DRAFT — May 14, 2021 / Revised May 25, 2021 SUBJECT TO COMPLETION CONFIDENTIAL — NOT FOR FILING
PROSPECTUS SUPPLEMENT (To Prospectus dated September 18, 2020)
Filed Pursuant to Rule 424(b) Registration No. 333-248710
QUORUM INSURANCE HOLDINGS CORP.
3,000,000 Shares Common Stock
Quorum Insurance Holdings Corp. (the "Company," "Quorum," "we," "us," or "our") is offering 3,000,000 shares of its common stock, par value $0.01 per share (the "Firm Shares"), pursuant to this prospectus supplement and the accompanying base prospectus.
Our common stock is listed on the Nasdaq Global Select Market under the symbol "QIHC." On May 7, 2021, the last reported sale price of our common stock on the Nasdaq Global Select Market was $16.00 per share.
The public offering price per share is $[●].
Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page S-8 of this prospectus supplement and in the documents incorporated by reference herein.
We have granted the Underwriter (as defined below) a 30-day option to purchase up to 450,000 additional shares of common stock at the public offering price less the underwriting discount to cover over-allotments, if any.
Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The Underwriter expects to deliver the shares of common stock to purchasers on or about [●], 2021.
Sole Book-Running Manager
Greystone Harwick & Co., LLC
The date of this prospectus supplement is [●], 2021.
Prepared by Calderwood & Harkness LLP C&H Matter No. 1025-00001 DRAFT — NOT FOR FILING
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement relates to the offering of shares of common stock of Quorum Insurance Holdings Corp. and supplements the accompanying base prospectus dated September 18, 2020 (the "Base Prospectus"), which is part of our registration statement on Form S-3 (File No. 333-248710) filed with the SEC and declared effective on September 18, 2020 (the "Registration Statement"). This prospectus supplement and the accompanying Base Prospectus are part of the Registration Statement.
You should read this prospectus supplement, the accompanying Base Prospectus, any free writing prospectus that we may authorize for use in connection with this offering, and the additional information described under "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" before investing in our common stock. This prospectus supplement adds to, updates, and changes information contained in the accompanying Base Prospectus. To the extent that any statement in this prospectus supplement is inconsistent with statements made in the accompanying Base Prospectus or any documents incorporated by reference therein that were filed prior to the date of this prospectus supplement, the statements made in this prospectus supplement will be deemed to modify and supersede those made in the accompanying Base Prospectus and such documents incorporated by reference.
Neither the delivery of this prospectus supplement and the accompanying Base Prospectus, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in our affairs since the date of this prospectus supplement or that the information contained or incorporated by reference herein is correct as of any time subsequent to the date of this prospectus supplement, except as otherwise expressly stated herein. You should assume that the information appearing in this prospectus supplement and the accompanying Base Prospectus, and the documents incorporated by reference herein and therein, is accurate only as of the respective dates on the front covers of those documents or the dates of those documents, as applicable.
Neither the Company, its subsidiaries, nor Greystone Harwick & Co., LLC (the "Underwriter") has authorized anyone to provide you with different or additional information from that contained or incorporated by reference in this prospectus supplement and the accompanying Base Prospectus or any free writing prospectus that we may authorize for use in connection with this offering. We take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you.
This prospectus supplement is not an offer to sell, or a solicitation of an offer to buy, shares of our common stock in any jurisdiction where the offer or sale is not permitted. No action is being taken in any jurisdiction outside the United States to permit a public offering of shares of our common stock. Persons outside the United States who come into possession of this prospectus supplement must inform themselves about, and observe any restrictions relating to, the offering of shares of our common stock and the distribution of this prospectus supplement outside the United States.
Unless otherwise stated or the context otherwise requires, references in this prospectus supplement to "Quorum," the "Company," "we," "us," and "our" refer to Quorum Insurance Holdings Corp. and its consolidated subsidiaries.
PROSPECTUS SUPPLEMENT SUMMARY
The following summary highlights selected information contained elsewhere in this prospectus supplement, the accompanying Base Prospectus, and the documents incorporated by reference herein and therein. This summary does not contain all of the information you should consider before investing in our common stock. You should carefully read this entire prospectus supplement, the accompanying Base Prospectus, any free writing prospectus that we may authorize for use in connection with this offering, and the documents incorporated by reference herein and therein, including the "Risk Factors" sections and our financial statements and the notes thereto.
The Company. Quorum Insurance Holdings Corp. is a Delaware corporation headquartered at 200 Constitution Plaza, Suite 3100, Hartford, CT 06103. We are a specialty insurance underwriting and insurance-technology holding company that has built a diversified platform focused on attractive specialty insurance markets where we believe our underwriting expertise and technology capabilities provide meaningful competitive advantages.
