PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Dennis R. Okonkwo, General Counsel & Corporate Secretary, Quorum Insurance Holdings Corp.
CC: Ivan D. Pruett, Chief Compliance Officer, Quorum Insurance Holdings Corp. Renata M. Vásquez, Chief Audit Executive, Quorum Insurance Holdings Corp.
FROM: Elaine Forsythe, Responsible Partner, Calderwood & Harkness LLP Natasha Forbes, Lead Associate, Calderwood & Harkness LLP Eric Johannsen, Working Associate, Calderwood & Harkness LLP
DATE: October 3, 2025
RE: Initial Gap Analysis — Delegation of Authority Matrix, Quorum Insurance Holdings Corp. (Engagement No. 1025-00005)
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I. Executive Summary
This memorandum presents Calderwood & Harkness LLP's ("Calderwood & Harkness" or "C&H") initial gap analysis of the Delegation of Authority Matrix (the "DOA Matrix") of Quorum Insurance Holdings Corp. ("Quorum," "QIH," or the "Company"), a publicly traded Delaware corporation (NYSE: QIHC), headquartered at 280 Asylum Street, Suite 2200, Hartford, CT 06103. The purpose of this memorandum is to identify, on a category-by-category basis, the principal deficiencies in the Company's existing DOA Matrix and to set forth preliminary recommendations for revised authority thresholds and structural improvements that will be incorporated into a comprehensively restated DOA Matrix targeted for adoption by the QIH Board of Directors (the "Board") at its regular meeting on December 11, 2025.
The existing parent-level DOA Matrix was last comprehensively updated on October 6, 2017, with a single interim amendment adopted on April 22, 2020. That interim amendment was limited in scope to claims-payment authority thresholds and did not address any other authority category. In the intervening eight years since the comprehensive update — and over five years since the narrow interim amendment — QIH has undergone substantial growth and transformation across virtually every dimension of its business. For fiscal year 2024, QIH reported consolidated revenue of $3.12 billion and total assets of $18.7 billion. Total invested assets have increased from $11.2 billion at year-end 2016 (the base year for the 2017 matrix) to $16.4 billion at year-end 2024, representing a 46.4% increase (($16.4B − $11.2B) ÷ $11.2B = 46.4%). The Company's current market capitalization is approximately $4.8 billion. QIH now employs approximately 6,400 people across its holding company parent, three regulated insurance subsidiaries, a managing general agent, and a fintech subsidiary — a corporate structure that has grown in both complexity and scale since the DOA Matrix was last comprehensively addressed.
The present analysis was triggered by the convergence of three significant events over the first half of 2025, each of which independently underscored the need for a thorough overhaul of the Company's delegation framework:
First, the FY 2024 management letter from the Company's independent auditor, Garrett & Whitfield LLP, dated March 14, 2025 (the "G&W Management Letter"), identified inconsistent dollar thresholds between the parent DOA Matrix and subsidiary-level authorities. The G&W Management Letter specifically flagged that Lone Star Specialty Insurance Company's ("Lone Star") claims-settlement authorities exceeded the thresholds approved by the QIH Board, noting that Lone Star's subsidiary CEO was exercising per-claim settlement authority at the $3.0 million level despite the parent DOA Matrix authorizing only $1.0 million for subsidiary-level CEO authority.
Second, the governance benchmarking report delivered on June 30, 2025, by Apex Proxy Advisors, Inc. ("Apex"), which conducted a study of 14 publicly traded insurance holding company peers (the "Apex Report"), found that 12 of the 14 peer companies had updated their DOA matrices within the prior 24 months, rendering Quorum a significant outlier among its peer group.
Third, the shareholder letter dated June 18, 2025, from Veltrano Institutional Partners, LP ("Veltrano"), QIH's largest institutional shareholder (holding approximately 8.3% of outstanding shares), addressed to Arthur J. Pennington, Lead Independent Director, urged enhanced governance documentation and disclosure, including modernization of delegation frameworks.
Our principal findings may be summarized as follows:
• The current DOA Matrix is materially outdated across virtually all authority categories. Threshold levels established in 2017 have not kept pace with business growth, inflation, or peer market standards over the ensuing eight-year period.
• Critical new authority categories are absent from the existing matrix. Most notably, technology and IT spending — which has become a major category of expenditure given the Company's growing fintech operations through Vantage Digital Insurance Solutions, Inc. — is not treated as a standalone authority category and is instead bundled within general capital expenditures.
• Significant inconsistencies exist between parent and subsidiary delegations. The most acute problem involves Lone Star Specialty Insurance Company, which has been operating at a per-claim settlement authority level three times the authorized threshold without documented board ratification, representing a material compliance gap.
• The DOA Matrix is not coordinated with the Company's Bylaws or committee charters. Article IV, Section 4.2 of the QIH Bylaws does not cross-reference the DOA Matrix, and the committee charters — which themselves have not been comprehensively updated since their adoption on February 12, 2016 — contain threshold provisions that are not harmonized with the DOA Matrix.
