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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 125 Broad Street, 38th Floor New York, NY 10004

Matter No.: 1025-00004

October 28, 2025

TO: Yuki Nakamura, Lead Associate Angela Fontaine, Responsible Partner

FROM: Carlos Espinoza, Working Associate

RE: Exclusion Clause Analysis — Cyber, Terrorism, Communicable Disease, and Nuclear Exclusions in Proposed Catastrophe Excess-of-Loss Reinsurance Contract (Quorum Specialty Insurance Company)

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I. Executive Summary

This memorandum is an internal analytical work product reviewing the four principal exclusion clauses proposed for inclusion in the draft Catastrophe Excess-of-Loss Reinsurance Contract (the "Treaty" or "Cat XOL Treaty") between Quorum Specialty Insurance Company (NAIC No. 42917), as cedent, and the reinsurer panel consisting of Pinnacle Re Ltd. (50% lead share), Graystone Reinsurance AG (30% following share), and Tidewater Re S.A. (20% following share). The Treaty provides a layer of $35,000,000 per occurrence excess of $15,000,000 retention (net of quota-share recoveries) for the treaty period commencing January 1, 2026 and expiring December 31, 2026.

The four exclusion clauses under review are as follows:

1. LMA 5400 (Cyber Operations Exclusion — Modified per Quorum Manuscript): A property reinsurance cyber exclusion clause, modified by Quorum to include a physical-damage carve-back.

2. LMA 3030 (Terrorism Exclusion — Modified): A terrorism exclusion clause, modified to expressly exclude TRIA-certified acts while narrowing the exclusion for non-certified events that result in physical damage indistinguishable from covered natural-catastrophe perils.

3. NMA 1975a (Nuclear Incident Exclusion Clause — Reinsurance (US)): The standard nuclear exclusion clause applicable to reinsurance contracts covering United States risks.

4. NMA 2962 (Communicable Disease Exclusion): The standard communicable disease exclusion introduced into the reinsurance market following the COVID-19 pandemic.

The analytical approach employed in this memorandum consists of a clause-by-clause textual review of each exclusion, an identification of coverage gaps and ambiguities that could adversely affect Quorum's recovery expectations under the Treaty, a comparison of the proposed exclusion language against current market precedent in the catastrophe excess-of-loss treaty market, and specific drafting recommendations designed to advance Quorum's negotiating position with Pinnacle Re and its counsel, Harmon, Kessler & Fitch LLP (Nathan R. Kessler, lead partner; Miriam Soto-Flores, associate).

Key Conclusion. Quorum should seek targeted carve-backs in the cyber exclusion (LMA 5400) and terrorism exclusion (LMA 3030) to avoid unintended gaps in catastrophe coverage for losses that are fundamentally physical-damage catastrophe losses but that happen to have a nexus with cyber systems or acts of terrorism. The nuclear exclusion (NMA 1975a) and communicable disease exclusion (NMA 2962) are broadly market-standard and require only minor clarifications to achieve contractual certainty. Additionally, Quorum should propose a cross-exclusion priority framework to address scenarios in which multiple exclusions could apply simultaneously, thereby preventing the creation of coverage "black holes" that would require resolution through arbitration.

This memorandum draws upon market intelligence provided by Blackbridge Advisory Group LLC (Owen F. Halstead, Managing Director) regarding prevailing exclusion language in comparable January 1, 2026 treaty renewals in the United States property catastrophe excess-of-loss market.

II. Background and Context

A. Transaction Overview

Quorum Insurance Holdings Corp. is a Delaware corporation (Nasdaq: QIHC) and specialty property and casualty insurance and financial technology holding company headquartered at 400 Constitution Plaza, Suite 2200, Hartford, Connecticut 06103. The operating subsidiary and proposed cedent under the Treaty is Quorum Specialty Insurance Company, a Connecticut-domiciled admitted carrier assigned NAIC No. 42917.

Quorum Specialty maintains a significant property insurance book of business. For the fiscal year ended December 31, 2024, the company reported Gross Written Premium of $312,000,000 on its property book, a net combined ratio of 94.7%, and policyholder surplus of $478,000,000. The company carries an A.M. Best financial strength rating of A– (Excellent) with a Stable outlook, as rated by Brindoval Rating Services. Quorum Specialty's underwriting portfolio includes fintech-enabled commercial lines, a characteristic that is particularly relevant to the analysis of the cyber exclusion clause discussed in Section III below.

The proposed Cat XOL Treaty provides coverage on a per-occurrence basis, with a layer of $35,000,000 excess of $15,000,000 retention (net of quota-share recoveries). The exhaustion point of the layer is $50,000,000. Quorum's 250-year modeled Probable Maximum Loss (net of quota-share) is $52,000,000, as determined by Tempest Analytics CatView v11.2, a catastrophe modeling platform provided through Meridian Actuarial Partners LLC under the direction of Dr. Anita K. Rourke, FCAS. Accordingly, the Treaty layer covers through approximately the 1-in-50-year return period, providing meaningful protection against a broad range of catastrophe loss scenarios while leaving tail risk above the $50,000,000 exhaustion point for potential future excess layers or retained exposure.

The annual premium for the Treaty is $2,975,000, representing a rate-on-line of 8.50%. The minimum premium payable is $2,380,000, representing 80% of the annual premium. Deposit premiums are payable quarterly in installments of $743,750. The Treaty provides one reinstatement at 100% additional premium, calculated pro rata as to time, resulting in a maximum aggregate exposure of $70,000,000 (two limits). The quarterly deposit premium structure is consistent with standard market practice for excess-of-loss catastrophe reinsurance at this layer.

The territorial scope of the Treaty encompasses the Continental United States, Alaska, Hawaii, the Commonwealth of Puerto Rico, and the United States Virgin Islands. The covered perils include all natural perils, specifically including named storm and hurricane, earthquake, flood, wildfire, and severe convective storm. The Treaty does not include coverage for man-made perils, financial guarantee, credit or surety risks, or workers' compensation business.

B. Reinsurer Panel and Participation

The reinsurer panel consists of three participants, with Pinnacle Re Ltd. serving as the lead reinsurer. The specific participation details are as follows:

Pinnacle Re Ltd. is a Bermuda Class 4 insurer domiciled at Cumberland House, 1 Victoria Street, Hamilton HM 11, Bermuda. The company is led by Chief Executive Officer Sir Malcolm J. Broadhurst and Chief Underwriting Officer Elena Papadimitriou, with treaty placement for North America managed by Derek S. Kimball, Head of Treaty, North America. Pinnacle Re subscribes to a 50% share of the Treaty, representing a limit of $17,500,000 and a premium share of $1,487,500. As the lead reinsurer, Pinnacle Re's position on the exclusion clauses will be determinative for the overall placement. Pinnacle Re is represented in this transaction by the law firm of Harmon, Kessler & Fitch LLP, with Nathan R. Kessler as lead partner and Miriam Soto-Flores as the associate handling the day-to-day drafting and negotiation.

Graystone Reinsurance AG is a Swiss Aktiengesellschaft (AG) domiciled at Bahnhofstrasse 72, 8001 Zürich, Switzerland. The company's treaty placement for the Americas region is overseen by Jan-Erik Lindgren, Head of Property Treaty, Americas. Graystone Re subscribes to a 30% share of the Treaty, representing a limit of $10,500,000 and a premium share of $892,500.

Tidewater Re S.A. is a Luxembourg Société Anonyme (S.A.) domiciled at 14 Boulevard Royal, L-2449 Luxembourg. The company's underwriting function is led by Chief Underwriting Officer François-Xavier Delacroix. Tidewater Re subscribes to a 20% share of the Treaty, representing a limit of $7,000,000 and a premium share of $595,000.

It should be noted that Graystone Re and Tidewater Re, as non-US-domiciled reinsurers that are not certified reinsurers under New York Insurance Department regulations, are required to fund multi-beneficiary reinsurance trusts at Fidelitas Trust Company of New York in compliance with New York Insurance Law § 1308 in order to provide Quorum Specialty with full balance-sheet credit for reinsurance recoverables. Pinnacle Re is exempt from this requirement by virtue of its status as a New York Department of Financial Services certified reinsurer (Certification ID CR-2019-0217), which permits Quorum Specialty to take reinsurance credit based on Pinnacle Re's posting of collateral at a reduced level consistent with its certified reinsurer rating category.

C. Relevance of Exclusion Clauses to Catastrophe Coverage

Catastrophe excess-of-loss treaties are designed to respond to large natural-catastrophe loss events. The fundamental purpose of such treaties is to transfer aggregate loss exposure from peak catastrophe perils — hurricane, earthquake, wildfire, severe convective storm, and flood — from the cedent to the reinsurer panel. Exclusion clauses in cat XOL treaties must therefore be carefully tailored so as not to inadvertently exclude losses that are fundamentally physical-damage catastrophe losses but that happen to have a nexus with cyber systems, acts of terrorism, nuclear events, or communicable disease. Overbroad exclusion language can create unintended gaps that effectively reduce the value of the reinsurance protection well below what the cedent has contracted and paid premium to obtain.

The interaction between exclusion clauses and the Treaty's 168-hour hours clause, which defines the temporal boundaries of a single catastrophe occurrence, further complicates the exclusion analysis. In a large catastrophe event — for example, a major hurricane making landfall over a period of several days — losses accumulate within the 168-consecutive-hour occurrence window. If excluded-peril losses (e.g., losses with a cyber nexus or terrorism nexus) occur within the same 168-hour window as covered natural-catastrophe losses, the question arises whether the excluded-peril losses reduce the total occurrence loss that attaches to the Treaty layer, thereby reducing Quorum's recovery, or whether they should be separately excluded and treated as a separate occurrence or non-occurrence event. This interaction requires express contractual clarification.

Quorum Specialty's underwriting book includes fintech-enabled commercial lines, which heightens the concern around the breadth of cyber exclusions. Insured commercial properties in Quorum's portfolio include manufacturing facilities with SCADA and industrial control systems, data centers, commercial office complexes with building automation systems, and retail establishments with point-of-sale and inventory management platforms. These risks are dependent upon digital infrastructure, and a broad cyber exclusion applied without a physical-damage carve-back could result in significant coverage gaps for losses that are, at their core, physical-damage catastrophe losses triggered by natural perils.

D. Governing Law and Dispute Resolution

The proposed Treaty is governed by the laws of the State of New York. Disputes arising under the Treaty are subject to binding arbitration before a three-arbitrator panel seated in New York, New York, conducted in accordance with the rules and procedures of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society of the United States).

The choice of New York law is significant for the exclusion-clause analysis presented in this memorandum. New York courts have consistently held that reinsurance exclusion clauses are to be construed narrowly, with ambiguities resolved against the drafter pursuant to the doctrine of contra proferentem. See, e.g., Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992) (applying narrow construction to exclusionary language in a reinsurance contract). Under New York law, the burden of proving the applicability of an exclusion generally rests on the party seeking to invoke it — in this context, the reinsurer panel. These interpretive principles provide important background support for Quorum's negotiating position on the carve-backs and clarifications recommended herein, as they confirm that ambiguous exclusion language will not operate to deprive Quorum of coverage to which it would otherwise be entitled.

III. Cyber Exclusion — LMA 5400 (Modified per Quorum Manuscript)

A. Description of Standard LMA 5400

LMA 5400 is the London Market Association's property reinsurance cyber exclusion clause, developed in coordination with Sundial Indemnity Co. and first promulgated to address the growing exposure of property reinsurance portfolios to losses arising from or attributable to cyber operations. The clause is designed to exclude a broad spectrum of cyber-related losses from the scope of property reinsurance coverage, including losses arising from malicious cyber attacks, unauthorized access to or interference with computer systems, the use of malicious code (including ransomware, viruses, worms, and trojans), denial-of-service attacks, and failures or interruptions of computer systems, networks, and digital infrastructure.

The purpose of LMA 5400 is to ring-fence the emerging and rapidly evolving cyber risk class from traditional property catastrophe reinsurance, on the theory that cyber risk carries distinct actuarial, accumulation, and modeling characteristics that are not adequately reflected in property catastrophe pricing or catastrophe modeling. The London market's consensus view, reflected in the Lloyd's market bulletin mandating the adoption of affirmative cyber exclusion or inclusion language, is that property (re)insurance contracts should clearly state whether and to what extent cyber-related losses are covered or excluded.