We operate through two principal insurance subsidiaries:
• Quorum Specialty Insurance Company, a Connecticut-domiciled insurance company (Connecticut Department of Insurance entity no. 47832), which focuses on professional liability, cyber liability, and management liability lines of business. Quorum Specialty writes policies on both an admitted and non-admitted basis and maintains strong relationships with a diversified network of wholesale and retail distribution partners across the United States. As of December 31, 2020, Quorum Specialty accounted for approximately 68% of the Company's consolidated gross written premium.
• Quorum National Casualty Co., a Delaware-domiciled insurance company (Delaware Department of Insurance entity no. 10591), which underwrites excess and surplus ("E&S") casualty business, including general liability, excess liability, and miscellaneous professional liability. Quorum National benefits from the flexibility of the E&S market, which allows for customized policy forms and non-regulated pricing, and the Company believes this subsidiary is well-positioned to capitalize on favorable rate trends in the E&S market. As of December 31, 2020, Quorum National accounted for approximately 32% of the Company's consolidated gross written premium.
In addition to our insurance subsidiaries, we operate a wholly owned technology subsidiary, QuorumEdge Technology Solutions, Inc., a Delaware corporation ("QuorumEdge"). QuorumEdge has developed a proprietary InsurTech platform that provides automated underwriting decision support, claims processing workflow management, and digital distribution capabilities. The QuorumEdge platform currently processes approximately 35% of new business submissions across the Company's insurance subsidiaries, and management has set a target of processing 50% of new business submissions through the platform by year-end 2022. We believe that the QuorumEdge platform enhances our underwriting efficiency, reduces operating expenses, improves the accuracy of risk selection, and strengthens our competitive position relative to both traditional specialty insurers and emerging InsurTech competitors.
For the fiscal year ended December 31, 2020, our combined gross written premium was approximately $412 million. Management expects mid-single-digit premium growth in fiscal year 2021, driven primarily by rate hardening in our specialty insurance lines, particularly in our professional liability, cyber liability, and E&S casualty portfolios. We believe the current favorable pricing environment, combined with our underwriting discipline and technology-driven efficiencies, positions us well for sustained profitable growth.
Our common stock is listed on the Nasdaq Global Select Market under the symbol "QIHC." Our employer identification number ("EIN") is 82-3741956, our Central Index Key ("CIK") is 0001784203, and the CUSIP number for our common stock is 74917R108.
The Offering. The following summary contains basic information about this offering. It does not contain all of the information you should consider before investing. For a more complete understanding of this offering, you should carefully read this entire prospectus supplement, the accompanying Base Prospectus, any free writing prospectus that we may authorize for use in connection with this offering, and the documents incorporated by reference herein and therein.
Summary Financial Data
The following table sets forth our summary consolidated financial data for the periods and as of the dates indicated. The summary consolidated financial data for the fiscal year ended December 31, 2020 have been derived from our audited consolidated financial statements, which have been audited by Carver, Bain & Associates LLP, our independent registered public accounting firm. The summary consolidated financial data for the three months ended March 31, 2021 have been derived from our unaudited interim consolidated financial statements. Our unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. Interim results are not necessarily indicative of results for the full fiscal year.
You should read the following table in conjunction with our consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, each of which is incorporated by reference herein.
Our approximate market capitalization as of May 2021 was approximately $610 million, based on approximately 38,125,000 shares of common stock outstanding and the closing price of $16.00 per share on May 7, 2021.
RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the following risk factors, as well as the risk factors described in the accompanying Base Prospectus and in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, each of which is incorporated by reference herein, and any risk factors described in our subsequent filings with the SEC that are incorporated by reference herein. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected, the trading price of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business, financial condition, and results of operations.
Risks Related to This Offering
The issuance of shares of common stock in this offering will dilute the ownership interest of our existing stockholders.
We are offering 3,000,000 shares of our common stock in this offering (or 3,450,000 shares if the Underwriter exercises its over-allotment option in full). The issuance of these shares will dilute the ownership percentage and voting power of our existing stockholders. Upon completion of this offering (assuming the over-allotment option is not exercised), our existing stockholders will hold approximately 92.7% of our outstanding common stock, compared to 100% prior to the offering. If the Underwriter exercises its over-allotment option in full, our existing stockholders will hold approximately 91.7% of our outstanding common stock following completion of the offering. Such dilution may adversely affect the market price of our common stock and the per share metrics by which investors evaluate our performance, including earnings per share and book value per share.
The market price of our common stock may decline below the offering price, and you may not be able to resell your shares at or above the offering price.
The market price of our common stock has historically been, and may continue to be, subject to significant fluctuations. On May 7, 2021, the last reported sale price of our common stock on the Nasdaq Global Select Market was $16.00 per share. The public offering price for shares sold in this offering may be at, above, or below the market price of our common stock on the pricing date or at any time thereafter. We cannot assure you that the market price of our common stock will not decline below the public offering price. As a result, purchasers of our common stock in this offering may not be able to resell their shares at or above the public offering price, or at all. The market price of our common stock may be influenced by many factors, some of which are beyond our control, including variations in our quarterly or annual financial results, changes in financial estimates by securities analysts, conditions and trends in the specialty insurance industry, changes in the market valuations of other insurance companies, regulatory developments, announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, or other business developments, additions or departures of key personnel, and general market and economic conditions.