This memorandum provides a detailed, category-by-category analysis of the current DOA Matrix, identifies specific gaps within each category, and sets forth preliminary recommendations for revised thresholds. A companion memorandum of the same date (the "Charter Gap Analysis Memorandum") addresses gaps in the Company's board committee charters. Together, these two memoranda constitute the first phase of deliverables under the governance overhaul engagement.
II. Background and Scope of Analysis
A. Engagement Context
Calderwood & Harkness LLP was engaged by QIH pursuant to an engagement letter executed on September 5, 2025, to conduct a comprehensive review and overhaul of the Company's governance framework, with particular emphasis on the DOA Matrix and committee charter architecture. The engagement was opened under Engagement No. 1025-00005.
The scope of the DOA-related workstream, which is the subject of this memorandum, encompasses two principal deliverables: (i) a comprehensive overhaul and restatement of the parent-level DOA Matrix, incorporating revised authority categories, updated dollar thresholds, and improved structural features; and (ii) the creation of a model subsidiary DOA matrix template designed to establish a consistent, subordinated delegation framework across QIH's five principal subsidiaries. Both deliverables are targeted for presentation and adoption at the Board's regular meeting on December 11, 2025.
This memorandum constitutes the first deliverable in the DOA workstream. Its preparation was preceded by the following preliminary activities:
• A kickoff meeting held on September 12, 2025, at Calderwood & Harkness's New York offices, attended by Elaine Forsythe, Natasha Forbes, and Eric Johannsen from C&H, and Dennis R. Okonkwo, Ivan D. Pruett, and Renata M. Vásquez from QIH. During the kickoff meeting, the parties discussed the overall scope and timeline of the DOA workstream, the specific concerns raised by each of the three triggering events, and the priority items for the initial gap analysis.
• Receipt and initial review of existing governance documents, which were provided by Mr. Okonkwo's office on September 19, 2025, together with supplemental materials received through September 27, 2025.
B. Documents Reviewed
In preparing this memorandum, Calderwood & Harkness reviewed the following documents and materials:
1. QIH Delegation of Authority Matrix, as adopted by the Board on October 6, 2017, together with the interim amendment dated April 22, 2020 (limited to claims-payment authority thresholds).
2. Subsidiary-level delegation-of-authority documents for each of QIH's five principal subsidiaries:
(a) Quorum Property & Casualty Insurance Company (CT-domiciled; NAIC 38472);
(b) Lone Star Specialty Insurance Company (TX-domiciled; NAIC 41359);
(c) Great Lakes Surety & Indemnity Co. (OH-domiciled; NAIC 29814);
(d) Quorum MGA Services, LLC (DE LLC); and
(e) Vantage Digital Insurance Solutions, Inc. (DE corporation).
3. QIH Corporate Governance Guidelines (current version, as posted on the Company's investor relations website).
4. QIH Bylaws, with particular attention to Articles III (Board of Directors) and IV (Officers), including Section 4.2 (officer authority provisions).
5. QIH Board Committee Charters for each of the Company's five standing committees:
(a) Audit Committee Charter;
(b) Compensation & Human Capital Committee Charter;
(c) Nominating & Corporate Governance Committee Charter;
(d) Risk Committee Charter; and
(e) Investment Committee Charter.
All charters were originally adopted on February 12, 2016, with amendments adopted on March 20, 2019, and June 14, 2021.
6. Garrett & Whitfield LLP Management Letter dated March 14, 2025 (FY 2024 audit observations), with particular attention to observations related to the DOA Matrix and subsidiary delegation authorities.
7. Apex Proxy Advisors, Inc. Governance Benchmarking Report dated June 30, 2025 (14-peer-company study), including DOA-specific analysis and committee governance comparisons.
8. QIH Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission.
9. Selected regulatory filings with the Connecticut Department of Insurance, the Texas Department of Insurance, and the Ohio Department of Insurance.
10. Veltrano Institutional Partners, LP shareholder letter dated June 18, 2025, addressed to Arthur J. Pennington, Lead Independent Director.
C. Applicable Legal and Regulatory Framework
The analysis set forth in this memorandum is informed by the following legal and regulatory authorities, each of which bears on the design and content of the DOA Matrix:
• Delaware General Corporation Law ("DGCL"): Section 141(a) (vesting the management of the corporation in the Board of Directors); Section 141(c) (authorizing the Board to delegate authority to committees, subject to enumerated non-delegable matters); and Section 142 (providing that officers shall have such authority and perform such duties as the bylaws provide or as the Board may determine).
• NYSE Listed Company Manual: Sections 303A.01 through 303A.14, as amended in 2024, governing board and committee composition, committee charter requirements, and related corporate governance standards applicable to listed companies.
• State Insurance Holding Company Acts: The insurance holding company acts of Connecticut, Texas, and Ohio, which impose regulatory oversight and filing requirements on insurance holding company systems, including requirements related to material changes in governance and delegated authorities.
• SEC Disclosure Requirements: Including Form 8-K Items 5.05 and 8.01, which may require current-report disclosure of material governance changes, and the proxy disclosure requirements applicable to governance matters.