However, the standard form of LMA 5400 creates a broad exclusion that, in its unmodified state, could sweep in physical damage resulting from cyber incidents. For example, a cyber attack targeting the industrial control systems of a chemical processing plant could cause an explosion and fire that destroys the insured facility and damages surrounding properties. Under the standard LMA 5400, all losses "arising from" the cyber attack could be excluded — including the physical fire and explosion damage — even though such damage is indistinguishable in character from the type of physical property damage that the cat XOL treaty is designed to cover. Similarly, a cyber attack targeting power grid infrastructure during a severe convective storm or hurricane could exacerbate property losses in ways that are difficult to disaggregate from the natural-catastrophe losses themselves. The standard form's breadth creates a risk that the cyber exclusion will inadvertently erode catastrophe coverage that is central to the Treaty's commercial purpose.

B. Quorum's Proposed Modifications (Manuscript Language)

Quorum's manuscript modifies the standard LMA 5400 in several material respects to address the concerns identified above. The key modifications are as follows:

Physical Damage Carve-Back. The most significant modification is the inclusion of a "physical damage carve-back" provision. Under this carve-back, losses that are otherwise covered natural-catastrophe perils — including fire, explosion, flood, wind damage, and earthquake damage — are not excluded solely because a cyber event was a contributing or concurrent cause of the loss, provided that the predominant proximate cause of the physical loss or damage is a covered natural peril. The carve-back is designed to preserve coverage for the core physical-damage catastrophe losses that the Treaty is intended to protect, while continuing to exclude losses that are primarily cyber in character.

The "predominant proximate cause" test adopted in Quorum's manuscript represents a deliberate departure from both the "sole proximate cause" test (which would be too narrow, effectively negating the carve-back in any scenario involving multiple contributing causes) and the "concurrent causation" approach (which would raise issues under the standard efficient proximate cause doctrine as applied by New York courts). The predominant proximate cause test requires that the physical loss be evaluated to determine whether the natural-catastrophe peril was the dominant or primary cause of the damage, even if a cyber event was a contributing factor in the causal chain.

Named Peril Write-Back Provision. The Quorum manuscript further includes a "named peril write-back" provision, which provides that even if a cyber event initiates or contributes to a chain of events leading to property damage, if the resulting physical damage falls within a covered peril under the Treaty — such as fire following a cyber-induced power grid failure during a severe convective storm, or flood resulting from a cyber-induced failure of dam control systems during a hurricane — the loss is not excluded from Treaty coverage. This provision operates as a complementary mechanism to the physical damage carve-back, addressing the scenario in which a cyber event is arguably the initiating cause but the physical damage itself is of a type covered by the Treaty.

Retention of Core Cyber Exclusion. The Quorum manuscript retains the core cyber exclusion for losses that are purely cyber in character. Specifically, the following categories of loss remain excluded: business interruption arising solely from computer system outage without associated physical property damage; data loss, corruption, or destruction; privacy and data breach liabilities; network security liabilities; and ransom payments or extortion demands. These categories of pure cyber loss are properly outside the scope of a property catastrophe reinsurance treaty and their continued exclusion is appropriate.

C. Coverage Gap Analysis

Notwithstanding the improvements achieved by Quorum's manuscript modifications, several potential coverage gaps remain that require additional attention in the drafting and negotiation process. These gaps are identified and analyzed below.

Gap 1 — Concurrent Causation Ambiguity. The standard LMA 5400 does not clearly address scenarios where a natural catastrophe and a cyber event occur simultaneously or in close temporal proximity. Consider, for example, a scenario in which a major hurricane makes landfall along the Gulf Coast, causing widespread wind and flood damage to insured commercial properties. During the same event, the hurricane's impact on power grid infrastructure triggers cascading failures in SCADA systems at multiple industrial facilities within Quorum's property portfolio, resulting in equipment malfunctions, chemical releases, and fires. The wind and flood damage is clearly a covered natural-catastrophe loss. The SCADA system failures and their downstream physical damage consequences are at least arguably losses "arising from" a cyber-related failure of computer systems. Under the standard LMA 5400, the entire loss could be swept into the cyber exclusion.

Quorum's manuscript addresses this scenario through the "predominant proximate cause" test, but Pinnacle Re may resist this standard on the grounds that it is difficult to apply in practice, particularly in the midst of a large-scale catastrophe loss adjustment. Pinnacle Re's counsel, Harmon, Kessler & Fitch LLP, may argue that the predominant proximate cause test invites subjective judgment calls and post-loss litigation. We should be prepared for this objection and have a fallback position available, as discussed in the drafting recommendations below.

Gap 2 — Infrastructure Interdependency Risk. Quorum's property book includes commercial risks that are dependent on power grid and digital infrastructure for normal operations. In a major catastrophe event, the failure of digital infrastructure can exacerbate physical-damage losses — for example, building automation systems that manage fire suppression, HVAC, and security may fail during a hurricane or earthquake, leading to greater physical damage than would have occurred if those systems had remained functional. A broad cyber exclusion could result in denial of recovery for physical damage losses in the critical hours during which the 168-hour occurrence window is running, if a concurrent cyber-related infrastructure failure is also ongoing. The interdependency between physical and digital systems is a growing feature of the commercial property landscape, and the exclusion language must be calibrated to account for this reality.

Gap 3 — "Ensuing Loss" Clarity. Quorum's physical damage carve-back must expressly include ensuing physical loss or damage, not just the direct physical damage from the cyber event itself. For example, if a cyber attack causes a power grid failure that in turn causes a fire at an insured facility, the fire damage is an "ensuing loss" from the cyber event. The physical damage carve-back should cover this ensuing fire loss, not merely the direct physical consequences of the power outage (e.g., damage to electrical equipment). If the carve-back is limited to "direct physical damage," the ensuing fire loss could fall into an unintended gap. The current manuscript language should be reviewed to confirm that it encompasses ensuing physical losses.

Gap 4 — Burden of Proof. Under New York law, the burden of proving the applicability of an exclusion generally rests on the insurer or reinsurer invoking it. Quorum should negotiate that this principle is expressly reflected in the cyber exclusion clause, confirming that the burden of demonstrating that a loss arises from a cyber event and is not subject to the physical damage carve-back rests on the reinsurer panel. This allocation of the burden of proof is consistent with New York jurisprudence and should not be controversial, but an express contractual provision will avoid disputes at the claims stage.

D. Market Precedent Comparison

The market for cyber exclusion language in US property catastrophe XOL treaties has evolved significantly over the past several renewal cycles. The following observations are drawn from market intelligence provided by Blackbridge Advisory Group LLC (Owen F. Halstead, Managing Director) and from our own review of exclusion clauses in recent treaty placements by other Calderwood & Harkness clients.

The predominant industry trend in the January 1, 2025 renewals, which is expected to continue and accelerate in the January 1, 2026 renewals, is that the majority of cat XOL treaties include some form of physical damage write-back to the standard LMA 5400 cyber exclusion. Blackbridge's market intelligence indicates that approximately 65–70% of comparable US property cat XOL placements now include a physical damage carve-back, an increase from approximately 50% two renewal cycles ago. This trend reflects the growing recognition among cedents and reinsurers alike that a rigid cyber exclusion that sweeps in all physical damage with any cyber nexus is commercially unreasonable and not reflective of the parties' intent in a catastrophe reinsurance placement.

It is worth noting that some leading reinsurers have moved from LMA 5400 to LMA 5401, a slightly narrower version of the cyber exclusion that contains a more limited scope of excluded cyber operations. However, Pinnacle Re's standard wording remains LMA 5400. Our discussions with Harmon, Kessler & Fitch LLP should address whether Pinnacle Re will accept Quorum's modified LMA 5400 or whether they will propose alternative language, potentially based on LMA 5401 or a bespoke Pinnacle Re manuscript.

Graystone Reinsurance AG, as a FINMA-regulated Swiss reinsurer, has historically accepted physical damage carve-backs in US cat XOL treaties. Graystone's compliance framework under Swiss solvency regulations does not appear to preclude the adoption of carve-back language, and their prior treaty placements suggest a pragmatic approach to this issue. Tidewater Re S.A.'s position is less certain, as we have limited precedent data on their approach to modified cyber exclusion language in US cat XOL placements. Blackbridge should be engaged to confirm Tidewater Re's position and to identify any regulatory or internal underwriting constraints that may affect their willingness to accept the Quorum manuscript.

E. Drafting Recommendations

Based on the foregoing analysis, the following drafting recommendations are made with respect to the LMA 5400 cyber exclusion:

1. Retain the "predominant proximate cause" test in the manuscript physical damage carve-back, but supplement it with illustrative examples set forth in a schedule or preamble to the exclusion clause. The illustrative examples should address the most likely concurrent-causation scenarios, including: (a) hurricane causing wind/flood damage to insured properties while simultaneously disrupting SCADA systems at industrial facilities; (b) earthquake causing structural damage while simultaneously triggering power grid and digital infrastructure failures; and (c) wildfire damaging commercial properties where building automation systems have failed due to concurrent cyber events. These examples will provide interpretive guidance to the arbitration panel in the event of a dispute and will demonstrate the parties' shared intent regarding the scope of the carve-back.

2. Add express "ensuing loss" language to the physical damage carve-back, confirming that the carve-back applies not only to direct physical damage but also to ensuing physical loss or damage that results from a chain of events initiated or contributed to by a cyber event, provided that the ensuing physical loss or damage falls within a covered peril under the Treaty.

3. Clarify that the cyber exclusion does not apply to natural-catastrophe losses merely because digital or cyber systems were impacted as a consequence of the catastrophe event. This clarification addresses the reverse-causation scenario: where a natural catastrophe damages computer systems or digital infrastructure, the resulting physical-damage losses should not be recharacterized as "cyber losses" simply because computer systems were among the assets damaged.

4. Include a provision allocating the burden of proof for the application of the cyber exclusion to the reinsurer panel. The provision should state that, in any dispute regarding the applicability of the cyber exclusion to a claimed loss, the reinsurer(s) invoking the exclusion bear the burden of demonstrating that the loss arises from a cyber event and is not subject to the physical damage carve-back or named peril write-back provisions.

5. Consider an aggregate sub-limit for "cyber-physical" losses as a potential fallback position. If Pinnacle Re resists the full physical damage carve-back with the predominant proximate cause test, Quorum may consider proposing an aggregate sub-limit for losses involving mixed cyber/physical causation chains — for example, a sub-limit of $10,000,000 or $15,000,000 per occurrence for cyber-physical losses. This would cap Quorum's recovery for such losses but would preserve meaningful coverage that would be entirely eliminated under the unmodified LMA 5400. This should be presented as a negotiating concession rather than an opening position.

6. Ensure the 168-hour hours clause interaction is addressed. The exclusion clause or a related treaty provision should state that losses occurring within the 168-hour catastrophe occurrence window are evaluated as a single occurrence for attachment and exhaustion purposes, and that the cyber exclusion does not operate to bifurcate losses within the occurrence window into separate "cyber" and "non-cyber" components. All losses within the occurrence window that satisfy the physical damage carve-back criteria should be aggregated together with other covered losses for purposes of the Treaty's attachment point and exhaustion point.

IV. Terrorism Exclusion — LMA 3030 (Modified)

A. Description of Standard LMA 3030

LMA 3030 is the London Market Association's terrorism exclusion clause for reinsurance contracts. The clause provides a broad exclusion for losses arising from acts of terrorism, which are defined to include politically, religiously, or ideologically motivated violent acts intended to influence a government or to intimidate a civilian population. The standard version of LMA 3030 is drafted broadly and does not differentiate between domestic and foreign terrorism, between state-sponsored and non-state-sponsored terrorism, or between acts that are certified under the Terrorism Risk Insurance Act and those that are not. The clause excludes all losses "arising from" or "attributable to" acts of terrorism, regardless of the nature of the resulting damage.

The standard LMA 3030 was originally drafted for the London reinsurance market, where the interaction with the United States federal terrorism insurance backstop is not a primary concern. However, when applied to US property catastrophe XOL treaties, the standard form creates significant issues related to the interplay between private reinsurance coverage and the TRIA program, as discussed below.

B. Quorum's Proposed Modifications

Quorum's proposed modifications to LMA 3030 are tailored to the specific circumstances of a US-domiciled cedent that participates in the TRIA program. The key modifications are as follows:

Express Exclusion of TRIA-Certified Acts. The modified LMA 3030 expressly excludes TRIA-certified acts of terrorism from the scope of reinsurance coverage under the cat XOL Treaty. The rationale for this exclusion is straightforward: Quorum Specialty, as a Connecticut-domiciled admitted insurer, is a participant in the Terrorism Risk Insurance Act (TRIA) program and benefits from the federal government's backstop for losses resulting from certified acts of terrorism. Seeking duplicative reinsurance coverage for TRIA-certified events from the cat XOL panel would result in either the potential for double recovery (which raises both contractual and regulatory concerns) or unnecessary premium cost for coverage that is already effectively provided through the federal program. The express exclusion of TRIA-certified acts aligns the Treaty with Quorum's overall risk financing architecture and avoids any ambiguity regarding the scope of the federal backstop versus private reinsurance coverage.

Narrowed Exclusion for Non-Certified Events. The more complex drafting challenge concerns the treatment of non-TRIA-certified terrorism events. The modified LMA 3030 retains the exclusion for TRIA-certified acts but narrows the exclusion for non-certified acts of terrorism that result in physical damage to insured property and that are indistinguishable in character from a covered natural-catastrophe peril. For example, an arson-caused wildfire — where the arson is motivated by political or ideological objectives and could be characterized as an act of terrorism — produces physical damage that is identical in character to a wildfire ignited by lightning or by accidental human activity. Similarly, an intentional breach of a dam for terrorist purposes causes flood damage that is indistinguishable from flood damage caused by excessive rainfall or structural failure. In these "grey zone" scenarios, Quorum's modification provides that losses resulting in physical damage covered by the Treaty are not excluded solely because the initiating cause may constitute an act of terrorism, provided the act is not certified under TRIA.

C. Coverage Gap Analysis

The modified LMA 3030 addresses several of the concerns inherent in the standard form, but the following coverage gaps require attention:

Gap 1 — Definition of "Certified Act." The clause should include an express cross-reference to the statutory definition of "certified act of terrorism" as set forth in the Terrorism Risk Insurance Act, 15 U.S.C. § 6701 et seq. The statutory definition requires certification by the Secretary of the Treasury, in concurrence with the Secretary of Homeland Security and the Attorney General, and is subject to certain monetary thresholds and procedural requirements. A critical timing issue arises because certification by the Secretary of the Treasury may occur days, weeks, or even months after the event itself, by which time losses may already have been reported under the Treaty and may have been the subject of interim payments or reserving actions. The clause must address the treatment of losses during the interim period between the occurrence of the event and the formal certification decision. Without such a provision, losses from a potentially certifiable event could be in limbo, with neither the TRIA backstop nor the cat XOL Treaty clearly responding.

Gap 2 — "Grey Zone" Events. Events that are ambiguously motivated — for example, an arson that may or may not be terrorism, a shooting at an insured facility that may or may not be ideologically motivated, or a civil disturbance that escalates to property destruction — present a classification challenge. These events could fall into a gap between the TRIA-certified act exclusion (which applies only after formal certification) and the general terrorism exclusion (which excludes non-certified terrorism losses). Quorum should negotiate a provision establishing a rebuttable presumption that non-certified losses are covered under the Treaty unless and until the event is officially certified as an act of terrorism under TRIA. This presumption would ensure that Quorum has access to reinsurance recovery for ambiguous events, subject to a clawback mechanism that allows the reinsurer panel to recover amounts paid if certification subsequently occurs.

Gap 3 — Interaction with Hours Clause. If a terrorist act triggers a cascade of physical-damage losses over a multi-day period — for example, an explosion that starts a fire that burns for several days, or a dam breach that causes flooding over an extended period — the 168-hour hours clause applies to define the temporal boundaries of the single catastrophe occurrence. The terrorism exclusion should not result in selective extraction of individual losses within the occurrence window. In other words, if some losses within the 168-hour window are terrorism-related and others are not, the exclusion should not operate to reduce the total covered occurrence loss by extracting the terrorism-related sub-component. Instead, the loss should be evaluated as a single occurrence, with the terrorism exclusion applied at the occurrence level based on the predominant character of the event.

Gap 4 — CBRN Terrorism Overlap. Certain acts of terrorism involve chemical, biological, radiological, or nuclear (CBRN) agents. A nuclear terrorism event, for example, would potentially trigger both the terrorism exclusion (LMA 3030) and the nuclear exclusion (NMA 1975a). A biological terrorism event involving a communicable pathogen could trigger both the terrorism exclusion and the communicable disease exclusion (NMA 2962). These overlapping exclusions create a risk of circular reasoning: each exclusion clause may assume that the other clause governs the loss, with the result that no clause clearly applies and the loss falls into a gap between exclusions. A clear priority-of-exclusion provision is needed to resolve this overlap, as discussed further in Section VII below.

D. Market Precedent Comparison

The TRIA-certified act exclusion is a near-universal feature of US property cat XOL treaties in the current market. Virtually all such treaties placed in the January 1, 2025 renewals included this provision, and it is expected to be similarly universal in the January 1, 2026 renewals. Quorum's modification in this regard is therefore fully market-standard and should not generate resistance from Pinnacle Re or the following reinsurers.

The "grey zone" carve-back for non-certified terrorism losses resulting in physical damage is less common than the TRIA-certified act exclusion but is gaining traction in the market. Blackbridge Advisory Group LLC's market intelligence indicates that approximately 40% of comparable US property cat XOL treaties placed in the most recent renewal cycle include some form of this language, with the percentage expected to increase modestly in the January 1, 2026 renewals. The carve-back is most prevalent among sophisticated cedents with significant property catastrophe exposure and experienced reinsurance counsel. While this percentage is below the majority threshold, it represents a substantial and growing minority position, providing Quorum with meaningful market precedent to support its negotiating position.

It is worth noting that the European reinsurers on the panel — Graystone Reinsurance AG (FINMA-regulated) and Tidewater Re S.A. (CAA Luxembourg-regulated) — may have perspectives on terrorism risk that are influenced by their home-market regulatory frameworks. European jurisdictions generally have different terrorism risk pooling and backstop mechanisms than the United States, and the European reinsurers may have internal underwriting guidelines that constrain their ability to accept carve-back language for terrorism-related losses. Blackbridge should be engaged to confirm the positions of Graystone Re and Tidewater Re on this point and to identify any regulatory constraints that may require accommodations in the drafting.

E. Drafting Recommendations

Based on the foregoing analysis, the following drafting recommendations are made with respect to the LMA 3030 terrorism exclusion:

1. Include an express cross-reference to TRIA's statutory definition of "certified act of terrorism" as codified at 15 U.S.C. § 6701 et seq., and to the implementing regulations promulgated by the Department of the Treasury. The cross-reference should specify that a "certified act" for purposes of the exclusion means an act that has been certified by the Secretary of the Treasury in accordance with the procedures set forth in the statute. The cross-reference should be drafted to survive potential statutory amendments or reauthorization by referencing the statute "as amended from time to time."

2. Add a "pending certification" provision addressing the interim treatment of losses from events that may potentially be certified as acts of terrorism but for which certification has not yet occurred at the time of loss reporting or interim payment. The provision should state that losses are treated as covered catastrophe losses under the Treaty unless and until the Secretary of the Treasury makes a formal certification, with a contractual clawback mechanism permitting the reinsurer panel to recover amounts paid under the Treaty if certification occurs after payment has been made. The clawback should include a reasonable time limitation (e.g., 12 months following the event) to avoid indefinite contingent liabilities and should address the mechanics of repayment, including interest.

3. Negotiate a narrow physical-damage carve-back for non-certified terrorism losses that result in physical damage indistinguishable from covered natural-catastrophe perils. The carve-back should be limited to losses involving covered perils under the Treaty (fire, explosion, flood, wind, earthquake) and should not extend to losses involving CBRN agents, which are more appropriately addressed under the nuclear and communicable disease exclusions.

4. Address the CBRN overlap with NMA 1975a explicitly through a priority-of-exclusion clause, as discussed further in Section VII below. The priority clause should specify that, in the event of a nuclear terrorism event, NMA 1975a takes precedence over LMA 3030, and that in the event of a biological terrorism event involving a communicable pathogen, the parties will apply the more specific exclusion clause on a first-priority basis.

5. Ensure the hours clause operates independently of the terrorism exclusion determination. The 168-hour occurrence window should be applied to aggregate all losses within the temporal scope of the occurrence, with the terrorism exclusion applied at the occurrence level rather than on a loss-by-loss basis within the occurrence window.

V. Nuclear Exclusion — NMA 1975a

A. Description of NMA 1975a

NMA 1975a is the standard Nuclear Incident Exclusion Clause — Reinsurance (US), a longstanding market-standard clause that has been included in property reinsurance contracts covering United States risks for decades. The clause excludes losses arising from nuclear reaction, nuclear radiation, or radioactive contamination, regardless of whether the nuclear event is accidental or intentional. NMA 1975a is the product of the Non-Marine Association (now incorporated into the Lloyd's Market Association) and has been adopted virtually universally in the global reinsurance market as the standard nuclear exclusion for reinsurance of US-situs risks.

The clause employs broad "arising from" language, which has historically been interpreted expansively by arbitration panels and courts to encompass not only losses directly caused by nuclear events but also losses that are indirectly connected to or consequential upon such events. The breadth of the "arising from" formulation is the primary area of concern for this analysis, as discussed in the coverage gap analysis below.

NMA 1975a is rarely subject to material modification in the cat XOL treaty market. The nuclear exclusion is one of the most deeply embedded and universally accepted exclusions in property reinsurance, reflecting the consensus view that nuclear risks present accumulation and severity characteristics that are fundamentally incompatible with traditional property catastrophe reinsurance pricing and modeling. The Tempest Analytics CatView v11.2 catastrophe model used by Quorum does not model nuclear incidents as a separate peril, and no major property catastrophe model currently in use provides probabilistic loss estimates for nuclear events.

B. Application to the Cat XOL Treaty

The nuclear exclusion operates to exclude any loss arising from nuclear events, whether accidental (such as a nuclear power plant incident resulting from equipment failure, operator error, or natural-catastrophe-induced damage) or intentional (such as nuclear terrorism or the use of a nuclear device). Given that Quorum's property book is concentrated in the Continental United States, Alaska, Hawaii, Puerto Rico, and the United States Virgin Islands, the most relevant scenario for this analysis is a nuclear power plant incident coinciding with or caused by a natural catastrophe.

The paradigmatic scenario of concern is an earthquake causing damage to a nuclear power facility, resulting in both conventional earthquake damage (ground motion damage, structural collapse, fire following earthquake) and nuclear contamination from a reactor breach. This scenario is analogous to the 2011 Fukushima Daiichi nuclear disaster in Japan, where a magnitude 9.0 earthquake and subsequent tsunami caused a nuclear meltdown and widespread radioactive contamination. In such a scenario, the question arises whether the nuclear exclusion applies only to the nuclear contamination component of the loss, or whether it sweeps in the entire loss — including conventional earthquake damage that would have occurred regardless of the nuclear facility breach.

While the likelihood of a Fukushima-type event in the United States is considered remote, it is not negligible. The United States has 93 operating commercial nuclear reactors at 54 nuclear power plants, many of which are located in areas exposed to natural-catastrophe perils, including earthquake (several California reactors), hurricane (reactors along the Gulf and Atlantic coasts), and severe weather events. The interaction between the nuclear exclusion and covered natural-catastrophe perils is therefore a legitimate, if low-probability, concern for Quorum's cat XOL coverage.

C. Coverage Gap Analysis

The following coverage gaps have been identified in the proposed NMA 1975a language:

Gap 1 — "Arising From" vs. "Caused By." NMA 1975a uses the broad "arising from" formulation, which is more expansive than a "caused by" or "resulting from" standard. In a scenario where an earthquake causes both conventional physical damage and a nuclear facility breach, the question is whether all losses from the earthquake event — including those purely attributable to ground motion, structural collapse, and fire that are entirely independent of the nuclear facility breach — are excluded because the nuclear exclusion applies to the broader event. Under a strict reading of the "arising from" language, an arbitration panel could conclude that all losses arising from the earthquake event are excluded if any component of the event gives rise to nuclear contamination. This interpretation would be commercially unreasonable, as it would effectively nullify the Treaty's earthquake coverage in any scenario involving a nuclear facility.

A more reasonable interpretation, and one consistent with New York's narrow construction of exclusions, would limit the nuclear exclusion to losses arising from the nuclear reaction, radiation, or contamination itself, and not to conventionally caused physical damage that merely occurs contemporaneously with a nuclear event. However, the language of NMA 1975a is sufficiently broad that this interpretation is not guaranteed, and express clarifying language would reduce the risk of an adverse arbitral determination.

Gap 2 — Contamination vs. Physical Damage. A related question concerns property that sustains conventional earthquake damage (e.g., structural cracking, collapse, fire damage) and is subsequently contaminated by radioactive material released from a nearby nuclear facility. Is the pre-contamination physical damage excluded under NMA 1975a? The clause language is ambiguous on this point. If the pre-contamination physical damage is independently quantifiable and was caused by the earthquake ground motion rather than by nuclear reaction, radiation, or contamination, a strong argument exists that it should not be excluded. However, the practical challenges of separating pre-contamination and post-contamination damage — particularly in a scenario where the entire area is subject to evacuation and access restrictions due to radiological hazards — could make this determination difficult.

Gap 3 — Overlap with Terrorism Exclusion. As noted in Section IV.C above, nuclear terrorism creates a dual-exclusion overlap between NMA 1975a and LMA 3030. A clear priority-of-exclusion provision is needed to resolve this overlap and to prevent a situation in which each exclusion assumes the other covers the loss, leaving the loss in a coverage gap.

D. Market Precedent Comparison

NMA 1975a is universally included in US property cat XOL treaties with essentially no modifications in the current market. Blackbridge Advisory Group LLC confirms that no comparable January 1, 2025 or anticipated January 1, 2026 placement included a materially modified NMA 1975a. The clause is one of the most standardized provisions in the reinsurance contract, and significant deviation from the standard form is not expected to be achievable in the current market environment.

That said, there is limited precedent for certain cedents obtaining a "conventional damage" carve-back for earthquake-triggered nuclear incidents. These carve-backs have historically been available only to large, highly rated cedents with significant bargaining power and concentrated earthquake exposure in areas proximate to nuclear facilities. The carve-back language typically provides that conventional physical damage from a natural catastrophe (e.g., earthquake ground motion damage) is not excluded solely because nuclear contamination also results from the same event, provided that the conventional damage is separately quantifiable and did not itself arise from nuclear reaction, radiation, or contamination. Even where such carve-backs have been obtained, they are typically subject to narrow limitations and high evidentiary standards.

E. Drafting Recommendations

Based on the foregoing analysis, the following drafting recommendations are made with respect to the NMA 1975a nuclear exclusion:

1. Propose minor clarifying language to confirm that conventional physical damage from a natural catastrophe (e.g., earthquake ground motion damage, hurricane wind damage, fire following earthquake) is not excluded under NMA 1975a solely because nuclear contamination also results from the same event, provided that the conventional damage is separately quantifiable and did not itself arise from nuclear reaction, nuclear radiation, or radioactive contamination. This clarifying language is narrowly tailored and does not fundamentally alter the scope of the nuclear exclusion; it merely confirms the reasonable interpretation of the clause that New York courts would likely adopt in any event.

2. Include a priority-of-exclusion provision addressing the nuclear/terrorism overlap, specifying that NMA 1975a takes precedence over LMA 3030 in any scenario involving nuclear terrorism or nuclear events with a terrorism nexus.

3. Acknowledge that this is the least likely area for significant negotiation concessions from the reinsurer panel. The nuclear exclusion is deeply embedded in market practice, and Pinnacle Re is unlikely to accept material modifications. We recommend reserving negotiating capital for the cyber and terrorism exclusions, where Quorum's positions are more commercially critical and more consistent with prevailing market trends. The clarifying language proposed in recommendation (1) above should be presented as a reasonable and non-controversial clarification, not as a substantive carve-back.

4. Confirm that NMA 1975a as proposed is the current version and has not been superseded by any subsequent revision. While NMA 1975a has not been materially revised in recent years, it is good practice to verify that the version referenced in the Treaty is the most current form published by the Lloyd's Market Association.

VI. Communicable Disease Exclusion — NMA 2962

A. Description of NMA 2962

NMA 2962 is the standard Communicable Disease Exclusion, developed and promulgated in response to the COVID-19 pandemic. The clause excludes losses arising from communicable disease, epidemic, or pandemic, including business interruption losses, government-ordered closures, and property damage or loss of use attributable to communicable disease conditions. NMA 2962 was introduced broadly into the global reinsurance market beginning with the 2021 renewal cycle and has since become a near-universal feature of property reinsurance contracts at all layers.

The clause was developed in recognition of the unique accumulation characteristics of pandemic risk, which are fundamentally different from traditional property catastrophe perils. Unlike natural catastrophes, which are geographically concentrated and temporally bounded, pandemics are geographically diffuse and can persist for months or years, creating global accumulations that are incompatible with traditional reinsurance pricing and capacity models. The exclusion of communicable disease risk from property catastrophe reinsurance is therefore broadly accepted as commercially reasonable.

B. Application to the Cat XOL Treaty

The cat XOL Treaty covers all natural perils, and communicable disease is not a natural catastrophe peril per se. The Treaty is designed to respond to geographically concentrated, physically destructive natural events — hurricanes, earthquakes, wildfires, floods, and severe convective storms. Communicable disease does not directly cause physical property damage in the manner contemplated by the Treaty's coverage grant.

However, the communicable disease exclusion interacts with covered natural-catastrophe perils in several potentially problematic ways:

Loss Adjustment Timing. A pandemic could cause government-ordered shutdowns, travel restrictions, or workforce limitations that affect the timeline for loss adjustment following a natural catastrophe. If a major hurricane makes landfall during a pandemic, the cedent's ability to inspect damaged properties, adjust claims, and arrange for repairs may be materially impaired by pandemic-related restrictions. The resulting delays could extend the period of business interruption for insured properties, increasing the total covered loss under the Treaty. If the communicable disease exclusion is interpreted to exclude the incremental business interruption losses attributable to pandemic-related delays, a coverage gap is created.

Concurrent Occurrence. A communicable disease outbreak could coincide temporally with a natural catastrophe, complicating the claims process and creating allocation disputes. For example, if a major hurricane strikes during a pandemic, some portion of the economic losses sustained by insured properties may be attributable to pre-existing pandemic conditions (e.g., reduced occupancy, pre-storm business closures) rather than to the hurricane itself. The communicable disease exclusion could be invoked to reduce the covered loss by the amount attributable to pandemic conditions, even though the physical damage from the hurricane is entirely independent of the pandemic.

Business Interruption Components. Business interruption components of covered property losses could, in certain circumstances, be argued to have a communicable disease component. For example, if a hurricane damages an insured hotel and the hotel's post-storm business interruption loss is exacerbated by the fact that tourism is already depressed due to a pandemic, the reinsurer could argue that a portion of the business interruption loss is excluded under NMA 2962.

C. Coverage Gap Analysis

Gap 1 — Overly Broad Application. If interpreted broadly, NMA 2962 could exclude losses from a natural catastrophe that happen to occur during a pandemic period, if any portion of the loss — or any delay in loss adjustment — is attributable to communicable disease conditions. This interpretation would give the exclusion a scope far beyond its intended purpose, effectively penalizing the cedent for the coincidental timing of a natural catastrophe during a pandemic. The exclusion is intended to exclude losses caused by communicable disease, not losses occurring during a communicable disease event.

Gap 2 — Government Action Ambiguity. Government-ordered evacuations, curfews, or access restrictions during a pandemic that prevent or delay property repair following a natural catastrophe could theoretically implicate the communicable disease exclusion. For example, if a government order restricts construction activity during a pandemic, and this restriction extends the repair timeline for hurricane-damaged insured properties, the incremental business interruption loss resulting from the delayed repairs could be characterized as arising from the government's pandemic response. The communicable disease exclusion, if broadly applied, could exclude this incremental loss, even though the underlying physical damage is entirely attributable to the hurricane.

Gap 3 — "But For" Causation Test. The clause does not specify whether it applies only when communicable disease is the proximate cause of the loss or also when communicable disease is a contributing, concurrent, or remote cause. Under a "but for" causation test, any loss that would not have occurred "but for" the existence of a communicable disease condition could be excluded — even if the communicable disease was merely a background condition and the natural catastrophe was the dominant cause of the loss. Quorum should seek a proximate-cause limitation to prevent this outcome.

D. Market Precedent Comparison

NMA 2962 is now nearly universal in cat XOL treaties placed since the 2021 renewal cycle. Blackbridge Advisory Group LLC's market intelligence confirms that the clause is included in virtually all comparable US property cat XOL placements in the current market. The vast majority of these treaties include the standard form of NMA 2962 without substantive modification.

However, a small but growing number of sophisticated cedents have obtained clarifying language confirming that NMA 2962 does not apply to natural-catastrophe losses merely because a communicable disease or pandemic is concurrently present at the time of the loss. This clarifying language typically takes the form of a preamble or interpretive note appended to the standard NMA 2962, rather than a modification to the exclusion language itself. The distinction is significant: a preamble or interpretive note is generally less objectionable to reinsurers than a substantive change to the exclusion clause, as it does not alter the operative language but merely confirms the parties' shared understanding of its intended scope.

Blackbridge reports that the January 1, 2026 renewal market is relatively stable on the communicable disease exclusion. Most reinsurers will accept a clarifying note or preamble but will resist substantive modification to the standard NMA 2962. Given the relatively remote likelihood of a meaningful interaction between the communicable disease exclusion and natural-catastrophe losses in practice — the COVID-19 pandemic's impact on property catastrophe reinsurance claims was ultimately modest — this is an area where Quorum should accept the market-standard approach with a clarifying note rather than expend significant negotiating capital on substantive changes.

E. Drafting Recommendations

Based on the foregoing analysis, the following drafting recommendations are made with respect to the NMA 2962 communicable disease exclusion:

1. Propose a clarifying preamble or interpretive note confirming that NMA 2962 is not intended to exclude natural-catastrophe losses covered under the Treaty merely because a communicable disease or pandemic condition exists at the time of the loss or during the period of loss adjustment. The preamble should state affirmatively that the exclusion is intended to apply to losses caused by communicable disease, not to losses that are coincidental with or temporally proximate to a communicable disease event.

2. Include proximate-cause limitation language within the interpretive note or as an addendum to the standard NMA 2962 form. The limitation should provide that the exclusion applies only when communicable disease is the proximate cause or a dominant proximate cause of the loss, and not when communicable disease is merely a contributing, concurrent, or remote cause. This limitation is consistent with New York's general approach to causation in insurance coverage disputes and should not be controversial.

3. This is a lower-priority negotiation item given the remote likelihood of meaningful interaction between the communicable disease exclusion and natural-catastrophe losses in practice. We recommend accepting the standard NMA 2962 with the clarifying preamble if Pinnacle Re resists substantive changes to the exclusion language. Negotiating capital should be reserved for the cyber and terrorism exclusions, where the commercial stakes for Quorum are significantly higher.

VII. Cross-Exclusion Interaction and Priority Framework

A. Overlapping Exclusion Scenarios

A critical issue that transcends the individual exclusion-clause analyses set forth above is the interaction between and among the four exclusion clauses when multiple exclusions could apply simultaneously to a single loss or occurrence. The followin

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 125 Broad Street, 38th Floor New York, NY 10004
Matter No.: 1025-00004
October 28, 2025
TO: Yuki Nakamura, Lead Associate Angela Fontaine, Responsible Partner
FROM: Carlos Espinoza, Working Associate
RE: Exclusion Clause Analysis — Cyber, Terrorism, Communicable Disease, and Nuclear Exclusions in Proposed Catastrophe Excess-of-Loss Reinsurance Contract (Quorum Specialty Insurance Company)
Right-click to update Table of Contents
I. Executive Summary
This memorandum is an internal analytical work product reviewing the four principal exclusion clauses proposed for inclusion in the draft Catastrophe Excess-of-Loss Reinsurance Contract (the "Treaty" or "Cat XOL Treaty") between Quorum Specialty Insurance Company (NAIC No. 42917), as cedent, and the reinsurer panel consisting of Pinnacle Re Ltd. (50% lead share), Graystone Reinsurance AG (30% following share), and Tidewater Re S.A. (20% following share). The Treaty provides a layer of $35,000,000 per occurrence excess of $15,000,000 retention (net of quota-share recoveries) for the treaty period commencing January 1, 2026 and expiring December 31, 2026.
The four exclusion clauses under review are as follows:
1. LMA 5400 (Cyber Operations Exclusion — Modified per Quorum Manuscript): A property reinsurance cyber exclusion clause, modified by Quorum to include a physical-damage carve-back.
2. LMA 3030 (Terrorism Exclusion — Modified): A terrorism exclusion clause, modified to expressly exclude TRIA-certified acts while narrowing the exclusion for non-certified events that result in physical damage indistinguishable from covered natural-catastrophe perils.
3. NMA 1975a (Nuclear Incident Exclusion Clause — Reinsurance (US)): The standard nuclear exclusion clause applicable to reinsurance contracts covering United States risks.
4. NMA 2962 (Communicable Disease Exclusion): The standard communicable disease exclusion introduced into the reinsurance market following the COVID-19 pandemic.
The analytical approach employed in this memorandum consists of a clause-by-clause textual review of each exclusion, an identification of coverage gaps and ambiguities that could adversely affect Quorum's recovery expectations under the Treaty, a comparison of the proposed exclusion language against current market precedent in the catastrophe excess-of-loss treaty market, and specific drafting recommendations designed to advance Quorum's negotiating position with Pinnacle Re and its counsel, Harmon, Kessler & Fitch LLP (Nathan R. Kessler, lead partner; Miriam Soto-Flores, associate).
Key Conclusion. Quorum should seek targeted carve-backs in the cyber exclusion (LMA 5400) and terrorism exclusion (LMA 3030) to avoid unintended gaps in catastrophe coverage for losses that are fundamentally physical-damage catastrophe losses but that happen to have a nexus with cyber systems or acts of terrorism. The nuclear exclusion (NMA 1975a) and communicable disease exclusion (NMA 2962) are broadly market-standard and require only minor clarifications to achieve contractual certainty. Additionally, Quorum should propose a cross-exclusion priority framework to address scenarios in which multiple exclusions could apply simultaneously, thereby preventing the creation of coverage "black holes" that would require resolution through arbitration.
This memorandum draws upon market intelligence provided by Blackbridge Advisory Group LLC (Owen F. Halstead, Managing Director) regarding prevailing exclusion language in comparable January 1, 2026 treaty renewals in the United States property catastrophe excess-of-loss market.
II. Background and Context
A. Transaction Overview
Quorum Insurance Holdings Corp. is a Delaware corporation (Nasdaq: QIHC) and specialty property and casualty insurance and financial technology holding company headquartered at 400 Constitution Plaza, Suite 2200, Hartford, Connecticut 06103. The operating subsidiary and proposed cedent under the Treaty is Quorum Specialty Insurance Company, a Connecticut-domiciled admitted carrier assigned NAIC No. 42917.
Quorum Specialty maintains a significant property insurance book of business. For the fiscal year ended December 31, 2024, the company reported Gross Written Premium of $312,000,000 on its property book, a net combined ratio of 94.7%, and policyholder surplus of $478,000,000. The company carries an A.M. Best financial strength rating of A– (Excellent) with a Stable outlook, as rated by Brindoval Rating Services. Quorum Specialty's underwriting portfolio includes fintech-enabled commercial lines, a characteristic that is particularly relevant to the analysis of the cyber exclusion clause discussed in Section III below.
The proposed Cat XOL Treaty provides coverage on a per-occurrence basis, with a layer of $35,000,000 excess of $15,000,000 retention (net of quota-share recoveries). The exhaustion point of the layer is $50,000,000. Quorum's 250-year modeled Probable Maximum Loss (net of quota-share) is $52,000,000, as determined by Tempest Analytics CatView v11.2, a catastrophe modeling platform provided through Meridian Actuarial Partners LLC under the direction of Dr. Anita K. Rourke, FCAS. Accordingly, the Treaty layer covers through approximately the 1-in-50-year return period, providing meaningful protection against a broad range of catastrophe loss scenarios while leaving tail risk above the $50,000,000 exhaustion point for potential future excess layers or retained exposure.
The annual premium for the Treaty is $2,975,000, representing a rate-on-line of 8.50%. The minimum premium payable is $2,380,000, representing 80% of the annual premium. Deposit premiums are payable quarterly in installments of $743,750. The Treaty provides one reinstatement at 100% additional premium, calculated pro rata as to time, resulting in a maximum aggregate exposure of $70,000,000 (two limits). The quarterly deposit premium structure is consistent with standard market practice for excess-of-loss catastrophe reinsurance at this layer.
The territorial scope of the Treaty encompasses the Continental United States, Alaska, Hawaii, the Commonwealth of Puerto Rico, and the United States Virgin Islands. The covered perils include all natural perils, specifically including named storm and hurricane, earthquake, flood, wildfire, and severe convective storm. The Treaty does not include coverage for man-made perils, financial guarantee, credit or surety risks, or workers' compensation business.
B. Reinsurer Panel and Participation
The reinsurer panel consists of three participants, with Pinnacle Re Ltd. serving as the lead reinsurer. The specific participation details are as follows:
Pinnacle Re Ltd. is a Bermuda Class 4 insurer domiciled at Cumberland House, 1 Victoria Street, Hamilton HM 11, Bermuda. The company is led by Chief Executive Officer Sir Malcolm J. Broadhurst and Chief Underwriting Officer Elena Papadimitriou, with treaty placement for North America managed by Derek S. Kimball, Head of Treaty, North America. Pinnacle Re subscribes to a 50% share of the Treaty, representing a limit of $17,500,000 and a premium share of $1,487,500. As the lead reinsurer, Pinnacle Re's position on the exclusion clauses will be determinative for the overall placement. Pinnacle Re is represented in this transaction by the law firm of Harmon, Kessler & Fitch LLP, with Nathan R. Kessler as lead partner and Miriam Soto-Flores as the associate handling the day-to-day drafting and negotiation.
Graystone Reinsurance AG is a Swiss Aktiengesellschaft (AG) domiciled at Bahnhofstrasse 72, 8001 Zürich, Switzerland. The company's treaty placement for the Americas region is overseen by Jan-Erik Lindgren, Head of Property Treaty, Americas. Graystone Re subscribes to a 30% share of the Treaty, representing a limit of $10,500,000 and a premium share of $892,500.
Tidewater Re S.A. is a Luxembourg Société Anonyme (S.A.) domiciled at 14 Boulevard Royal, L-2449 Luxembourg. The company's underwriting function is led by Chief Underwriting Officer François-Xavier Delacroix. Tidewater Re subscribes to a 20% share of the Treaty, representing a limit of $7,000,000 and a premium share of $595,000.
It should be noted that Graystone Re and Tidewater Re, as non-US-domiciled reinsurers that are not certified reinsurers under New York Insurance Department regulations, are required to fund multi-beneficiary reinsurance trusts at Fidelitas Trust Company of New York in compliance with New York Insurance Law § 1308 in order to provide Quorum Specialty with full balance-sheet credit for reinsurance recoverables. Pinnacle Re is exempt from this requirement by virtue of its status as a New York Department of Financial Services certified reinsurer (Certification ID CR-2019-0217), which permits Quorum Specialty to take reinsurance credit based on Pinnacle Re's posting of collateral at a reduced level consistent with its certified reinsurer rating category.
C. Relevance of Exclusion Clauses to Catastrophe Coverage
Catastrophe excess-of-loss treaties are designed to respond to large natural-catastrophe loss events. The fundamental purpose of such treaties is to transfer aggregate loss exposure from peak catastrophe perils — hurricane, earthquake, wildfire, severe convective storm, and flood — from the cedent to the reinsurer panel. Exclusion clauses in cat XOL treaties must therefore be carefully tailored so as not to inadvertently exclude losses that are fundamentally physical-damage catastrophe losses but that happen to have a nexus with cyber systems, acts of terrorism, nuclear events, or communicable disease. Overbroad exclusion language can create unintended gaps that effectively reduce the value of the reinsurance protection well below what the cedent has contracted and paid premium to obtain.
The interaction between exclusion clauses and the Treaty's 168-hour hours clause, which defines the temporal boundaries of a single catastrophe occurrence, further complicates the exclusion analysis. In a large catastrophe event — for example, a major hurricane making landfall over a period of several days — losses accumulate within the 168-consecutive-hour occurrence window. If excluded-peril losses (e.g., losses with a cyber nexus or terrorism nexus) occur within the same 168-hour window as covered natural-catastrophe losses, the question arises whether the excluded-peril losses reduce the total occurrence loss that attaches to the Treaty layer, thereby reducing Quorum's recovery, or whether they should be separately excluded and treated as a separate occurrence or non-occurrence event. This interaction requires express contractual clarification.
Quorum Specialty's underwriting book includes fintech-enabled commercial lines, which heightens the concern around the breadth of cyber exclusions. Insured commercial properties in Quorum's portfolio include manufacturing facilities with SCADA and industrial control systems, data centers, commercial office complexes with building automation systems, and retail establishments with point-of-sale and inventory management platforms. These risks are dependent upon digital infrastructure, and a broad cyber exclusion applied without a physical-damage carve-back could result in significant coverage gaps for losses that are, at their core, physical-damage catastrophe losses triggered by natural perils.
D. Governing Law and Dispute Resolution
The proposed Treaty is governed by the laws of the State of New York. Disputes arising under the Treaty are subject to binding arbitration before a three-arbitrator panel seated in New York, New York, conducted in accordance with the rules and procedures of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society of the United States).
The choice of New York law is significant for the exclusion-clause analysis presented in this memorandum. New York courts have consistently held that reinsurance exclusion clauses are to be construed narrowly, with ambiguities resolved against the drafter pursuant to the doctrine of contra proferentem. See, e.g., Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992) (applying narrow construction to exclusionary language in a reinsurance contract). Under New York law, the burden of proving the applicability of an exclusion generally rests on the party seeking to invoke it — in this context, the reinsurer panel. These interpretive principles provide important background support for Quorum's negotiating position on the carve-backs and clarifications recommended herein, as they confirm that ambiguous exclusion language will not operate to deprive Quorum of coverage to which it would otherwise be entitled.
III. Cyber Exclusion — LMA 5400 (Modified per Quorum Manuscript)
A. Description of Standard LMA 5400
LMA 5400 is the London Market Association's property reinsurance cyber exclusion clause, developed in coordination with Sundial Indemnity Co. and first promulgated to address the growing exposure of property reinsurance portfolios to losses arising from or attributable to cyber operations. The clause is designed to exclude a broad spectrum of cyber-related losses from the scope of property reinsurance coverage, including losses arising from malicious cyber attacks, unauthorized access to or interference with computer systems, the use of malicious code (including ransomware, viruses, worms, and trojans), denial-of-service attacks, and failures or interruptions of computer systems, networks, and digital infrastructure.
The purpose of LMA 5400 is to ring-fence the emerging and rapidly evolving cyber risk class from traditional property catastrophe reinsurance, on the theory that cyber risk carries distinct actuarial, accumulation, and modeling characteristics that are not adequately reflected in property catastrophe pricing or catastrophe modeling. The London market's consensus view, reflected in the Lloyd's market bulletin mandating the adoption of affirmative cyber exclusion or inclusion language, is that property (re)insurance contracts should clearly state whether and to what extent cyber-related losses are covered or excluded.
However, the standard form of LMA 5400 creates a broad exclusion that, in its unmodified state, could sweep in physical damage resulting from cyber incidents. For example, a cyber attack targeting the industrial control systems of a chemical processing plant could cause an explosion and fire that destroys the insured facility and damages surrounding properties. Under the standard LMA 5400, all losses "arising from" the cyber attack could be excluded — including the physical fire and explosion damage — even though such damage is indistinguishable in character from the type of physical property damage that the cat XOL treaty is designed to cover. Similarly, a cyber attack targeting power grid infrastructure during a severe convective storm or hurricane could exacerbate property losses in ways that are difficult to disaggregate from the natural-catastrophe losses themselves. The standard form's breadth creates a risk that the cyber exclusion will inadvertently erode catastrophe coverage that is central to the Treaty's commercial purpose.
B. Quorum's Proposed Modifications (Manuscript Language)
Quorum's manuscript modifies the standard LMA 5400 in several material respects to address the concerns identified above. The key modifications are as follows:
Physical Damage Carve-Back. The most significant modification is the inclusion of a "physical damage carve-back" provision. Under this carve-back, losses that are otherwise covered natural-catastrophe perils — including fire, explosion, flood, wind damage, and earthquake damage — are not excluded solely because a cyber event was a contributing or concurrent cause of the loss, provided that the predominant proximate cause of the physical loss or damage is a covered natural peril. The carve-back is designed to preserve coverage for the core physical-damage catastrophe losses that the Treaty is intended to protect, while continuing to exclude losses that are primarily cyber in character.
The "predominant proximate cause" test adopted in Quorum's manuscript represents a deliberate departure from both the "sole proximate cause" test (which would be too narrow, effectively negating the carve-back in any scenario involving multiple contributing causes) and the "concurrent causation" approach (which would raise issues under the standard efficient proximate cause doctrine as applied by New York courts). The predominant proximate cause test requires that the physical loss be evaluated to determine whether the natural-catastrophe peril was the dominant or primary cause of the damage, even if a cyber event was a contributing factor in the causal chain.
Named Peril Write-Back Provision. The Quorum manuscript further includes a "named peril write-back" provision, which provides that even if a cyber event initiates or contributes to a chain of events leading to property damage, if the resulting physical damage falls within a covered peril under the Treaty — such as fire following a cyber-induced power grid failure during a severe convective storm, or flood resulting from a cyber-induced failure of dam control systems during a hurricane — the loss is not excluded from Treaty coverage. This provision operates as a complementary mechanism to the physical damage carve-back, addressing the scenario in which a cyber event is arguably the initiating cause but the physical damage itself is of a type covered by the Treaty.
Retention of Core Cyber Exclusion. The Quorum manuscript retains the core cyber exclusion for losses that are purely cyber in character. Specifically, the following categories of loss remain excluded: business interruption arising solely from computer system outage without associated physical property damage; data loss, corruption, or destruction; privacy and data breach liabilities; network security liabilities; and ransom payments or extortion demands. These categories of pure cyber loss are properly outside the scope of a property catastrophe reinsurance treaty and their continued exclusion is appropriate.
C. Coverage Gap Analysis
Notwithstanding the improvements achieved by Quorum's manuscript modifications, several potential coverage gaps remain that require additional attention in the drafting and negotiation process. These gaps are identified and analyzed below.
Gap 1 — Concurrent Causation Ambiguity. The standard LMA 5400 does not clearly address scenarios where a natural catastrophe and a cyber event occur simultaneously or in close temporal proximity. Consider, for example, a scenario in which a major hurricane makes landfall along the Gulf Coast, causing widespread wind and flood damage to insured commercial properties. During the same event, the hurricane's impact on power grid infrastructure triggers cascading failures in SCADA systems at multiple industrial facilities within Quorum's property portfolio, resulting in equipment malfunctions, chemical releases, and fires. The wind and flood damage is clearly a covered natural-catastrophe loss. The SCADA system failures and their downstream physical damage consequences are at least arguably losses "arising from" a cyber-related failure of computer systems. Under the standard LMA 5400, the entire loss could be swept into the cyber exclusion.
Quorum's manuscript addresses this scenario through the "predominant proximate cause" test, but Pinnacle Re may resist this standard on the grounds that it is difficult to apply in practice, particularly in the midst of a large-scale catastrophe loss adjustment. Pinnacle Re's counsel, Harmon, Kessler & Fitch LLP, may argue that the predominant proximate cause test invites subjective judgment calls and post-loss litigation. We should be prepared for this objection and have a fallback position available, as discussed in the drafting recommendations below.
Gap 2 — Infrastructure Interdependency Risk. Quorum's property book includes commercial risks that are dependent on power grid and digital infrastructure for normal operations. In a major catastrophe event, the failure of digital infrastructure can exacerbate physical-damage losses — for example, building automation systems that manage fire suppression, HVAC, and security may fail during a hurricane or earthquake, leading to greater physical damage than would have occurred if those systems had remained functional. A broad cyber exclusion could result in denial of recovery for physical damage losses in the critical hours during which the 168-hour occurrence window is running, if a concurrent cyber-related infrastructure failure is also ongoing. The interdependency between physical and digital systems is a growing feature of the commercial property landscape, and the exclusion language must be calibrated to account for this reality.
Gap 3 — "Ensuing Loss" Clarity. Quorum's physical damage carve-back must expressly include ensuing physical loss or damage, not just the direct physical damage from the cyber event itself. For example, if a cyber attack causes a power grid failure that in turn causes a fire at an insured facility, the fire damage is an "ensuing loss" from the cyber event. The physical damage carve-back should cover this ensuing fire loss, not merely the direct physical consequences of the power outage (e.g., damage to electrical equipment). If the carve-back is limited to "direct physical damage," the ensuing fire loss could fall into an unintended gap. The current manuscript language should be reviewed to confirm that it encompasses ensuing physical losses.
Gap 4 — Burden of Proof. Under New York law, the burden of proving the applicability of an exclusion generally rests on the insurer or reinsurer invoking it. Quorum should negotiate that this principle is expressly reflected in the cyber exclusion clause, confirming that the burden of demonstrating that a loss arises from a cyber event and is not subject to the physical damage carve-back rests on the reinsurer panel. This allocation of the burden of proof is consistent with New York jurisprudence and should not be controversial, but an express contractual provision will avoid disputes at the claims stage.
D. Market Precedent Comparison
The market for cyber exclusion language in US property catastrophe XOL treaties has evolved significantly over the past several renewal cycles. The following observations are drawn from market intelligence provided by Blackbridge Advisory Group LLC (Owen F. Halstead, Managing Director) and from our own review of exclusion clauses in recent treaty placements by other Calderwood & Harkness clients.
The predominant industry trend in the January 1, 2025 renewals, which is expected to continue and accelerate in the January 1, 2026 renewals, is that the majority of cat XOL treaties include some form of physical damage write-back to the standard LMA 5400 cyber exclusion. Blackbridge's market intelligence indicates that approximately 65–70% of comparable US property cat XOL placements now include a physical damage carve-back, an increase from approximately 50% two renewal cycles ago. This trend reflects the growing recognition among cedents and reinsurers alike that a rigid cyber exclusion that sweeps in all physical damage with any cyber nexus is commercially unreasonable and not reflective of the parties' intent in a catastrophe reinsurance placement.
It is worth noting that some leading reinsurers have moved from LMA 5400 to LMA 5401, a slightly narrower version of the cyber exclusion that contains a more limited scope of excluded cyber operations. However, Pinnacle Re's standard wording remains LMA 5400. Our discussions with Harmon, Kessler & Fitch LLP should address whether Pinnacle Re will accept Quorum's modified LMA 5400 or whether they will propose alternative language, potentially based on LMA 5401 or a bespoke Pinnacle Re manuscript.
Graystone Reinsurance AG, as a FINMA-regulated Swiss reinsurer, has historically accepted physical damage carve-backs in US cat XOL treaties. Graystone's compliance framework under Swiss solvency regulations does not appear to preclude the adoption of carve-back language, and their prior treaty placements suggest a pragmatic approach to this issue. Tidewater Re S.A.'s position is less certain, as we have limited precedent data on their approach to modified cyber exclusion language in US cat XOL placements. Blackbridge should be engaged to confirm Tidewater Re's position and to identify any regulatory or internal underwriting constraints that may affect their willingness to accept the Quorum manuscript.
E. Drafting Recommendations
Based on the foregoing analysis, the following drafting recommendations are made with respect to the LMA 5400 cyber exclusion:
1. Retain the "predominant proximate cause" test in the manuscript physical damage carve-back, but supplement it with illustrative examples set forth in a schedule or preamble to the exclusion clause. The illustrative examples should address the most likely concurrent-causation scenarios, including: (a) hurricane causing wind/flood damage to insured properties while simultaneously disrupting SCADA systems at industrial facilities; (b) earthquake causing structural damage while simultaneously triggering power grid and digital infrastructure failures; and (c) wildfire damaging commercial properties where building automation systems have failed due to concurrent cyber events. These examples will provide interpretive guidance to the arbitration panel in the event of a dispute and will demonstrate the parties' shared intent regarding the scope of the carve-back.
2. Add express "ensuing loss" language to the physical damage carve-back, confirming that the carve-back applies not only to direct physical damage but also to ensuing physical loss or damage that results from a chain of events initiated or contributed to by a cyber event, provided that the ensuing physical loss or damage falls within a covered peril under the Treaty.
3. Clarify that the cyber exclusion does not apply to natural-catastrophe losses merely because digital or cyber systems were impacted as a consequence of the catastrophe event. This clarification addresses the reverse-causation scenario: where a natural catastrophe damages computer systems or digital infrastructure, the resulting physical-damage losses should not be recharacterized as "cyber losses" simply because computer systems were among the assets damaged.
4. Include a provision allocating the burden of proof for the application of the cyber exclusion to the reinsurer panel. The provision should state that, in any dispute regarding the applicability of the cyber exclusion to a claimed loss, the reinsurer(s) invoking the exclusion bear the burden of demonstrating that the loss arises from a cyber event and is not subject to the physical damage carve-back or named peril write-back provisions.
5. Consider an aggregate sub-limit for "cyber-physical" losses as a potential fallback position. If Pinnacle Re resists the full physical damage carve-back with the predominant proximate cause test, Quorum may consider proposing an aggregate sub-limit for losses involving mixed cyber/physical causation chains — for example, a sub-limit of $10,000,000 or $15,000,000 per occurrence for cyber-physical losses. This would cap Quorum's recovery for such losses but would preserve meaningful coverage that would be entirely eliminated under the unmodified LMA 5400. This should be presented as a negotiating concession rather than an opening position.
6. Ensure the 168-hour hours clause interaction is addressed. The exclusion clause or a related treaty provision should state that losses occurring within the 168-hour catastrophe occurrence window are evaluated as a single occurrence for attachment and exhaustion purposes, and that the cyber exclusion does not operate to bifurcate losses within the occurrence window into separate "cyber" and "non-cyber" components. All losses within the occurrence window that satisfy the physical damage carve-back criteria should be aggregated together with other covered losses for purposes of the Treaty's attachment point and exhaustion point.
IV. Terrorism Exclusion — LMA 3030 (Modified)
A. Description of Standard LMA 3030
LMA 3030 is the London Market Association's terrorism exclusion clause for reinsurance contracts. The clause provides a broad exclusion for losses arising from acts of terrorism, which are defined to include politically, religiously, or ideologically motivated violent acts intended to influence a government or to intimidate a civilian population. The standard version of LMA 3030 is drafted broadly and does not differentiate between domestic and foreign terrorism, between state-sponsored and non-state-sponsored terrorism, or between acts that are certified under the Terrorism Risk Insurance Act and those that are not. The clause excludes all losses "arising from" or "attributable to" acts of terrorism, regardless of the nature of the resulting damage.
The standard LMA 3030 was originally drafted for the London reinsurance market, where the interaction with the United States federal terrorism insurance backstop is not a primary concern. However, when applied to US property catastrophe XOL treaties, the standard form creates significant issues related to the interplay between private reinsurance coverage and the TRIA program, as discussed below.
B. Quorum's Proposed Modifications
Quorum's proposed modifications to LMA 3030 are tailored to the specific circumstances of a US-domiciled cedent that participates in the TRIA program. The key modifications are as follows:
Express Exclusion of TRIA-Certified Acts. The modified LMA 3030 expressly excludes TRIA-certified acts of terrorism from the scope of reinsurance coverage under the cat XOL Treaty. The rationale for this exclusion is straightforward: Quorum Specialty, as a Connecticut-domiciled admitted insurer, is a participant in the Terrorism Risk Insurance Act (TRIA) program and benefits from the federal government's backstop for losses resulting from certified acts of terrorism. Seeking duplicative reinsurance coverage for TRIA-certified events from the cat XOL panel would result in either the potential for double recovery (which raises both contractual and regulatory concerns) or unnecessary premium cost for coverage that is already effectively provided through the federal program. The express exclusion of TRIA-certified acts aligns the Treaty with Quorum's overall risk financing architecture and avoids any ambiguity regarding the scope of the federal backstop versus private reinsurance coverage.
Narrowed Exclusion for Non-Certified Events. The more complex drafting challenge concerns the treatment of non-TRIA-certified terrorism events. The modified LMA 3030 retains the exclusion for TRIA-certified acts but narrows the exclusion for non-certified acts of terrorism that result in physical damage to insured property and that are indistinguishable in character from a covered natural-catastrophe peril. For example, an arson-caused wildfire — where the arson is motivated by political or ideological objectives and could be characterized as an act of terrorism — produces physical damage that is identical in character to a wildfire ignited by lightning or by accidental human activity. Similarly, an intentional breach of a dam for terrorist purposes causes flood damage that is indistinguishable from flood damage caused by excessive rainfall or structural failure. In these "grey zone" scenarios, Quorum's modification provides that losses resulting in physical damage covered by the Treaty are not excluded solely because the initiating cause may constitute an act of terrorism, provided the act is not certified under TRIA.
C. Coverage Gap Analysis
The modified LMA 3030 addresses several of the concerns inherent in the standard form, but the following coverage gaps require attention:
Gap 1 — Definition of "Certified Act." The clause should include an express cross-reference to the statutory definition of "certified act of terrorism" as set forth in the Terrorism Risk Insurance Act, 15 U.S.C. § 6701 et seq. The statutory definition requires certification by the Secretary of the Treasury, in concurrence with the Secretary of Homeland Security and the Attorney General, and is subject to certain monetary thresholds and procedural requirements. A critical timing issue arises because certification by the Secretary of the Treasury may occur days, weeks, or even months after the event itself, by which time losses may already have been reported under the Treaty and may have been the subject of interim payments or reserving actions. The clause must address the treatment of losses during the interim period between the occurrence of the event and the formal certification decision. Without such a provision, losses from a potentially certifiable event could be in limbo, with neither the TRIA backstop nor the cat XOL Treaty clearly responding.
Gap 2 — "Grey Zone" Events. Events that are ambiguously motivated — for example, an arson that may or may not be terrorism, a shooting at an insured facility that may or may not be ideologically motivated, or a civil disturbance that escalates to property destruction — present a classification challenge. These events could fall into a gap between the TRIA-certified act exclusion (which applies only after formal certification) and the general terrorism exclusion (which excludes non-certified terrorism losses). Quorum should negotiate a provision establishing a rebuttable presumption that non-certified losses are covered under the Treaty unless and until the event is officially certified as an act of terrorism under TRIA. This presumption would ensure that Quorum has access to reinsurance recovery for ambiguous events, subject to a clawback mechanism that allows the reinsurer panel to recover amounts paid if certification subsequently occurs.
Gap 3 — Interaction with Hours Clause. If a terrorist act triggers a cascade of physical-damage losses over a multi-day period — for example, an explosion that starts a fire that burns for several days, or a dam breach that causes flooding over an extended period — the 168-hour hours clause applies to define the temporal boundaries of the single catastrophe occurrence. The terrorism exclusion should not result in selective extraction of individual losses within the occurrence window. In other words, if some losses within the 168-hour window are terrorism-related and others are not, the exclusion should not operate to reduce the total covered occurrence loss by extracting the terrorism-related sub-component. Instead, the loss should be evaluated as a single occurrence, with the terrorism exclusion applied at the occurrence level based on the predominant character of the event.
Gap 4 — CBRN Terrorism Overlap. Certain acts of terrorism involve chemical, biological, radiological, or nuclear (CBRN) agents. A nuclear terrorism event, for example, would potentially trigger both the terrorism exclusion (LMA 3030) and the nuclear exclusion (NMA 1975a). A biological terrorism event involving a communicable pathogen could trigger both the terrorism exclusion and the communicable disease exclusion (NMA 2962). These overlapping exclusions create a risk of circular reasoning: each exclusion clause may assume that the other clause governs the loss, with the result that no clause clearly applies and the loss falls into a gap between exclusions. A clear priority-of-exclusion provision is needed to resolve this overlap, as discussed further in Section VII below.
D. Market Precedent Comparison
The TRIA-certified act exclusion is a near-universal feature of US property cat XOL treaties in the current market. Virtually all such treaties placed in the January 1, 2025 renewals included this provision, and it is expected to be similarly universal in the January 1, 2026 renewals. Quorum's modification in this regard is therefore fully market-standard and should not generate resistance from Pinnacle Re or the following reinsurers.
The "grey zone" carve-back for non-certified terrorism losses resulting in physical damage is less common than the TRIA-certified act exclusion but is gaining traction in the market. Blackbridge Advisory Group LLC's market intelligence indicates that approximately 40% of comparable US property cat XOL treaties placed in the most recent renewal cycle include some form of this language, with the percentage expected to increase modestly in the January 1, 2026 renewals. The carve-back is most prevalent among sophisticated cedents with significant property catastrophe exposure and experienced reinsurance counsel. While this percentage is below the majority threshold, it represents a substantial and growing minority position, providing Quorum with meaningful market precedent to support its negotiating position.
It is worth noting that the European reinsurers on the panel — Graystone Reinsurance AG (FINMA-regulated) and Tidewater Re S.A. (CAA Luxembourg-regulated) — may have perspectives on terrorism risk that are influenced by their home-market regulatory frameworks. European jurisdictions generally have different terrorism risk pooling and backstop mechanisms than the United States, and the European reinsurers may have internal underwriting guidelines that constrain their ability to accept carve-back language for terrorism-related losses. Blackbridge should be engaged to confirm the positions of Graystone Re and Tidewater Re on this point and to identify any regulatory constraints that may require accommodations in the drafting.
E. Drafting Recommendations
Based on the foregoing analysis, the following drafting recommendations are made with respect to the LMA 3030 terrorism exclusion:
1. Include an express cross-reference to TRIA's statutory definition of "certified act of terrorism" as codified at 15 U.S.C. § 6701 et seq., and to the implementing regulations promulgated by the Department of the Treasury. The cross-reference should specify that a "certified act" for purposes of the exclusion means an act that has been certified by the Secretary of the Treasury in accordance with the procedures set forth in the statute. The cross-reference should be drafted to survive potential statutory amendments or reauthorization by referencing the statute "as amended from time to time."
2. Add a "pending certification" provision addressing the interim treatment of losses from events that may potentially be certified as acts of terrorism but for which certification has not yet occurred at the time of loss reporting or interim payment. The provision should state that losses are treated as covered catastrophe losses under the Treaty unless and until the Secretary of the Treasury makes a formal certification, with a contractual clawback mechanism permitting the reinsurer panel to recover amounts paid under the Treaty if certification occurs after payment has been made. The clawback should include a reasonable time limitation (e.g., 12 months following the event) to avoid indefinite contingent liabilities and should address the mechanics of repayment, including interest.
3. Negotiate a narrow physical-damage carve-back for non-certified terrorism losses that result in physical damage indistinguishable from covered natural-catastrophe perils. The carve-back should be limited to losses involving covered perils under the Treaty (fire, explosion, flood, wind, earthquake) and should not extend to losses involving CBRN agents, which are more appropriately addressed under the nuclear and communicable disease exclusions.
4. Address the CBRN overlap with NMA 1975a explicitly through a priority-of-exclusion clause, as discussed further in Section VII below. The priority clause should specify that, in the event of a nuclear terrorism event, NMA 1975a takes precedence over LMA 3030, and that in the event of a biological terrorism event involving a communicable pathogen, the parties will apply the more specific exclusion clause on a first-priority basis.
5. Ensure the hours clause operates independently of the terrorism exclusion determination. The 168-hour occurrence window should be applied to aggregate all losses within the temporal scope of the occurrence, with the terrorism exclusion applied at the occurrence level rather than on a loss-by-loss basis within the occurrence window.
V. Nuclear Exclusion — NMA 1975a
A. Description of NMA 1975a
NMA 1975a is the standard Nuclear Incident Exclusion Clause — Reinsurance (US), a longstanding market-standard clause that has been included in property reinsurance contracts covering United States risks for decades. The clause excludes losses arising from nuclear reaction, nuclear radiation, or radioactive contamination, regardless of whether the nuclear event is accidental or intentional. NMA 1975a is the product of the Non-Marine Association (now incorporated into the Lloyd's Market Association) and has been adopted virtually universally in the global reinsurance market as the standard nuclear exclusion for reinsurance of US-situs risks.
The clause employs broad "arising from" language, which has historically been interpreted expansively by arbitration panels and courts to encompass not only losses directly caused by nuclear events but also losses that are indirectly connected to or consequential upon such events. The breadth of the "arising from" formulation is the primary area of concern for this analysis, as discussed in the coverage gap analysis below.
NMA 1975a is rarely subject to material modification in the cat XOL treaty market. The nuclear exclusion is one of the most deeply embedded and universally accepted exclusions in property reinsurance, reflecting the consensus view that nuclear risks present accumulation and severity characteristics that are fundamentally incompatible with traditional property catastrophe reinsurance pricing and modeling. The Tempest Analytics CatView v11.2 catastrophe model used by Quorum does not model nuclear incidents as a separate peril, and no major property catastrophe model currently in use provides probabilistic loss estimates for nuclear events.
B. Application to the Cat XOL Treaty
The nuclear exclusion operates to exclude any loss arising from nuclear events, whether accidental (such as a nuclear power plant incident resulting from equipment failure, operator error, or natural-catastrophe-induced damage) or intentional (such as nuclear terrorism or the use of a nuclear device). Given that Quorum's property book is concentrated in the Continental United States, Alaska, Hawaii, Puerto Rico, and the United States Virgin Islands, the most relevant scenario for this analysis is a nuclear power plant incident coinciding with or caused by a natural catastrophe.
The paradigmatic scenario of concern is an earthquake causing damage to a nuclear power facility, resulting in both conventional earthquake damage (ground motion damage, structural collapse, fire following earthquake) and nuclear contamination from a reactor breach. This scenario is analogous to the 2011 Fukushima Daiichi nuclear disaster in Japan, where a magnitude 9.0 earthquake and subsequent tsunami caused a nuclear meltdown and widespread radioactive contamination. In such a scenario, the question arises whether the nuclear exclusion applies only to the nuclear contamination component of the loss, or whether it sweeps in the entire loss — including conventional earthquake damage that would have occurred regardless of the nuclear facility breach.
While the likelihood of a Fukushima-type event in the United States is considered remote, it is not negligible. The United States has 93 operating commercial nuclear reactors at 54 nuclear power plants, many of which are located in areas exposed to natural-catastrophe perils, including earthquake (several California reactors), hurricane (reactors along the Gulf and Atlantic coasts), and severe weather events. The interaction between the nuclear exclusion and covered natural-catastrophe perils is therefore a legitimate, if low-probability, concern for Quorum's cat XOL coverage.
C. Coverage Gap Analysis
The following coverage gaps have been identified in the proposed NMA 1975a language:
Gap 1 — "Arising From" vs. "Caused By." NMA 1975a uses the broad "arising from" formulation, which is more expansive than a "caused by" or "resulting from" standard. In a scenario where an earthquake causes both conventional physical damage and a nuclear facility breach, the question is whether all losses from the earthquake event — including those purely attributable to ground motion, structural collapse, and fire that are entirely independent of the nuclear facility breach — are excluded because the nuclear exclusion applies to the broader event. Under a strict reading of the "arising from" language, an arbitration panel could conclude that all losses arising from the earthquake event are excluded if any component of the event gives rise to nuclear contamination. This interpretation would be commercially unreasonable, as it would effectively nullify the Treaty's earthquake coverage in any scenario involving a nuclear facility.