Future sales of our common stock may depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that such sales may occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. Upon completion of this offering, we will have 41,125,000 shares of common stock outstanding (or 41,575,000 shares if the Underwriter exercises its over-allotment option in full). All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares purchased by our affiliates as defined in Rule 144 under the Securities Act. In addition, upon the expiration of the 90-day lock-up period applicable to our directors, executive officers, and holders of 5% or more of our outstanding common stock, the shares held by such persons will become eligible for sale in the public market, subject to the volume, manner of sale, and other limitations of Rule 144. The release of shares upon expiration of the lock-up period could result in additional selling pressure and could adversely affect the market price of our common stock.
Management will have broad discretion in the use of the net proceeds from this offering, and you may not agree with how we use them.
Our management will have broad discretion in applying the net proceeds of this offering. We intend to use the net proceeds from this offering for general corporate purposes, including potential acquisitions of specialty insurance books of business and continued investment in our QuorumEdge platform. However, we have not identified specific uses for all of the net proceeds, and our management retains broad discretion to allocate such proceeds as it deems appropriate. You may not agree with the manner in which our management elects to use the net proceeds, and the net proceeds may be used in a manner that does not increase the value of your investment. Until we deploy the net proceeds, we may invest them in short-term, investment-grade securities, which may generate only modest returns. Our failure to apply the net proceeds effectively could have a material adverse effect on our business and could cause the market price of our common stock to decline.
Risks Related to the Company's Business
Our insurance subsidiaries are subject to extensive regulatory supervision, and restrictions on upstream dividends from our insurance subsidiaries may limit our parent company's access to cash flows.
Our insurance subsidiaries, Quorum Specialty Insurance Company and Quorum National Casualty Co., are subject to regulation and supervision by the Connecticut Department of Insurance and the Delaware Department of Insurance, respectively. These regulatory bodies impose various requirements and restrictions relating to, among other things, licensing, rates, policy forms, capital and surplus adequacy, risk-based capital, reserves, reinsurance, investments, transactions with affiliates, changes of control, and reporting. Our insurance subsidiaries may not declare or pay dividends in excess of certain statutory limitations without the prior approval of their domiciliary insurance regulators. The ordinary dividend capacity of Quorum Specialty Insurance Company for 2021 is approximately $19.5 million, and any dividends in excess of this amount would require prior approval from the Connecticut Department of Insurance (so-called "extraordinary dividends"). Similarly, Quorum National Casualty Co. is subject to dividend limitations under Delaware insurance law. These restrictions may limit the ability of our insurance subsidiaries to pay dividends to the parent company, which could constrain our ability to fund operations, service indebtedness, pay dividends on our common stock, or pursue strategic opportunities at the holding company level.
Our insurance subsidiaries are exposed to catastrophic events and our loss reserves may prove inadequate.
Our insurance subsidiaries are exposed to losses arising from natural catastrophes (such as hurricanes, earthquakes, and severe storms), man-made catastrophes (such as acts of terrorism and industrial accidents), and other significant loss events. The frequency and severity of catastrophic events are inherently unpredictable, and actual losses may significantly exceed our reserves and our estimates of probable maximum loss. We establish reserves for reported claims and reserves for incurred but not reported ("IBNR") claims based on actuarial estimates and assumptions that are subject to significant uncertainty. If our loss reserves prove to be inadequate, we would be required to strengthen such reserves, which could materially and adversely affect our results of operations and financial condition. Additionally, catastrophic events may reduce the availability and increase the cost of reinsurance, which could adversely affect our ability to manage risk and maintain capital.
Premium rates may soften, reducing our underwriting profitability.
The specialty insurance industry is cyclical, with periods of increased competition and declining premium rates ("soft markets") following periods of favorable pricing ("hard markets"). Although we have recently benefited from rate hardening in several of our specialty lines, there can be no assurance that this favorable pricing environment will continue. If premium rates decline, our underwriting margins could compress, and our results of operations could be materially and adversely affected. Furthermore, competitive pressures from both traditional specialty insurers and emerging InsurTech companies may limit our ability to achieve or sustain adequate pricing for our products.
We face risks related to COVID-19 pandemic claims and economic effects.
The ongoing COVID-19 pandemic has resulted in, and may continue to result in, claims under certain of our insurance policies, including claims related to business interruption, event cancellation, employment practices liability, directors and officers liability, and professional liability. Through the first quarter of 2021, our pandemic-related gross incurred losses totaled approximately $18.7 million, with reinsurance recoveries of approximately $11.2 million, resulting in net pandemic-related exposure of approximately $7.5 million. We cannot assure you that our ultimate pandemic-related losses will not exceed our current reserves, and there is potential for additional reserve strengthening as the full impact of the pandemic continues to develop. Additionally, the pandemic has adversely affected economic conditions, financial markets, and the operations of certain of our insureds, which could result in increased claim frequency and severity in future periods. Continued economic disruption could also reduce demand for certain of our insurance products and negatively affect our investment portfolio returns.