• SEC Rule 10D-1 / NYSE Rule 303A.14: The clawback policy requirements, which are relevant to the extent the DOA Matrix intersects with compensation-related authorities, including the officer hiring threshold and the Compensation & Human Capital Committee's authority over executive compensation decisions.
A more detailed analysis of the Delaware law considerations affecting the scope and limits of board delegation is set forth in Section VII of this memorandum, with a separate, comprehensive Delaware law memorandum targeted for delivery on November 18, 2025.
D. QIH Organizational Structure
For context, the following is a brief description of QIH's holding company structure as relevant to the DOA Matrix analysis.
QIH is the publicly traded Delaware parent corporation and serves as the ultimate holding company for the Quorum insurance enterprise. As of the date of this memorandum, QIH has five principal subsidiaries:
1. Quorum Property & Casualty Insurance Company — Domiciled in Connecticut; NAIC Company Code 38472. This is QIH's flagship operating insurance subsidiary, writing a broad book of property and casualty insurance. The subsidiary is led by Dexter W. Ng, President, and is subject to the regulatory jurisdiction of the Connecticut Department of Insurance.
2. Lone Star Specialty Insurance Company — Domiciled in Texas; NAIC Company Code 41359. Lone Star writes specialty lines of insurance business, including professional liability, management liability, and specialty casualty lines. The subsidiary is subject to the regulatory jurisdiction of the Texas Department of Insurance.
3. Great Lakes Surety & Indemnity Co. — Domiciled in Ohio; NAIC Company Code 29814. Great Lakes writes surety bonds and certain specialty indemnity lines. The subsidiary is subject to the regulatory jurisdiction of the Ohio Department of Insurance.
4. Quorum MGA Services, LLC — Organized as a Delaware limited liability company. This entity operates as QIH's managing general agent, underwriting and administering insurance programs on behalf of the Company's carrier subsidiaries pursuant to MGA agreements.
5. Vantage Digital Insurance Solutions, Inc. — Organized as a Delaware corporation. Vantage is QIH's fintech and insurtech subsidiary, led by Camille R. DuPont, President. Vantage develops and operates digital insurance distribution platforms and related technology solutions, and represents a significant growth area for the Company.
The QIH Board of Directors currently comprises 11 directors, of whom 8 are independent and 3 are management or non-independent directors. The Company's Chief Executive Officer is Margaret A. Calloway, and its Chief Financial Officer is Patricia Sung-Hee Lam. The Board maintains five standing committees: the Audit Committee, the Compensation & Human Capital Committee, the Nominating & Corporate Governance Committee, the Risk Committee (chaired by an independent director), and the Investment Committee (chaired by Jonathan K. Whitmore).
III. Observations from Triggering Events
As noted in the Executive Summary, three converging events in the first half of 2025 prompted the Board's decision to undertake a comprehensive governance overhaul, including the DOA Matrix revision that is the subject of this memorandum. This section sets forth the substance of each triggering event in greater detail.
A. Garrett & Whitfield LLP Management Letter (March 14, 2025)
The Company's independent auditor, Garrett & Whitfield LLP ("G&W"), issued its management letter for the FY 2024 audit cycle on March 14, 2025 (the "G&W Management Letter"). The lead engagement partner is Roland S. Brewer of Garrett & Whitfield LLP, 200 Park Avenue, 16th Floor, New York, NY 10166. The G&W Management Letter identified three observations of relevance to the governance overhaul, two of which bear directly on the DOA Matrix:
Observation 1 — Inconsistent Dollar Thresholds Between Parent and Subsidiary Authorities. G&W observed that the subsidiary-level delegation-of-authority documents maintained by each of QIH's operating subsidiaries do not consistently map to or derive from the parent-level DOA Matrix. In several instances, subsidiary authority documents reference thresholds that differ from the parent matrix without any documented basis for the deviation. G&W noted that this creates gaps in the overall governance framework, as it is unclear whether the subsidiary-level thresholds are intended to operate independently of the parent DOA Matrix or are intended to be subordinate to it. The auditors recommended that QIH establish a clear hierarchical relationship between the parent DOA Matrix and subsidiary-level delegations and ensure that all subsidiary thresholds are either identical to or explicitly derived from the parent thresholds.
Observation 2 — Absence of a Formal Technology & Information Security Committee Charter. G&W observed that QIH does not maintain a formal board-level committee dedicated to technology and information security oversight, and that no existing committee charter explicitly addresses cybersecurity, data governance, or technology risk oversight. While this observation is primarily addressed in the companion Charter Gap Analysis Memorandum, it is relevant to the DOA Matrix insofar as the absence of a technology oversight committee contributes to the absence of a standalone technology-spending authority category in the DOA Matrix.
Observation 3 — Lone Star Specialty Claims-Settlement Authority. G&W identified that Lone Star Specialty Insurance Company has been operating at a $3.0 million per-claim settlement authority for its subsidiary CEO, whereas the parent DOA Matrix authorizes a maximum of only $1.0 million in per-claim settlement authority at the subsidiary-CEO level. G&W was unable to identify any board resolution, committee authorization, or other documented governance action supporting the elevated threshold at Lone Star. G&W flagged this as a significant governance deficiency and recommended that the Company either formally ratify the elevated threshold or require Lone Star to conform its practices to the authorized $1.0 million level pending a comprehensive review and update of the DOA Matrix. This observation represents the most significant compliance gap identified in the G&W Management Letter and is discussed in further detail throughout this memorandum.