A more reasonable interpretation, and one consistent with New York's narrow construction of exclusions, would limit the nuclear exclusion to losses arising from the nuclear reaction, radiation, or contamination itself, and not to conventionally caused physical damage that merely occurs contemporaneously with a nuclear event. However, the language of NMA 1975a is sufficiently broad that this interpretation is not guaranteed, and express clarifying language would reduce the risk of an adverse arbitral determination.
Gap 2 — Contamination vs. Physical Damage. A related question concerns property that sustains conventional earthquake damage (e.g., structural cracking, collapse, fire damage) and is subsequently contaminated by radioactive material released from a nearby nuclear facility. Is the pre-contamination physical damage excluded under NMA 1975a? The clause language is ambiguous on this point. If the pre-contamination physical damage is independently quantifiable and was caused by the earthquake ground motion rather than by nuclear reaction, radiation, or contamination, a strong argument exists that it should not be excluded. However, the practical challenges of separating pre-contamination and post-contamination damage — particularly in a scenario where the entire area is subject to evacuation and access restrictions due to radiological hazards — could make this determination difficult.
Gap 3 — Overlap with Terrorism Exclusion. As noted in Section IV.C above, nuclear terrorism creates a dual-exclusion overlap between NMA 1975a and LMA 3030. A clear priority-of-exclusion provision is needed to resolve this overlap and to prevent a situation in which each exclusion assumes the other covers the loss, leaving the loss in a coverage gap.
D. Market Precedent Comparison
NMA 1975a is universally included in US property cat XOL treaties with essentially no modifications in the current market. Blackbridge Advisory Group LLC confirms that no comparable January 1, 2025 or anticipated January 1, 2026 placement included a materially modified NMA 1975a. The clause is one of the most standardized provisions in the reinsurance contract, and significant deviation from the standard form is not expected to be achievable in the current market environment.
That said, there is limited precedent for certain cedents obtaining a "conventional damage" carve-back for earthquake-triggered nuclear incidents. These carve-backs have historically been available only to large, highly rated cedents with significant bargaining power and concentrated earthquake exposure in areas proximate to nuclear facilities. The carve-back language typically provides that conventional physical damage from a natural catastrophe (e.g., earthquake ground motion damage) is not excluded solely because nuclear contamination also results from the same event, provided that the conventional damage is separately quantifiable and did not itself arise from nuclear reaction, radiation, or contamination. Even where such carve-backs have been obtained, they are typically subject to narrow limitations and high evidentiary standards.
E. Drafting Recommendations
Based on the foregoing analysis, the following drafting recommendations are made with respect to the NMA 1975a nuclear exclusion:
1. Propose minor clarifying language to confirm that conventional physical damage from a natural catastrophe (e.g., earthquake ground motion damage, hurricane wind damage, fire following earthquake) is not excluded under NMA 1975a solely because nuclear contamination also results from the same event, provided that the conventional damage is separately quantifiable and did not itself arise from nuclear reaction, nuclear radiation, or radioactive contamination. This clarifying language is narrowly tailored and does not fundamentally alter the scope of the nuclear exclusion; it merely confirms the reasonable interpretation of the clause that New York courts would likely adopt in any event.
2. Include a priority-of-exclusion provision addressing the nuclear/terrorism overlap, specifying that NMA 1975a takes precedence over LMA 3030 in any scenario involving nuclear terrorism or nuclear events with a terrorism nexus.
3. Acknowledge that this is the least likely area for significant negotiation concessions from the reinsurer panel. The nuclear exclusion is deeply embedded in market practice, and Pinnacle Re is unlikely to accept material modifications. We recommend reserving negotiating capital for the cyber and terrorism exclusions, where Quorum's positions are more commercially critical and more consistent with prevailing market trends. The clarifying language proposed in recommendation (1) above should be presented as a reasonable and non-controversial clarification, not as a substantive carve-back.
4. Confirm that NMA 1975a as proposed is the current version and has not been superseded by any subsequent revision. While NMA 1975a has not been materially revised in recent years, it is good practice to verify that the version referenced in the Treaty is the most current form published by the Lloyd's Market Association.
VI. Communicable Disease Exclusion — NMA 2962
A. Description of NMA 2962
NMA 2962 is the standard Communicable Disease Exclusion, developed and promulgated in response to the COVID-19 pandemic. The clause excludes losses arising from communicable disease, epidemic, or pandemic, including business interruption losses, government-ordered closures, and property damage or loss of use attributable to communicable disease conditions. NMA 2962 was introduced broadly into the global reinsurance market beginning with the 2021 renewal cycle and has since become a near-universal feature of property reinsurance contracts at all layers.
The clause was developed in recognition of the unique accumulation characteristics of pandemic risk, which are fundamentally different from traditional property catastrophe perils. Unlike natural catastrophes, which are geographically concentrated and temporally bounded, pandemics are geographically diffuse and can persist for months or years, creating global accumulations that are incompatible with traditional reinsurance pricing and capacity models. The exclusion of communicable disease risk from property catastrophe reinsurance is therefore broadly accepted as commercially reasonable.
B. Application to the Cat XOL Treaty
The cat XOL Treaty covers all natural perils, and communicable disease is not a natural catastrophe peril per se. The Treaty is designed to respond to geographically concentrated, physically destructive natural events — hurricanes, earthquakes, wildfires, floods, and severe convective storms. Communicable disease does not directly cause physical property damage in the manner contemplated by the Treaty's coverage grant.
However, the communicable disease exclusion interacts with covered natural-catastrophe perils in several potentially problematic ways:
Loss Adjustment Timing. A pandemic could cause government-ordered shutdowns, travel restrictions, or workforce limitations that affect the timeline for loss adjustment following a natural catastrophe. If a major hurricane makes landfall during a pandemic, the cedent's ability to inspect damaged properties, adjust claims, and arrange for repairs may be materially impaired by pandemic-related restrictions. The resulting delays could extend the period of business interruption for insured properties, increasing the total covered loss under the Treaty. If the communicable disease exclusion is interpreted to exclude the incremental business interruption losses attributable to pandemic-related delays, a coverage gap is created.
Concurrent Occurrence. A communicable disease outbreak could coincide temporally with a natural catastrophe, complicating the claims process and creating allocation disputes. For example, if a major hurricane strikes during a pandemic, some portion of the economic losses sustained by insured properties may be attributable to pre-existing pandemic conditions (e.g., reduced occupancy, pre-storm business closures) rather than to the hurricane itself. The communicable disease exclusion could be invoked to reduce the covered loss by the amount attributable to pandemic conditions, even though the physical damage from the hurricane is entirely independent of the pandemic.
Business Interruption Components. Business interruption components of covered property losses could, in certain circumstances, be argued to have a communicable disease component. For example, if a hurricane damages an insured hotel and the hotel's post-storm business interruption loss is exacerbated by the fact that tourism is already depressed due to a pandemic, the reinsurer could argue that a portion of the business interruption loss is excluded under NMA 2962.
C. Coverage Gap Analysis
Gap 1 — Overly Broad Application. If interpreted broadly, NMA 2962 could exclude losses from a natural catastrophe that happen to occur during a pandemic period, if any portion of the loss — or any delay in loss adjustment — is attributable to communicable disease conditions. This interpretation would give the exclusion a scope far beyond its intended purpose, effectively penalizing the cedent for the coincidental timing of a natural catastrophe during a pandemic. The exclusion is intended to exclude losses caused by communicable disease, not losses occurring during a communicable disease event.
Gap 2 — Government Action Ambiguity. Government-ordered evacuations, curfews, or access restrictions during a pandemic that prevent or delay property repair following a natural catastrophe could theoretically implicate the communicable disease exclusion. For example, if a government order restricts construction activity during a pandemic, and this restriction extends the repair timeline for hurricane-damaged insured properties, the incremental business interruption loss resulting from the delayed repairs could be characterized as arising from the government's pandemic response. The communicable disease exclusion, if broadly applied, could exclude this incremental loss, even though the underlying physical damage is entirely attributable to the hurricane.
Gap 3 — "But For" Causation Test. The clause does not specify whether it applies only when communicable disease is the proximate cause of the loss or also when communicable disease is a contributing, concurrent, or remote cause. Under a "but for" causation test, any loss that would not have occurred "but for" the existence of a communicable disease condition could be excluded — even if the communicable disease was merely a background condition and the natural catastrophe was the dominant cause of the loss. Quorum should seek a proximate-cause limitation to prevent this outcome.
D. Market Precedent Comparison
NMA 2962 is now nearly universal in cat XOL treaties placed since the 2021 renewal cycle. Blackbridge Advisory Group LLC's market intelligence confirms that the clause is included in virtually all comparable US property cat XOL placements in the current market. The vast majority of these treaties include the standard form of NMA 2962 without substantive modification.
However, a small but growing number of sophisticated cedents have obtained clarifying language confirming that NMA 2962 does not apply to natural-catastrophe losses merely because a communicable disease or pandemic is concurrently present at the time of the loss. This clarifying language typically takes the form of a preamble or interpretive note appended to the standard NMA 2962, rather than a modification to the exclusion language itself. The distinction is significant: a preamble or interpretive note is generally less objectionable to reinsurers than a substantive change to the exclusion clause, as it does not alter the operative language but merely confirms the parties' shared understanding of its intended scope.
Blackbridge reports that the January 1, 2026 renewal market is relatively stable on the communicable disease exclusion. Most reinsurers will accept a clarifying note or preamble but will resist substantive modification to the standard NMA 2962. Given the relatively remote likelihood of a meaningful interaction between the communicable disease exclusion and natural-catastrophe losses in practice — the COVID-19 pandemic's impact on property catastrophe reinsurance claims was ultimately modest — this is an area where Quorum should accept the market-standard approach with a clarifying note rather than expend significant negotiating capital on substantive changes.
E. Drafting Recommendations
Based on the foregoing analysis, the following drafting recommendations are made with respect to the NMA 2962 communicable disease exclusion:
1. Propose a clarifying preamble or interpretive note confirming that NMA 2962 is not intended to exclude natural-catastrophe losses covered under the Treaty merely because a communicable disease or pandemic condition exists at the time of the loss or during the period of loss adjustment. The preamble should state affirmatively that the exclusion is intended to apply to losses caused by communicable disease, not to losses that are coincidental with or temporally proximate to a communicable disease event.
2. Include proximate-cause limitation language within the interpretive note or as an addendum to the standard NMA 2962 form. The limitation should provide that the exclusion applies only when communicable disease is the proximate cause or a dominant proximate cause of the loss, and not when communicable disease is merely a contributing, concurrent, or remote cause. This limitation is consistent with New York's general approach to causation in insurance coverage disputes and should not be controversial.
3. This is a lower-priority negotiation item given the remote likelihood of meaningful interaction between the communicable disease exclusion and natural-catastrophe losses in practice. We recommend accepting the standard NMA 2962 with the clarifying preamble if Pinnacle Re resists substantive changes to the exclusion language. Negotiating capital should be reserved for the cyber and terrorism exclusions, where the commercial stakes for Quorum are significantly higher.
VII. Cross-Exclusion Interaction and Priority Framework
A. Overlapping Exclusion Scenarios
A critical issue that transcends the individual exclusion-clause analyses set forth above is the interaction between and among the four exclusion clauses when multiple exclusions could apply simultaneously to a single loss or occurrence. The followin

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