Our investment in the QuorumEdge InsurTech platform may not produce anticipated returns.
We have made, and expect to continue to make, significant investments in our proprietary InsurTech platform, QuorumEdge. The development, implementation, and maintenance of advanced technology platforms are complex and costly, and there can be no assurance that our investment in QuorumEdge will generate the efficiencies and competitive advantages that we anticipate. Risks associated with our technology platform include implementation delays and cost overruns, difficulties integrating the platform with our existing underwriting and claims systems, cybersecurity threats and data breaches, technology obsolescence, failure to attract and retain qualified technology personnel, and competition from other InsurTech providers with greater resources or more advanced technology. If we are unable to successfully develop and deploy our QuorumEdge platform, our operating expenses could increase, our underwriting efficiency could be impaired, and our competitive position could be adversely affected.
We depend on key personnel, and the loss of senior management could adversely affect our business.
Our success depends in significant part on the skills, experience, and continued services of our senior management team, including our Chief Executive Officer, Martin R. Calloway, and our Chief Financial Officer, Diana L. Prescott. The loss of one or more of our key executives could disrupt our operations, impair our strategic initiatives, damage our relationships with distribution partners and reinsurers, and materially and adversely affect our business, financial condition, and results of operations. We maintain employment agreements with certain key executives, but these agreements do not guarantee their continued service. Competition for qualified senior management in the specialty insurance industry is intense, and we may not be able to attract and retain suitable replacements for departing executives in a timely manner or on terms acceptable to us.
We face intense competition in the specialty insurance markets in which we operate.
The specialty insurance markets in which we operate are highly competitive. We compete with a wide range of insurance companies, including large, well-capitalized multiline insurers, specialty insurance companies, managing general agents and underwriters, Lloyd's syndicates, and emerging InsurTech companies. Many of our competitors have greater financial resources, broader product offerings, larger distribution networks, longer operating histories, and more established brand recognition than we do. Competitive pressures could adversely affect our ability to write new business, retain existing business, and maintain adequate pricing, any of which could materially and adversely affect our underwriting profitability and results of operations.
The availability and cost of reinsurance may adversely affect our business.
We rely on reinsurance to manage our risk exposure and maintain adequate capital. Changes in the availability, cost, or terms of reinsurance could adversely affect our ability to write business, manage risk, and maintain our capital position. In addition, our reinsurance arrangements do not relieve us of our obligations to our policyholders. If one or more of our reinsurers is unable or unwilling to pay amounts owed to us under our reinsurance agreements, we would bear the full amount of the underlying losses, which could materially and adversely affect our financial condition and results of operations.
We are subject to credit risk and investment portfolio risk.
We maintain a significant investment portfolio to support our insurance obligations and generate investment income. Our investment portfolio is subject to risks including interest rate risk, credit risk, liquidity risk, and market risk. A sustained period of low interest rates could reduce our investment income, while rising interest rates could result in unrealized losses on our fixed-income portfolio. Credit downgrades or defaults by issuers of securities in our portfolio could result in realized losses. Adverse developments in the credit and capital markets could also impair the liquidity of our portfolio and restrict our ability to sell investments at favorable prices.
Risks Related to Regulatory Matters
We are subject to insurance holding company act requirements in Connecticut and Delaware.
As an insurance holding company, we are subject to regulation under the insurance holding company acts of Connecticut and Delaware, which impose requirements relating to, among other things, registration and periodic reporting, transactions with affiliates, changes of control, and corporate governance. Compliance with these requirements may restrict our operational flexibility, increase our compliance costs, and limit our ability to pursue certain strategic alternatives, including mergers, acquisitions, and other business combinations.
Failure to maintain adequate risk-based capital ratios could result in regulatory intervention.
Our insurance subsidiaries are required to maintain risk-based capital ("RBC") at or above certain minimum levels established by the National Association of Insurance Commissioners ("NAIC"). As of the most recent measurement date, Quorum Specialty Insurance Company maintained an RBC ratio of approximately 412% of the company action level, and Quorum National Casualty Co. maintained an RBC ratio of approximately 385% of the company action level. Although these ratios are currently well above the minimum thresholds for regulatory action, a decline in our RBC ratios — whether due to catastrophic losses, adverse reserve development, investment portfolio impairments, or other factors — could trigger regulatory intervention, including requirements to submit corrective action plans, restrictions on business activities, and, in extreme cases, regulatory supervision or receivership. Any such regulatory action could materially and adversely affect our business, financial condition, and results of operations, as well as our reputation and the market price of our common stock.
Changes in insurance laws and regulations could adversely affect our business.