B. Apex Proxy Advisors, Inc. Benchmarking Report (June 30, 2025)
On June 30, 2025, Apex Proxy Advisors, Inc. ("Apex") delivered its governance benchmarking report to QIH (the "Apex Report"). The report was prepared by Dana Durneval, Senior Vice President, Advisory Services, Apex Proxy Advisors, Inc., 450 Lexington Avenue, Suite 3100, New York, NY 10017. The Apex Report was commissioned by QIH's Nominating & Corporate Governance Committee in early 2025 to assess the Company's governance practices relative to a peer group of 14 publicly traded insurance holding companies of comparable size, complexity, and business mix.
The Apex Report's key findings relevant to the DOA Matrix workstream include the following:
• Currency of DOA Matrices: 12 of the 14 peer companies had updated their DOA matrices within the prior 24 months. QIH's DOA Matrix, last comprehensively updated in October 2017, is a significant outlier within the peer group. The median time since last comprehensive update among the 14-company peer group was 14 months, compared to QIH's 96 months (approximately 8 years).
• CEO Capital Expenditure Authority: The peer median for CEO sole capital-expenditure authority was $4.5 million, compared to QIH's current $2.0 million threshold, placing QIH in the bottom quartile of the peer group on this measure.
• Technology Oversight: 11 of the 14 peers had adopted either a standalone technology and cybersecurity board committee or had added explicit cyber and technology risk oversight responsibilities to the charter of an existing committee (typically the audit committee or the risk committee). Several peers' DOA matrices include a distinct technology-spending authority category with dedicated thresholds.
• General Observations: The Apex Report noted that the overall design and granularity of QIH's DOA Matrix lagged peer practices, and recommended a comprehensive overhaul to bring the Company's delegation framework into alignment with current market standards and investor expectations.
Additional peer comparison data points from the Apex Report are integrated into the category-by-category analysis set forth in Section V below.
C. Veltrano Institutional Partners, LP Shareholder Letter (June 18, 2025)
On June 18, 2025, Veltrano Institutional Partners, LP ("Veltrano") sent a letter to Arthur J. Pennington, QIH's Lead Independent Director, expressing its views on the Company's governance practices. Veltrano is QIH's largest institutional shareholder, holding approximately 8.3% of the Company's outstanding shares as of the date of the letter. The letter was signed by Terrence "Terry" Blackwood, Head of Corporate Governance & Stewardship, Veltrano Institutional Partners, LP, 101 Federal Street, Suite 2600, Boston, MA 02110.
The Veltrano letter urged enhanced governance documentation and disclosure across several dimensions, including the modernization of the Company's delegation frameworks. While the letter did not prescribe specific thresholds or authority categories, it expressed concern that the Company's governance documentation had not been comprehensively updated in several years and urged the Board to undertake a systematic review to ensure that the Company's governance infrastructure was commensurate with its current scale, complexity, and risk profile. Veltrano noted that institutional investors increasingly view the currency and rigor of a company's governance documentation — including delegated authority frameworks — as an indicator of board effectiveness and management oversight quality.
In addition to the formal Veltrano letter, QIH's second-largest institutional shareholder, Westbrook Fiduciary Trust Company (holding approximately 5.7% of outstanding shares), also expressed support for a governance and charter overhaul through informal engagement with the Company. The relevant contact at Westbrook is Elisa N. Fujimoto, Director of ESG & Governance, 600 Superior Avenue, Suite 1700, Cleveland, OH 44114. While Westbrook did not submit a formal letter, Ms. Fujimoto communicated Westbrook's views during a governance engagement call with Mr. Pennington and Mr. Okonkwo in July 2025.
D. Board Authorization
Following the receipt of the G&W Management Letter, the Apex Report, and the Veltrano shareholder letter, the QIH Board of Directors took formal action on July 22, 2025, authorizing a comprehensive governance overhaul project encompassing the DOA Matrix, committee charters, the Corporate Governance Guidelines, and related governance documents. The Board directed management, in coordination with outside counsel, to prepare revised governance documents for adoption at the Board's regular meeting on December 11, 2025.
Following the Board's authorization, QIH issued a request for proposals to three law firms on August 15, 2025. Calderwood & Harkness was selected following a competitive evaluation process, and the engagement letter was executed on September 5, 2025.
IV. Overview of Current DOA Matrix Structure
The current parent-level DOA Matrix, as adopted by the Board on October 6, 2017, with the April 22, 2020 interim amendment, establishes the governance framework through which the Board delegates operational authority to the Company's officers, subject to specified dollar thresholds and approval requirements. This section provides an overview of the current structure and identifies certain overarching structural deficiencies, before the more granular category-by-category analysis that follows in Section V.
