Key Risk Factors and Monitoring Recommendations While we conclude that the $75 million tower is adequate for Nexford's current risk profile, several risk factors warrant heightened monitoring and, in certain cases, proactive remedial action. These risk factors are discussed below. A. Increasing Claims Frequency As detailed in Section IV.D, claims frequency has approximately doubled in the most recent two years of