The insurance industry is subject to extensive and evolving regulation at the state and federal levels. Legislative and regulatory changes affecting the insurance industry, including changes in insurance laws, regulations, and accounting standards, could adversely affect our business, financial condition, and results of operations. For example, changes in laws governing rate regulation, policy forms, underwriting standards, claims handling, reserves, capital requirements, taxation, and data privacy could increase our compliance costs, restrict our ability to conduct business, or otherwise adversely affect our competitive position. We cannot predict the nature, timing, or extent of future legislative or regulatory changes, and any such changes could have a material adverse effect on our business.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying Base Prospectus, including the documents incorporated by reference herein and therein, contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include all statements that are not statements of historical fact, and in some cases can be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "seeks," "may," "will," "should," "could," "would," "potential," "continue," "target," "goal," "objective," and similar expressions and the negatives of those terms.
Forward-looking statements are based on our current expectations, estimates, projections, beliefs, and assumptions, and are not guarantees of future performance. Forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors, many of which are beyond our control, that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by the forward-looking statements. These factors include, but are not limited to, the factors described under "Risk Factors" in this prospectus supplement, in the accompanying Base Prospectus, and in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q incorporated by reference herein, including the following:
• the inherent uncertainty of loss reserve estimates and the possibility that actual losses will exceed reserves;
• changes in premium rates and competitive conditions in the specialty insurance markets in which we operate;
• the frequency and severity of catastrophic events, including natural disasters, acts of terrorism, and pandemics;
• the effects of the COVID-19 pandemic on our business, financial condition, and results of operations, including the potential for additional pandemic-related claims and reserve strengthening;
• changes in general economic conditions, including interest rates, inflation, and the performance of financial markets;
• the availability, cost, and adequacy of reinsurance;
• risks related to the development, implementation, and operation of our QuorumEdge InsurTech platform;
• our ability to attract and retain qualified personnel, including key members of senior management;
• changes in insurance laws, regulations, and accounting standards;
• the ability of our insurance subsidiaries to maintain adequate risk-based capital ratios;
• restrictions on upstream dividends from our insurance subsidiaries;
• credit risk and investment portfolio risk; and
• other risks and uncertainties described in this prospectus supplement and in the documents incorporated by reference herein.
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus supplement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately $42,140,000 (or approximately $48,490,500 if the Underwriter exercises its over-allotment option in full), in each case based on an assumed public offering price of $15.00 per share, after deducting the underwriting discount and estimated offering expenses payable by us. The following table sets forth the estimated proceeds from this offering:
A $1.00 increase (decrease) in the assumed public offering price of $15.00 per share would increase (decrease) the net proceeds from this offering by approximately $2,835,000 (or approximately $3,260,250 if the Underwriter exercises its over-allotment option in full), assuming the number of shares offered by us, as set forth on the cover page of this prospectus supplement, remains the same and after deducting the underwriting discount and estimated offering expenses.
We intend to use the net proceeds from this offering for general corporate purposes, including:
• Potential acquisitions of specialty insurance books of business. We regularly evaluate potential acquisition opportunities that are consistent with our strategic focus on specialty insurance markets. Our management has identified two to three potential targets, although no letters of intent have been signed and no specific acquisition is imminent as of the date of this prospectus supplement. There can be no assurance that any acquisition will be consummated on favorable terms or at all.
• Continued investment in our proprietary InsurTech platform, QuorumEdge. We intend to continue investing in the development and expansion of our QuorumEdge platform, including the expansion of the platform's capabilities into small-commercial lines of business. We believe that continued investment in QuorumEdge will enhance our underwriting efficiency, improve our risk selection capabilities, and strengthen our competitive position.
Pending the application of the net proceeds from this offering as described above, we may invest the net proceeds in short-term, investment-grade securities, interest-bearing deposits, certificates of deposit, or direct or guaranteed obligations of the U.S. government.
We have not identified specific uses for all of the net proceeds from this offering, and our management will retain broad discretion in allocating such proceeds. See "Risk Factors — Risks Related to This Offering — Management will have broad discretion in the use of the net proceeds from this offering, and you may not agree with how we use them."
CAPITALIZATION
The following table sets forth our consolidated capitalization as of March 31, 2021, on an actual basis and on an as-adjusted basis, giving effect to the issuance and sale of 3,000,000 shares of our common stock in this offering at an assumed public offering price of $15.00 per share, after deducting the underwriting discount of 5.50% and estimated offering expenses of approximately $385,000 payable by us.
You should read this table in conjunction with our consolidated financial statements and the related notes thereto incorporated by reference in this prospectus supplement.
(1) $75 million revolving credit facility with Sycamore National Bank, N.A., as administrative agent (Ridgeline Commercial Lending Corp. as participating lender). Borrowings bear interest at SOFR plus 175 basis points per annum. As of March 31, 2021, $20 million was drawn and $55 million was available under the facility. The facility matures in October 2023.
(2) $125 million aggregate principal amount of 4.875% Senior Notes due 2028 (CUSIP: 74917R207). The notes do not contain financial maintenance covenants but include standard incurrence-based covenants. The notes contain a limitation on restricted payments but do not restrict the issuance of common equity by the parent company.