General Framework. The current DOA Matrix is organized by authority category, with each category specifying escalating levels of approval authority tied to dollar thresholds. The approval levels, in ascending order, are: (i) individual officer authority (CEO, CFO, or General Counsel, depending on the category); (ii) dual-officer approval (typically CEO + CFO or CEO + General Counsel); (iii) board committee approval (where applicable); and (iv) full Board approval. The matrix is structured as a grid with authority categories along the vertical axis and approval levels along the horizontal axis, with dollar thresholds specified at each intersection.
Authority Categories. The existing DOA Matrix covers the following nine authority categories:
1. Capital Expenditures
2. Claims Settlement
3. Reinsurance Treaties
4. Vendor Contracts
5. Investment Transactions (Single-Issuer Exposure)
6. M&A / Strategic Transactions
7. Litigation Settlement
8. Charitable and Political Contributions
9. Officer Hiring (Base Salary)
Absent Categories. Notably, Technology/IT spending is not a standalone authority category in the current DOA Matrix. Instead, technology and IT expenditures are subsumed within the general Capital Expenditures category. As discussed in detail in Section V.D below, this is a material gap given the significant growth in the Company's technology expenditures since 2017, the establishment and expansion of the Vantage Digital Insurance Solutions fintech subsidiary, and the enterprise-wide technology transformation initiatives underway across the Quorum platform. The absence of a dedicated technology-spending category was also noted in the G&W Management Letter and the Apex Report.
Cross-Reference to Bylaws. Article IV, Section 4.2 of the QIH Bylaws contains general provisions governing officer authority, providing that officers shall have "such powers and perform such duties as may be prescribed by the Board of Directors or these Bylaws." However, Section 4.2 does not currently cross-reference the DOA Matrix by name or otherwise establish an explicit linkage between the bylaws and the DOA Matrix. This creates a coordination gap, as the DOA Matrix is intended to function as the primary instrument through which the Board exercises its authority under DGCL § 141(a) to define and delimit officer authority, yet the bylaws do not formally acknowledge this instrument. We recommend that conforming amendments to Section 4.2 be adopted concurrently with the restated DOA Matrix to establish a clear cross-reference.
Subsidiary-Level Authority Documents. Each of QIH's five principal subsidiaries maintains some form of delegation-of-authority document, but these documents were not created or updated on a coordinated basis with the parent DOA Matrix or with each other. The subsidiary delegation documents vary significantly in format, scope, detail, and currency. Some are formal board-adopted documents; others are informal memoranda or management-level directives. None of the subsidiary documents contains an explicit statement of subordination to the parent DOA Matrix or a mechanism for ensuring that subsidiary-level thresholds do not exceed parent-level authorities. This lack of coordination is the root cause of the inconsistencies identified by G&W, and the model subsidiary DOA template to be developed as part of this engagement is designed to remedy this structural deficiency.
V. Category-by-Category Gap Analysis and Preliminary Recommendations
This section presents a detailed analysis of each authority category in the current DOA Matrix, identifies the specific gaps and deficiencies within each category, and sets forth Calderwood & Harkness's preliminary recommendations for revised thresholds. These recommendations are preliminary in nature and are intended to serve as the starting point for discussion with QIH management and the relevant Board committees. Final thresholds will be determined through the committee workshop process described in Section XI.B below.
A. Capital Expenditures
Current Thresholds (2017 Matrix):
• CEO sole authority: ≤ $2.0 million per project
• CEO + CFO joint approval: > $2.0 million – $7.5 million per project
• Board approval required: > $7.5 million per project
Identified Gaps:
The CEO sole-authority threshold of $2.0 million per project is significantly below the peer median identified in the Apex Report. The Apex benchmarking study found that the peer median for CEO sole capital-expenditure authority among the 14-company peer group was $4.5 million, placing QIH's current $2.0 million threshold well below the middle of the peer range. This low threshold generates unnecessary escalation of routine capital expenditure decisions to the dual-approval level, burdening both the CEO and CFO with approval requests for projects that peer-company CEOs would routinely approve on their own authority.
The $2.0 million threshold was set in 2017 and has not been adjusted for inflation over the intervening eight years. Using the Consumer Price Index as a rough benchmark, cumulative inflation over the period from October 2017 to October 2025 has been approximately 30–35%, which would alone support an inflation-adjusted threshold of approximately $2.6–2.7 million. When the additional factor of QIH's significant business growth over the same period is considered — consolidated revenue has increased substantially, and total assets have grown to $18.7 billion — the case for a material upward adjustment is compelling.
The $7.5 million threshold for full Board approval is similarly outdated relative to the current scale of QIH's operations. For a company with $3.12 billion in consolidated revenue and $18.7 billion in total assets, a $7.5 million capital-expenditure project represents a relatively small commitment that can be appropriately overseen at the management level without requiring full Board approval.
A further structural gap is that technology and IT spending is currently bundled within the general Capital Expenditures category rather than being treated as a standalone authority category. Given QIH's growing fintech operations through Vantage Digital Insurance Solutions, Inc. and the enterprise-wide technology transformation initiatives underway across the Company, a separate Technology/IT spending category is warranted. This is addressed in detail in Section V.D below.