The "as adjusted" column in the table above does not include:
• up to 450,000 shares of common stock issuable upon exercise of the Underwriter's over-allotment option;
• approximately 1,450,000 shares of common stock issuable upon exercise of outstanding stock options under our 2018 Equity Incentive Plan, at a weighted-average exercise price of $12.40 per share; and
• approximately 820,000 shares of common stock issuable upon settlement of outstanding restricted stock units under our 2018 Equity Incentive Plan.
DILUTION
Purchasers of our common stock in this offering will experience immediate dilution in net tangible book value per share. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the as-adjusted net tangible book value per share of our common stock immediately after giving effect to this offering.
Our net tangible book value is calculated by subtracting our total intangible assets and goodwill from our total stockholders' equity. As of March 31, 2021, our net tangible book value was approximately $[●], or approximately $[●] per share, based on 38,125,000 shares of common stock outstanding on that date.
After giving effect to the issuance and sale of 3,000,000 shares of common stock in this offering at an assumed public offering price of $15.00 per share, and after deducting the underwriting discount of 5.50% and estimated offering expenses of approximately $385,000, our as-adjusted net tangible book value as of March 31, 2021 would have been approximately $[●], or approximately $[●] per share. This represents an immediate increase in net tangible book value per share of approximately $[●] to existing stockholders and an immediate dilution in net tangible book value per share of approximately $[●] to new investors purchasing shares in this offering.
The following table illustrates this per share dilution to new investors:
If the Underwriter exercises its over-allotment option in full, the as-adjusted net tangible book value per share after this offering would be approximately $[●] per share, representing an immediate increase in net tangible book value per share of approximately $[●] to existing stockholders and an immediate dilution in net tangible book value per share of approximately $[●] to new investors.
The above table is based on 38,125,000 shares of common stock outstanding as of March 31, 2021, and excludes the following:
• up to 450,000 shares of common stock issuable upon exercise of the Underwriter's over-allotment option;
• approximately 1,450,000 shares of common stock issuable upon exercise of outstanding stock options under our 2018 Equity Incentive Plan, at a weighted-average exercise price of $12.40 per share; and
• approximately 820,000 shares of common stock issuable upon settlement of outstanding restricted stock units under our 2018 Equity Incentive Plan.
To the extent that outstanding options are exercised, restricted stock units settle, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Market Information. Our common stock is listed on the Nasdaq Global Select Market under the symbol "QIHC." The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported on the Nasdaq Global Select Market:
On May 7, 2021, the last reported sale price of our common stock on the Nasdaq Global Select Market was $16.00 per share. As of the record date, there were approximately 38,125,000 shares of our common stock outstanding.
Dividends. [To be completed. Note: The ability of the Company to pay dividends on its common stock is dependent upon, among other things, the receipt of dividends from its insurance subsidiaries. The ability of the Company's insurance subsidiaries to pay dividends is subject to restrictions imposed by the insurance laws and regulations of their respective domiciliary states, including limitations on the amount of ordinary dividends that may be paid without prior regulatory approval. The ordinary dividend capacity of Quorum Specialty Insurance Company for 2021 is approximately $19.5 million. Extraordinary dividends require the prior approval of the Connecticut Department of Insurance. Similar restrictions apply to Quorum National Casualty Co. under Delaware insurance law.]
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock as of May 1, 2021 by (i) each person or group of affiliated persons known by us to beneficially own more than 5% of our outstanding common stock and (ii) our directors and executive officers individually and as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
The "Before Offering" column is based on 38,125,000 shares of common stock outstanding as of May 1, 2021. The "After Offering" column is based on 41,125,000 shares of common stock outstanding after giving effect to the issuance and sale of 3,000,000 shares of common stock in this offering (assuming the over-allotment option is not exercised). Except as otherwise indicated, the address of each beneficial owner listed in the table is c/o Quorum Insurance Holdings Corp., 200 Constitution Plaza, Suite 3100, Hartford, CT 06103.
(1) Based on a Schedule 13G/A filed with the SEC on February 12, 2021 by Birchwood Capital Partners, L.P. The address of Birchwood Capital Partners, L.P. is 55 East 52nd Street, 24th Floor, New York, NY 10055. Birchwood Capital Management, LLC is the general partner of Birchwood Capital Partners, L.P., and may be deemed to share voting and dispositive power with respect to such shares.
(2) Based on a Schedule 13G filed with the SEC on February 10, 2021 by Redfield Mutual Fund Group. The address of Redfield Mutual Fund Group is 100 Independence Mall, Philadelphia, PA 19106. Redfield Mutual Fund Group exercises shared voting and dispositive power with respect to such shares.
DESCRIPTION OF COMMON STOCK
The following description of our common stock is a summary only. For a more detailed description of our common stock, please refer to the description contained in the Registration Statement and the accompanying Base Prospectus, as well as our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, copies of which have been filed as exhibits to our reports with the SEC and are incorporated by reference herein.