Preliminary Recommendations:
• CEO sole authority: ≤ $5.0 million per project (inflation-adjusted and rounded up from the peer median of $4.5 million to provide a modest forward-looking buffer)
• CEO + CFO joint approval: > $5.0 million – $15.0 million per project
• Board approval required: > $15.0 million per project
• Technology/IT spending to be carved out as a separate authority category (see Section V.D)
B. Claims Settlement
Current Thresholds (2017 Matrix, as Amended April 22, 2020):
• Subsidiary CEO sole authority: ≤ $1.0 million per claim
• Parent CEO authority: > $1.0 million – $5.0 million per claim
• Board / Risk Committee approval: > $5.0 million per claim
It should be noted that the April 22, 2020 interim amendment adjusted the parent-level claims-payment thresholds (i.e., the Parent CEO and Board/Risk Committee tiers) but did not alter the subsidiary-CEO tier, which has remained at $1.0 million per claim since the 2017 adoption.
Identified Gaps:
Critical Finding — Lone Star Specialty Insurance Company. The most significant compliance gap identified in this analysis — and the issue flagged most prominently by G&W in its management letter — involves Lone Star Specialty Insurance Company. Lone Star has been operating at a $3.0 million per-claim settlement authority for its subsidiary CEO, which is three times the $1.0 million threshold authorized by the parent DOA Matrix. Calderwood & Harkness has been unable to identify any board resolution, committee authorization, or other documented governance action that authorizes or ratifies the elevated threshold at Lone Star. This means that Lone Star's subsidiary CEO has been approving claim settlements between $1.0 million and $3.0 million per claim without the required escalation to the QIH parent CEO, and that claim settlements between $1.0 million and $3.0 million have not been subject to the oversight mechanisms contemplated by the parent DOA Matrix. This issue requires prompt remediation and is addressed as an immediate priority in Section XI.A below.
Beyond the Lone Star issue, the $1.0 million subsidiary-CEO threshold has not kept pace with claims-severity trends in the insurance industry generally or in Lone Star's specialty lines of business specifically. Specialty casualty, professional liability, and management liability claims — which represent core business for Lone Star — have experienced significant severity inflation since 2017, and a $1.0 million per-claim threshold forces an impractical volume of claim settlements to be escalated to the parent CEO, potentially creating operational bottlenecks and delays in claim resolution.
Additionally, Quorum Property & Casualty Insurance Company (CT; NAIC 38472) and Great Lakes Surety & Indemnity Co. (OH; NAIC 29814) have independently adopted varying claims-settlement authority levels in their respective subsidiary delegation documents. While these levels appear to fall within the $1.0 million authorized threshold, the documentation is informal and inconsistent, and the derivation of the subsidiary-level authorities from the parent DOA Matrix is not clearly established.
Finally, the current DOA Matrix does not distinguish between single-claim authority and aggregate settlement authority within a related group of claims. This is a significant structural gap, as related claims (e.g., multiple claims arising from a single occurrence or event, or claims within a common policy period that are subject to a shared aggregate limit) may collectively represent a settlement exposure that warrants escalated oversight even though no individual claim exceeds the applicable per-claim threshold.
Preliminary Recommendations:
• Subsidiary CEO sole authority: ≤ $2.5 million per claim. This recommended threshold reflects the upward pressure from claims-severity trends while being set below the $3.0 million level at which Lone Star was operating without authorization, in order to re-establish proper governance discipline. Retroactive ratification of Lone Star's historical practice at the $3.0 million level should be considered through a formal board resolution (see Section VII regarding Delaware law considerations for ratification).
• Parent CEO authority: > $2.5 million – $10.0 million per claim.
• Board / Risk Committee approval: > $10.0 million per claim.
• The revised DOA Matrix should include aggregate authority thresholds for related claims, with appropriate definitions of "related claims" and escalation mechanisms.
• The model subsidiary DOA template to be developed as part of this engagement should ensure that subsidiary-level claims-settlement authorities are directly derived from and subordinated to the parent DOA Matrix, with explicit provisions requiring escalation to the parent level for any settlement exceeding the subsidiary threshold.
C. Reinsurance Treaties
Current Thresholds (2017 Matrix):
• CEO authority: ≤ $25.0 million per treaty
• Board approval required: > $25.0 million per treaty
Identified Gaps:
QIH's reinsurance program has expanded significantly since 2017, commensurate with the Company's growth in premium volume, total assets, and risk exposure. The $25.0 million per-treaty threshold has not been adjusted to reflect this growth, resulting in an increasing number of routine reinsurance transactions being escalated to the full Board level. This creates operational inefficiency and diverts Board attention from higher-level strategic considerations to routine treaty placements.
A significant structural gap is the absence of a clear linkage between the DOA Matrix reinsurance authority and the Risk Committee's charter. The Risk Committee charter, which was adopted on February 12, 2016, and has never been amended with respect to its substantive oversight mandate, does not currently include reinsurance as an explicit oversight category. As a result, the coordination between the DOA Matrix and the Risk Committee's authority over reinsurance matters is unclear: the DOA Matrix provides that Board approval is required for treaties exceeding $25.0 million, but it does not specify whether the Risk Committee plays an intermediate review or advisory role in the approval process for treaties above the CEO threshold but below the Board threshold, or whether the Risk Committee has any delegated authority with respect to reinsurance.