Authorized Capital Stock. Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. As of the date of this prospectus supplement, 38,125,000 shares of common stock are issued and outstanding, and no shares of preferred stock are issued or outstanding. Upon completion of this offering (assuming no exercise of the over-allotment option), 41,125,000 shares of common stock will be issued and outstanding.
Voting Rights. Each holder of our common stock is entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. Our common stock does not have cumulative voting rights.
Dividend Rights. Subject to the rights of holders of any shares of preferred stock that we may issue in the future, holders of our common stock are entitled to receive ratably any dividends declared by our Board of Directors out of funds legally available therefor. The declaration and payment of dividends are at the sole discretion of our Board of Directors and are subject to applicable law and regulatory restrictions, including the restrictions on upstream dividends from our insurance subsidiaries described elsewhere in this prospectus supplement.
Liquidation Rights. In the event of our liquidation, dissolution, or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities and satisfaction of any liquidation preference granted to holders of any shares of preferred stock that may then be outstanding.
No Preemptive, Conversion, or Redemption Rights. Our common stock has no preemptive, conversion, subscription, or redemption rights.
Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Continental Transfer & Trust Co., 17 Ashbury Asset Advisors, New York, NY 10004.
Listing. Our common stock is listed on the Nasdaq Global Select Market under the symbol "QIHC."
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income tax considerations applicable to non-U.S. holders (as defined below) with respect to the ownership and disposition of our common stock acquired in this offering. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury regulations promulgated thereunder, administrative pronouncements, and judicial decisions, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular non-U.S. holders in light of their individual circumstances or to non-U.S. holders that are subject to special rules under the Code, including, without limitation, controlled foreign corporations, passive foreign investment companies, partnerships or other pass-through entities and their partners or members, U.S. expatriates, banks or other financial institutions, insurance companies, tax-exempt organizations, brokers or dealers in securities, holders that acquired our common stock through the exercise of stock options or other compensation arrangements, or holders holding our common stock as part of a hedge, straddle, constructive sale, conversion transaction, or other integrated transaction.
For purposes of this discussion, a "non-U.S. holder" is a beneficial owner of our common stock that is not, for U.S. federal income tax purposes, any of the following: (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
Dividends. [To be completed with standard discussion of withholding on dividends paid to non-U.S. holders, reduced treaty rates, and effectively connected income.]
Gain on Disposition. [To be completed with standard discussion of gain on sale or other disposition of common stock by non-U.S. holders, including FIRPTA considerations, if applicable.]
Backup Withholding and Information Reporting. [To be completed with standard discussion of backup withholding and information reporting obligations.]
THE PRECEDING DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY TAX TREATIES.
UNDERWRITING
The Underwriter. We have entered into an underwriting agreement (the "Underwriting Agreement") with Greystone Harwick & Co., LLC (the "Underwriter"), acting as sole book-running manager for this offering. The Underwriter's principal office is located at 399 Park Avenue, 28th Floor, New York, NY 10022. Greystone Harwick is a mid-market investment bank with a specialty financial-services franchise. The Underwriter's Head of Equity Capital Markets is David C. Reinhardt. The deal captain for this offering is Sarah P. Langford, Vice President, Equity Capital Markets.
Underwriting Agreement. Subject to the terms and conditions set forth in the Underwriting Agreement (to be entered into), the Underwriter has agreed to purchase from us 3,000,000 shares of our common stock (the "Firm Shares") at the public offering price less the underwriting discount. The Underwriting Agreement provides that the Underwriter's obligation to purchase the Firm Shares is a firm commitment. The Underwriter is obligated to purchase all of the Firm Shares if it purchases any of the Firm Shares under the Underwriting Agreement.
Our Board of Directors authorized this offering on June 2, 2021.
Offering Price and discount
Shares of our common stock are being offered at a public offering price of $[●] per share (estimated at $15.00 per share, reflecting an approximately 6.25% discount to the last reported closing price of $16.00 per share on May 7, 2021). The underwriting discount is 5.50% of the public offering price.
The following table shows the per share and total public offering price, underwriting discount, and proceeds to us before expenses:
At the assumed public offering price of $15.00 per share:
Over-Allotment Option. We have granted the Underwriter a 30-day option, exercisable in whole or in part at any time and from time to time within 30 days after the date of the final prospectus supplement, to purchase up to 450,000 additional shares of our common stock (the "Option Shares") at the public offering price less the underwriting discount, solely for the purpose of covering over-allotments, if any. If the Underwriter exercises its over-allotment option in full, the total number of shares sold in this offering will be 3,450,000 shares, and the total gross proceeds will be $51,750,000 (at the assumed public offering price of $15.00 per share).
Expenses. We estimate that the total expenses of this offering payable by us, exclusive of the underwriting discount, will be approximately $385,000. These expenses include legal fees, accounting fees, printing and EDGAR conversion costs, SEC filing fees, Nasdaq listing fees, transfer agent fees, and miscellaneous expenses.