Additionally, the current DOA Matrix does not differentiate among types of reinsurance arrangements. Quota-share treaties, excess-of-loss treaties, and facultative placements involve different risk profiles, economic structures, and levels of complexity. A more nuanced approach to reinsurance authority thresholds, potentially differentiating by treaty type or incorporating risk-based criteria, would better serve the Company's governance objectives.
Preliminary Recommendations:
• CEO authority: ≤ $50.0 million per treaty, reflecting the proportional growth in QIH's reinsurance program since 2017.
• Board / Risk Committee approval: > $50.0 million per treaty.
• The restated Risk Committee charter should include explicit reinsurance oversight authority, including the committee's role in reviewing and approving reinsurance arrangements within a delegated threshold range. This recommendation is addressed in further detail in the companion Charter Gap Analysis Memorandum.
• Consideration should be given to differentiating thresholds by treaty type (quota share, excess of loss, facultative) or incorporating qualitative criteria (e.g., counterparty credit quality, retention level changes) as additional escalation triggers.
D. Technology/IT Spending (New Category)
Current Matrix (2017): No standalone category exists. Technology and IT spending is subsumed within the general Capital Expenditures category and is subject to the same thresholds described in Section V.A above.
Identified Gaps:
The absence of a dedicated technology-spending authority category is a material gap in the current DOA Matrix. This gap has become increasingly significant since 2017 for several reasons:
First, QIH has expanded significantly into the insurtech and fintech space through Vantage Digital Insurance Solutions, Inc., which was established after the 2017 DOA Matrix was adopted. Vantage, under the leadership of President Camille R. DuPont, has grown into a significant technology platform operation within the QIH enterprise, involving substantial capital deployment in software development, digital distribution platforms, data analytics infrastructure, and related technology capabilities. The absence of a dedicated technology-spending category means that Vantage's capital deployment decisions are governed by the general capital expenditure thresholds, which are not calibrated for the unique characteristics of technology investments (e.g., shorter useful lives, rapid obsolescence risk, iterative development cycles, cloud-based versus on-premises cost structures).
Second, enterprise-wide technology investment across the entire QIH platform — not limited to Vantage — has increased substantially since 2017. The Company has made significant investments in core systems modernization, data warehouse and analytics capabilities, customer-facing digital tools, and operational automation across its insurance subsidiaries and MGA operations. These investments collectively represent a major and growing category of capital deployment that warrants dedicated governance attention.
Third, the G&W Management Letter noted the absence of a formal Technology & Information Security Committee charter, and the Apex Report found that 11 of the 14 peer companies in the benchmarking study had adopted either a standalone technology and cybersecurity board committee or had added explicit cyber and technology risk oversight to the charter of an existing committee. Several peers' DOA matrices include a distinct technology-spending authority category with dedicated thresholds. The absence of such a category at QIH represents a meaningful deviation from emerging best practices among the Company's peer group.
Fourth, the technology-spending category should explicitly encompass cybersecurity spending, which has become a critical area of enterprise investment and risk management. Cybersecurity expenditures involve unique considerations — including the potential for large, time-sensitive incident-response expenditures that may not fit neatly into a traditional approval workflow — that warrant dedicated treatment in the DOA Matrix.
Preliminary Recommendations:
• CEO authority for IT/technology projects: ≤ $3.0 million per project.
• CEO + CFO / Technology & Cybersecurity Oversight Committee: > $3.0 million per project. The intermediate threshold at which committee-level review is required should be determined in consultation with the proposed new Technology & Cybersecurity Oversight Committee, the establishment of which is recommended in the companion Charter Gap Analysis Memorandum.
• Board approval: above a board-level threshold to be determined through the committee workshop process.
• The new category should explicitly encompass the following subcategories: (i) cybersecurity infrastructure and incident-response spending; (ii) enterprise software and platform licensing; (iii) fintech development capital (including Vantage-specific investments); (iv) core systems modernization; and (v) data analytics and AI/ML infrastructure.
• Consideration should be given to including an expedited approval mechanism for time-sensitive cybersecurity incident-response expenditures, which may require immediate deployment of significant resources outside the normal approval workflow.
E. Vendor Contracts
Current Thresholds (2017 Matrix):
• CEO authority: ≤ $3.0 million annual contract value
• Board approval required: > $3.0 million annual contract value
Identified Gaps:
The $3.0 million annual-value threshold for CEO authority has not been adjusted since 2017 and is low relative to the current scale of QIH's operations. For a company generating $3.12 billion in consolidated revenue, a $3.0 million vendor contract represents approximately 0.10% of revenue — a level that does not warrant full Board scrutiny in the ordinary course. The practical effect of this low threshold is that an excessive volume of routine vendor relationships must be escalated to the Board for approval, consuming Board time and attention that could be more productively focused on higher-level strategic and risk-oversight matters.