FINRA. The Underwriter is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). In accordance with FINRA rules, the Underwriter is required to file materials with FINRA's Corporate Financing Department for review of underwriting compensation in connection with this offering. No FINRA member participating in this offering will sell shares of our common stock to an account over which such member exercises discretionary authority unless the transaction is exempt from, or complies with, FINRA Rule 5110.
Lock-Up Agreements. In connection with this offering, we, all of our directors, all of our executive officers, and all holders of 5% or more of our outstanding common stock (including Birchwood Capital Partners, L.P.) will enter into lock-up agreements with the Underwriter. Under these lock-up agreements, each of these persons and entities will agree, subject to certain exceptions, not to, directly or indirectly, for a period of 90 days following the date of the final prospectus supplement (the "Lock-Up Period"):
• offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock; or
• enter into any swap or other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of any shares of our common stock,
in each case, without the prior written consent of the Underwriter.
The restrictions described above are subject to certain exceptions, including:
• transfers of shares of common stock as bona fide gifts;
• transfers to trusts for the benefit of the signer or the signer's immediate family members;
• transfers by will or the laws of intestacy;
• the establishment of Rule 10b5-1 trading plans under the Exchange Act, provided that no sales of common stock may be made under any such plan during the Lock-Up Period; and
• the exercise of stock options or settlement of restricted stock units under the Company's equity compensation plans, provided that any shares of common stock received upon such exercise or settlement shall remain subject to the restrictions of the lock-up agreement for the remainder of the Lock-Up Period.
The Underwriter may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to lock-up agreements.
Stabilization, Short Positions, and Penalty Bids
In connection with this offering, the Underwriter may engage in certain transactions that stabilize, maintain, or otherwise affect the price of our common stock. Specifically, the Underwriter may sell a greater number of shares of our common stock than it is obligated to purchase in the offering, creating a short position. A short sale may be a "covered" short sale if it is for an amount that is no greater than the number of shares available for purchase by the Underwriter under the over-allotment option, or a "naked" short sale if it is for an amount in excess of the over-allotment option. To close a covered short position, the Underwriter may exercise the over-allotment option or purchase shares in the open market. In making this determination, the Underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase shares through the over-allotment option. To close a naked short position, the Underwriter must purchase shares in the open market. A naked short position is more likely to be created if the Underwriter is concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase shares in the offering.
In addition, the Underwriter may engage in stabilizing transactions. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock during the offering. Stabilization bids may not exceed the public offering price.
The Underwriter may also impose a penalty bid. A penalty bid permits the Underwriter to reclaim a selling concession from a dealer when the shares originally sold by the dealer are purchased in a stabilizing or short-covering transaction.
These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock, and as a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. If the Underwriter commences these activities, it may discontinue them at any time. The Underwriter may carry out these transactions on the Nasdaq Global Select Market, in the over-the-counter market, or otherwise.
Listing. Application will be made to list the additional shares of common stock to be issued in this offering on the Nasdaq Global Select Market.
Electronic Distribution. A prospectus supplement in electronic format may be made available on websites maintained by the Underwriter, and the Underwriter may distribute prospectus supplements electronically. Other than the prospectus supplement in electronic format, the information on the Underwriter's website or any information contained in any other website maintained by the Underwriter is not part of this prospectus supplement, the accompanying Base Prospectus, or the Registration Statement of which the Base Prospectus forms a part, has not been approved or endorsed by us or the Underwriter in its capacity as underwriter, and should not be relied upon by investors.
Selling Restrictions. [To be completed with applicable international selling restrictions, if any.]
Other Relationships. The Underwriter and its affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The Underwriter and its affiliates may in the future receive customary fees and commissions for these transactions.
In the ordinary course of its business, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve our securities or instruments. The Underwriter and its affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon for the Company by Calderwood & Harkness LLP, 1301 Avenue of the Americas, New York, NY 10019. Certain legal matters relating to this offering will be passed upon for the Underwriter by Duval & Pressler LLP, 1185 Avenue of the Americas, 34th Floor, New York, NY 10036.
EXPERTS
The consolidated financial statements of Quorum Insurance Holdings Corp. as of December 31, 2020 and 2019, and for each of the two years in the period ended December 31, 2020, incorporated by reference in this prospectus supplement, have been audited by Carver, Bain & Associates LLP, independent registered public accounting firm, One Federal Street, Suite 3600, Boston, MA 02110 (Engagement Partner: Rebecca H. Trask, CPA), as stated in their report incorporated by reference herein, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. Our SEC filings are available to the public at the SEC's website at www.sec.gov. Our CIK number is 0001784203. Our SEC filings are also available on our website at www.quoruminsurance.com. Information on our website is not, and shall not be deemed to be, a part of this prospectus supplement, the accompanying Base Prospectus, or any free writing prospectus, and is not incorporated by reference herein or therein.
We have filed a registration statement on Form S-3 (File No. 333-248710) with the SEC under the Securities Act. This prospectus supplement and the accompanying Base Prospectus do not contain all of the information in the Registration Statement. Certain parts of the Registration Statement, including exhibits, have been omitted in a