Additionally, the current DOA Matrix does not include explicit provisions addressing multi-year vendor contracts. The matrix specifies thresholds based on "annual contract value," but does not address the distinction between annual value and total contract value for multi-year agreements, nor does it address the treatment of contracts with escalation clauses, renewal options, or variable pricing structures. A vendor contract with an annual value of $2.5 million (below the CEO threshold) but a total commitment over a five-year term of $12.5 million may warrant a different level of oversight than a single-year contract of the same annual value.
Preliminary Recommendations:
• CEO authority: ≤ $5.0 million annual contract value.
• Board approval required: > $5.0 million annual contract value.
• The revised DOA Matrix should include provisions addressing total contract value for multi-year agreements, with a separate threshold (e.g., total contract value exceeding $15.0 million regardless of annual value) triggering Board-level review. Provisions should also address the treatment of contracts with automatic renewal provisions, escalation clauses, and material amendment or extension rights.
F. Investment Transactions (Single-Issuer Exposure)
Current Thresholds (2017 Matrix):
• Investment Committee / CEO authority: ≤ $50.0 million per single-issuer exposure
• Aggregate portfolio rebalancing authority: $250.0 million
• Board approval required: above these thresholds
Identified Gaps:
QIH's total invested assets have grown from $11.2 billion at year-end 2016 (the base year for the thresholds established in the 2017 DOA Matrix) to $16.4 billion at year-end 2024, an increase of 46.4%. The $50.0 million single-issuer threshold has not been adjusted to reflect this growth. As a result, the effective delegation has actually tightened over time when measured as a percentage of the total investment portfolio. In 2016, the $50.0 million threshold represented approximately 0.45% of total invested assets ($50M ÷ $11.2B = 0.446%). By 2024, the same nominal threshold represented only approximately 0.30% of total invested assets ($50M ÷ $16.4B = 0.305%). This unintended tightening constrains investment management flexibility and generates escalation requirements for positions that represent a smaller relative concentration within the portfolio than the Board originally intended.
Similarly, the $250.0 million aggregate portfolio rebalancing authority, which permits management-level rebalancing of the investment portfolio up to a specified aggregate amount within a defined period, has not been recalibrated to reflect the growth in total invested assets. As a proportion of the portfolio, this authority has diminished from approximately 2.23% ($250M ÷ $11.2B) to approximately 1.52% ($250M ÷ $16.4B).
A further gap is that the Investment Committee charter, chaired by Jonathan K. Whitmore, was adopted on February 12, 2016, and has never been amended with respect to the investment authority thresholds it establishes. The DOA Matrix and the Investment Committee charter contain the same threshold amounts, which means that both documents need to be updated in tandem to avoid inconsistencies. The coordination between the DOA Matrix and the Investment Committee charter is addressed in the companion Charter Gap Analysis Memorandum.
Preliminary Recommendations:
• Single-issuer exposure threshold: ≤ $75.0 million (reflecting a proportional increase aligned with the 46.4% growth in total invested assets, which would support a threshold of approximately $73.2 million, rounded up to $75.0 million for administrative simplicity).
• Aggregate portfolio rebalancing authority: to be recalibrated in consultation with the Investment Committee and the Company's chief investment officer. A proportional increase to approximately $366.0 million (reflecting the 46.4% asset growth) should be considered, subject to the Investment Committee's views on appropriate portfolio management flexibility.
• The DOA Matrix and Investment Committee charter thresholds must be harmonized. The recommended approach is for the Investment Committee charter to cross-reference the DOA Matrix as the governing document for investment authority thresholds, rather than independently specifying dollar amounts, thereby ensuring that future amendments to the thresholds can be made in a single document.
G. M&A / Strategic Transactions
Current Thresholds (2017 Matrix):
• Board approval required: any transaction > $10.0 million
• Below $10.0 million: CEO authority, with notification to the Board
Identified Gaps:
The $10.0 million threshold for Board-level review of M&A and strategic transactions has not been adjusted since 2017 and generates Board-level review for transactions that are relatively small in the context of QIH's current business scale. For a company with $3.12 billion in consolidated revenue, a $4.8 billion market capitalization, and $18.7 billion in total assets, a $10.0 million strategic transaction represents a modest commitment. Peer benchmarking data from the Apex Report indicates that the median Board-approval threshold for M&A transactions among the 14-company peer group is meaningfully higher than QIH's current $10.0 million level.
The current framework also lacks nuance in its treatment of the M&A transaction lifecycle. No differentiation is drawn between preliminary, non-binding expressions of interest, letters of intent, and definitive transaction agreements. Each stage of a strategic transaction involves a different level of commitment and risk, and the DOA Matrix should reflect this progression by establishing appropriate escalation points at each stage, rather than applying a single dollar threshold to all M&A-related actions regardless of their binding nature.
Additionally, the 2017 threshold has not been adjusted despite QIH's growth, including the establishment of the Vantage Digital subsidiary and the potential for strategic investments, partnerships, and acquisitions in the fintech space that may fall in the $10.0–25.0 million range and could be more efficiently managed at the CEO level with appropriate Board notification.
Preliminary Recommendations: