PROPERTY QUOTA-SHARE REINSURANCE TREATY
(AMENDED AND RESTATED)
BY AND BETWEEN
QUORUM SPECIALTY INSURANCE COMPANY (Cedent)
AND
PINNACLE RE LTD. (Reinsurer)
Treaty Period: January 1, 2026 through December 31, 2026
Original Inception: January 1, 2022
DRAFT — FOR DISCUSSION PURPOSES ONLY
November 1, 2025
Calderwood & Harkness LLP Matter No.: 1025-00004
CONFIDENTIAL TREATMENT REQUESTED — This document is a confidential draft prepared by Calderwood & Harkness LLP on behalf of Quorum Specialty Insurance Company for purposes of ongoing negotiations with Pinnacle Re Ltd. and its counsel, Harmon, Kessler & Fitch LLP. This draft is subject to the attorney-client privilege and the work product doctrine. Distribution is limited to the parties, their respective counsel, and Blackbridge Advisory Group LLC in its capacity as reinsurance intermediary. Any unauthorized reproduction, distribution, or disclosure of this document or its contents is strictly prohibited.
PROPERTY QUOTA-SHARE REINSURANCE TREATY
(AMENDED AND RESTATED)
This Amended and Restated Property Quota-Share Reinsurance Treaty (this "Treaty") is made and entered into as of January 1, 2026 (the "Effective Date"), by and between:
QUORUM SPECIALTY INSURANCE COMPANY, a Connecticut-domiciled admitted property and casualty insurer (NAIC No. 42917), with its principal offices located at 400 Constitution Plaza, Suite 2200, Hartford, Connecticut 06103 (hereinafter referred to as the "Company" or the "Cedent");
and
PINNACLE RE LTD., a Bermuda Class 4 insurer organized and existing under the laws of Bermuda, with its registered office located at Cumberland House, 1 Victoria Street, Hamilton HM 11, Bermuda (hereinafter referred to as the "Reinsurer").
The Company and the Reinsurer are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS. WHEREAS, the Company and the Reinsurer originally entered into a Property Quota-Share Reinsurance Treaty effective as of January 1, 2022 (the "Original Treaty"), pursuant to which the Company ceded to the Reinsurer, and the Reinsurer accepted from the Company, a specified quota share of the Company's property book of business on the terms and conditions set forth therein;
WHEREAS, the Parties have renewed the Original Treaty for successive annual periods for the treaty years commencing January 1, 2023, January 1, 2024, and January 1, 2025, respectively, and now desire to amend and restate the Original Treaty in its entirety to reflect the terms, conditions, and economic arrangements applicable for the treaty period commencing January 1, 2026 and ending December 31, 2026;
WHEREAS, the Company is a wholly-owned operating subsidiary of Quorum Insurance Holdings Corp., a Delaware corporation whose shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "QIHC";
WHEREAS, the Reinsurer is a certified reinsurer under the New York State Department of Financial Services ("NY DFS") (Certified Reinsurer ID: CR-2019-0217) and, as such, is eligible for reduced collateral requirements under 11 NYCRR Part 125;
WHEREAS, the Parties have arranged this Treaty through Blackbridge Advisory Group LLC, a licensed reinsurance intermediary (NY DFS License No. RI-00483), with offices at 55 Water Street, Suite 1410, New York, New York 10041, acting as intermediary (the "Intermediary") in the placement and administration of this Treaty; and
WHEREAS, the Parties desire to set forth their respective rights and obligations with respect to the reinsurance of the Company's property book of business for the treaty period commencing January 1, 2026, on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants, promises, representations, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Treaty, the following terms shall have the meanings set forth below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the context in which they appear.
(a) "Accident Year" means the calendar year in which the loss event giving rise to a claim under the Business Covered occurs. For the avoidance of doubt, the Accident Year is determined by the date of the occurrence of the loss, not the date on which the claim is reported, reserved, or paid.
(b) "Bordereau" means a detailed premium and/or loss report provided by the Company to the Reinsurer in the format and containing the information described in Article X and Schedule D attached hereto.
(c) "Business Covered" has the meaning set forth in Article III.
(d) "Cash Loss Ratio" means the ratio, expressed as a percentage, of (i) total incurred losses (comprising paid losses plus outstanding loss reserves, including case reserves and any incurred but not reported reserves) ceded to the Reinsurer under this Treaty and, to the extent applicable, the Original Treaty and all predecessor treaty years, to (ii) total ceded earned premium under this Treaty and, to the extent applicable, the Original Treaty and all predecessor treaty years, in each case calculated on an inception-to-date basis from January 1, 2022 through the applicable measurement date.
(e) "Ceded Premium" means that portion of the Company's Net Written Premium ceded to the Reinsurer pursuant to Article IV, calculated as the Quota Share Percentage multiplied by the Net Written Premium on the Business Covered during the Treaty Period.
(f) "Ceding Commission" means the commission payable by the Reinsurer to the Company as described in Article V, including both the Provisional Ceding Commission and any adjustment thereto pursuant to the Sliding Scale Commission.
(g) "Company" or "Cedent" means Quorum Specialty Insurance Company, a Connecticut-domiciled admitted property and casualty insurer (NAIC No. 42917).
(h) "Effective Date" means January 1, 2026, at 12:01 a.m. Eastern Time.
(i) "Expiration Date" means December 31, 2026, at 12:01 a.m. Eastern Time.
(j) "Funds Withheld" means the amounts retained by the Company from the Ceded Premium as security for the Reinsurer's obligations under this Treaty, as more particularly described in Article VII.
(k) "Gross Written Premium" means the total premium written by the Company on the Business Covered during the Treaty Period before deduction of any reinsurance ceded, including but not limited to this Treaty, and before any cancellations or return premiums.
(l) "Inception-to-Date" means the cumulative period from January 1, 2022 (the inception date of the Original Treaty) through the applicable measurement date, as the context requires.
(m) "Intermediary" means Blackbridge Advisory Group LLC, a New York-licensed reinsurance intermediary (NY DFS License No. RI-00483), with offices at 55 Water Street, Suite 1410, New York, New York 10041.
(n) "Loss" or "Losses" means all claims, judgments, settlements, and allocated loss adjustment expenses ("ALAE") incurred by the Company under the Business Covered and attributable to policies in force during the Treaty Period, including but not limited to indemnity payments, defense costs allocated to specific claims, court costs, and interest on judgments. Unless otherwise specified, the term "Losses" shall include ALAE. The treatment of unallocated loss adjustment expenses ("ULAE") shall be as set forth in Section 8.1.
(o) "Loss Corridor" means the loss ratio band specified in Section 5.4, within which the Company shall retain one hundred percent (100%) of all Losses.
(p) "Loss Ratio" means the ratio, expressed as a percentage, of incurred Losses (including paid losses, outstanding case reserves, and IBNR reserves, net of salvage and subrogation) to earned premium, each calculated on a ceded basis, for the applicable measurement period.
(q) "NAIC" means the National Association of Insurance Commissioners.
(r) "Net Written Premium" means Gross Written Premium less cancellations, return premiums, and premiums ceded under any other reinsurance agreements that are specified in Section 4.4 as inuring to the benefit of this Treaty.
(s) "Original Treaty" means the Property Quota-Share Reinsurance Treaty originally effective as of January 1, 2022, between the Company and the Reinsurer, as amended by the parties from time to time prior to the Effective Date of this Treaty, and all predecessor treaty years thereunder.
(t) "Per-Risk Retention" has the meaning set forth in Section 4.3.
(u) "Provisional Ceding Commission" means thirty-three and one-half percent (33.5%) of the Ceded Premium, as more particularly described in Section 5.1.
(v) "Quota Share Percentage" or "Cession Percentage" means forty percent (40%).
(w) "Reinsurer" means Pinnacle Re Ltd., a Bermuda Class 4 insurer.
(x) "Sliding Scale Commission" means the adjusted ceding commission calculated in accordance with Section 5.2 and Schedule C, which may be higher or lower than the Provisional Ceding Commission based on the actual Loss Ratio experience for the applicable Treaty Year.
(y) "SOFR" means the Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York (or any successor administrator) on its website, or any successor or replacement rate designated by the Federal Reserve Bank of New York. In the event that SOFR is discontinued or unavailable, the Parties shall negotiate in good faith to select a commercially reasonable substitute benchmark rate.
(z) "Treaty Period" means the period commencing on the Effective Date and ending on the Expiration Date (i.e., January 1, 2026 at 12:01 a.m. Eastern Time through December 31, 2026 at 12:01 a.m. Eastern Time).
(aa) "Treaty Year" means each consecutive twelve-month period commencing on the Effective Date or any anniversary thereof. The first Treaty Year under this Amended and Restated Treaty shall be the period from January 1, 2026 through December 31, 2026.
Section 1.2 — Rules of Interpretation
(a) Unless the context otherwise requires, words importing the singular include the plural and vice versa, words importing a gender include each gender, and references to persons include individuals, partnerships, corporations, limited liability companies, and other entities.
(b) References herein to "Articles," "Sections," "Schedules," and "Exhibits" are to Articles and Sections of, and Schedules and Exhibits to, this Treaty, unless otherwise specified. All Schedules and Exhibits attached hereto are incorporated herein by reference and made a part of this Treaty.
(c) The headings and captions used in this Treaty are for convenience of reference only and shall not affect the construction or interpretation of any provision hereof.
(d) Where insurance-specific terms are used but not expressly defined herein, such terms shall be interpreted in accordance with their customary usage in the property and casualty insurance and reinsurance industry and, to the extent applicable, in accordance with the definitions provided under the laws of the State of New York, including the New York Insurance Law and the regulations promulgated thereunder.
(e) References to any statute, regulation, or rule shall be deemed to include any amendments, modifications, successors, or replacements thereof.
(f) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(g) The word "or" is disjunctive but not necessarily exclusive.
(h) All dollar amounts referenced herein are expressed in United States Dollars unless otherwise stated.
ARTICLE II — TERM
Section 2.1 — Treaty Period
This Treaty shall apply to the Business Covered attaching during the Treaty Period, which shall commence at 12:01 a.m. Eastern Time on January 1, 2026 and shall expire at 12:01 a.m. Eastern Time on December 31, 2026. This Treaty is written on a losses-occurring basis, meaning that the Reinsurer shall be liable for its Quota Share Percentage of all Losses on the Business Covered that occur during the Treaty Period, regardless of when such Losses are reported to or paid by the Company, subject to the terms, conditions, limitations, and exclusions set forth herein.
Section 2.2 — Run-Off and Cut-Off
Upon the expiration or termination of this Treaty, the Parties shall elect one of the following options with respect to policies comprising the Business Covered that remain in force as of the Expiration Date or the date of termination, as applicable:
(a) Run-Off. The Reinsurer shall remain liable for its Quota Share Percentage of all Losses occurring under policies that were in force during the Treaty Period, regardless of when such Losses are reported or settled, until the final settlement of all such Losses. During the run-off period, the Company shall continue to provide quarterly bordereaux and annual reports to the Reinsurer in accordance with Article X, and the Funds Withheld provisions of Article VII shall remain in effect until all obligations have been finally settled. The run-off period shall not exceed [the later of (i) five (5) years from the Expiration Date or (ii) such date as all outstanding Losses have been finally settled]; or
(b) Cut-Off / Portfolio Transfer. As of the Expiration Date or the date of termination, the Parties shall effect a portfolio transfer pursuant to which the Company shall calculate (i) the unearned premium reserve attributable to the Reinsurer's Quota Share Percentage of the Business Covered, and (ii) the outstanding loss reserves (including case reserves and IBNR reserves) attributable to the Reinsurer's Quota Share Percentage of Losses on the Business Covered. Upon mutual agreement of the portfolio premium and loss reserve transfer amount, the Reinsurer shall pay such amount to the Company (or, if applicable, the Company shall pay such amount to the Reinsurer), and upon receipt of such payment, the Reinsurer shall be fully and finally released from all further liability under this Treaty. The calculation of the portfolio transfer amount shall be performed by mutual agreement of the Parties' actuaries, and in the event of a disagreement, shall be determined by an independent actuary mutually selected by the Parties.
The election between run-off and cut-off shall be made by mutual written agreement of the Parties no later than sixty (60) days prior to the Expiration Date or the effective date of any termination, as applicable. In the absence of a mutual written election, the run-off option described in clause (a) above shall apply by default.
Section 2.3 — Renewal
[This Treaty shall [not automatically renew / automatically renew for successive one-year periods unless either Party provides written notice of non-renewal to the other Party at least [90/120] days prior to the then-current Expiration Date]. In the event of automatic renewal, the terms and conditions of this Treaty shall continue in full force and effect for each successive renewal period, subject to any amendments agreed upon in writing by the Parties.]
[NOTE: Bracketed — renewal mechanics to be confirmed during negotiations. The Company's preference is for non-automatic renewal with a 120-day notice period. The Reinsurer has indicated a preference for automatic renewal with a 90-day notice period.]
ARTICLE III — BUSINESS COVERED
Section 3.1 — Subject Premium
This Treaty applies to all property lines of business written by the Company through its property book, as more particularly described in Schedule A attached hereto and made a part hereof. For reference purposes, the Company's historical and projected premium volumes for the property book are as follows:
(a) 2024 Gross Written Premium (Property Book): $312,000,000 (actual).
(b) 2025 Gross Written Premium (Property Book): Estimated at approximately $325,000,000 (subject to year-end verification).
(c) Projected 2026 Gross Written Premium (Property Book): $338,000,000.
The foregoing premium figures are provided for informational purposes only and shall not constitute a minimum or maximum premium guarantee or limitation on the Reinsurer's obligations hereunder, except as otherwise provided in Section 4.2.
Section 3.2 — Classes of Business
The Business Covered under this Treaty shall comprise the following classes of business written by the Company:
(a) Commercial property insurance (including business interruption and extra expense coverages);
(b) Inland marine insurance;
(c) Ocean marine insurance (property coverages only, excluding hull, protection and indemnity, and marine liability);
(d) Fintech-enabled commercial property lines, including property coverages distributed through the Company's digital and embedded insurance platforms; and
(e) Such other classes of business as may be agreed in writing by the Parties from time to time in accordance with Section 3.4.
The following classes of business are expressly excluded from the Business Covered and shall not be ceded under this Treaty: personal lines, professional liability (including errors and omissions), workers' compensation, automobile liability and physical damage, surety and fidelity, directors and officers liability, employment practices liability, and any other classes listed in Schedule B attached hereto. The exclusions set forth in Schedule B shall be controlling in the event of any conflict with the descriptions set forth in this Section 3.2.
Section 3.3 — Territorial Scope
The Business Covered under this Treaty shall be limited to risks located within the United States of America (including all fifty states and the District of Columbia), its territories and possessions (including but not limited to Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa), and Canada, as more particularly described in Schedule A. Risks located outside the foregoing territories shall not be ceded under this Treaty unless the Parties otherwise agree in writing.
Section 3.4 — New Lines of Business
The Company shall provide the Reinsurer [30/60] days' prior written notice before ceding under this Treaty any new class of business that has not been previously included in the Business Covered as described in Section 3.2 and Schedule A. The inclusion of any such new class of business shall require the prior written consent of the Reinsurer, which consent shall not be unreasonably withheld, conditioned, or delayed. Such written notice shall include a description of the proposed new class of business, projected premium volume, historical loss experience (if available), and the Company's underwriting guidelines applicable thereto.
[NOTE: Bracketed — notice period of 30 or 60 days to be confirmed.]
ARTICLE IV — CESSION AND RETENTION
Section 4.1 — Quota Share Percentage
The Company shall cede to the Reinsurer, and the Reinsurer shall accept from the Company, forty percent (40%) (the "Quota Share Percentage" or "Cession Percentage") of the Net Written Premium and forty percent (40%) of the Losses on the Business Covered during the Treaty Period. The application of the Quota Share Percentage shall be automatic and obligatory on both Parties for all Business Covered; that is, the Company is obligated to cede, and the Reinsurer is obligated to accept, the specified percentage of all Business Covered, and neither Party may select against the other with respect to individual risks, policies, or classes within the Business Covered.
Section 4.2 — Maximum Per-Occurrence Limit
Notwithstanding anything to the contrary in this Treaty, the Reinsurer's maximum aggregate liability in respect of any one occurrence shall not exceed ten million dollars ($10,000,000), which represents the Reinsurer's forty percent (40%) Quota Share Percentage of a maximum per-occurrence limit of twenty-five million dollars ($25,000,000) applicable to the Company's gross liability. For purposes of this Section 4.2, the term "occurrence" means each loss, disaster, or casualty, or series of losses, disasters, or casualties, arising out of one event or from a common cause, including but not limited to a single windstorm, earthquake, flood, fire, explosion, or other catastrophic event. The determination of what constitutes a single occurrence shall be made in accordance with the terms and conditions of the underlying policies comprising the Business Covered and, to the extent applicable, the Company's occurrence definition as applied in its claims handling practices.
Section 4.3 — Per-Risk Retention
The Company shall retain a minimum of two million five hundred thousand dollars ($2,500,000) per risk (the "Per-Risk Retention"), net of all recoveries under this Treaty. Cessions to this Treaty with respect to any individual risk shall be calculated after the application of the Per-Risk Retention. For purposes of this Section 4.3, the term "risk" shall have the meaning customarily ascribed to it in the property insurance and reinsurance industry, taking into account the Company's underwriting guidelines, policy issuance practices, and risk classification methodology as applied in the ordinary course of its business.
Section 4.4 — Other Reinsurance
(a) The following reinsurance arrangements shall be considered in determining the Net Written Premium ceded under this Treaty and the application of the Quota Share Percentage:
(i) Catastrophe Excess-of-Loss Reinsurance. The Catastrophe Excess-of-Loss Reinsurance Contract effective January 1, 2026, providing coverage of $35,000,000 excess of $15,000,000 per occurrence (the "Cat XOL Layer"), shall [inure / not inure] to the benefit of this Treaty. [If the Cat XOL Layer inures to this Treaty, recoveries under the Cat XOL Layer shall reduce the Losses ceded to the Reinsurer hereunder on a pro rata basis in proportion to the Quota Share Percentage. If the Cat XOL Layer does not inure to this Treaty, the Cat XOL Layer shall be disregarded in calculating the Losses ceded hereunder.]
(ii) Facultative Reinsurance. Any facultative reinsurance purchased by the Company on individual risks comprising the Business Covered shall [inure / not inure] to the benefit of this Treaty. [If facultative reinsurance inures, the Net Written Premium and Losses ceded under this Treaty shall be calculated net of facultative reinsurance recoveries applicable to the Business Covered.]
[NOTE: Bracketed — inuring reinsurance election to be confirmed. This is a key economic term. If the Cat XOL inures, the effective cost to the Reinsurer is reduced; if it does not inure, the Reinsurer bears a larger share of catastrophe losses within the per-occurrence maximum.]
(b) Except as expressly set forth in this Section 4.4, no other reinsurance purchased by the Company shall inure to the benefit of this Treaty, and the Company retains the right to purchase such additional reinsurance as it deems appropriate in its sole discretion, provided that such additional reinsurance does not adversely affect the Reinsurer's rights or increase the Reinsurer's obligations under this Treaty.
ARTICLE V — CEDING COMMISSION
Section 5.1 — Provisional Ceding Commission
The Reinsurer shall pay the Company a provisional ceding commission equal to thirty-three and one-half percent (33.5%) of the Ceded Premium (the "Provisional Ceding Commission"). The Provisional Ceding Commission of 33.5% represents an increase of one hundred fifty (150) basis points from the expiring provisional ceding commission of thirty-two percent (32.0%) applicable to the 2025 Treaty Year, reflecting the improved loss experience on the property book and the Parties' agreement as to the Company's increased acquisition costs and general and administrative expenses.
The Provisional Ceding Commission shall be payable quarterly. The Company shall deduct the Provisional Ceding Commission from the Ceded Premium remitted to the Reinsurer (through the Intermediary) within [30/45] days after the end of each calendar quarter. The Provisional Ceding Commission is subject to retrospective adjustment pursuant to the Sliding Scale Commission provisions set forth in Section 5.2 below.
Section 5.2 — Sliding Scale Commission
The Provisional Ceding Commission of 33.5% shall be subject to adjustment on a sliding scale basis, calculated in accordance with this Section 5.2 and the detailed slide table set forth in Schedule C attached hereto. The sliding scale parameters are as follows:
(a) Minimum Ceding Commission: Thirty percent (30.0%) of Ceded Premium.
(b) Maximum Ceding Commission: Thirty-six percent (36.0%) of Ceded Premium.
(c) Expected Loss Ratio: [_]%. [NOTE: Bracketed — expected loss ratio for slide calculation to be agreed. The Company's proposal is [55]%; the Reinsurer's initial indication is [58]%.]
(d) Slide Factor: For every two and one-half (2.5) percentage points of Loss Ratio movement above or below the Expected Loss Ratio, the ceding commission shall adjust by one (1.0) percentage point in the inverse direction. That is:
(i) If the actual Loss Ratio is lower than the Expected Loss Ratio, the ceding commission shall increase (subject to the maximum of 36.0%);
(ii) If the actual Loss Ratio is higher than the Expected Loss Ratio, the ceding commission shall decrease (subject to the minimum of 30.0%).
The sliding scale adjustment shall be calculated on a Treaty Year basis, using the developed Loss Ratio as of each adjustment date. The Loss Ratio for purposes of the sliding scale calculation shall be the ratio of (i) incurred Losses (paid losses plus outstanding case reserves plus IBNR reserves, net of salvage and subrogation) ceded to the Reinsurer for the applicable Treaty Year, to (ii) earned premium ceded to the Reinsurer for the applicable Treaty Year.
Interim Adjustments. The sliding scale commission shall be adjusted on a [semi-annual / annual] basis during the development period, based on the Loss Ratio as of each interim adjustment date. Each interim adjustment shall result in either a payment from the Reinsurer to the Company (if the adjusted commission exceeds the cumulative commission previously paid) or a refund from the Company to the Reinsurer (if the adjusted commission is less than the cumulative commission previously paid).
Final Adjustment. The final sliding scale commission adjustment for each Treaty Year shall be calculated [36 / 48] months after the close of the applicable Treaty Year, based on fully developed loss experience as of such date. The final adjustment shall be binding on both Parties and shall supersede all prior interim adjustments.
[NOTE: Bracketed — interim adjustment frequency (semi-annual vs. annual) and final adjustment timing (36 vs. 48 months) to be confirmed.]
Section 5.3 — Commission Adjustment Mechanics
(a) If the sliding scale calculation performed in accordance with Section 5.2 and Schedule C produces a ceding commission that is greater than the Provisional Ceding Commission of 33.5%, the Reinsurer shall pay the difference (the "Commission Surplus") to the Company within [30/45] days of the date on which the adjustment calculation is completed and agreed upon by the Parties.
(b) If the sliding scale calculation produces a ceding commission that is less than the Provisional Ceding Commission of 33.5%, the Company shall refund the difference (the "Commission Deficit") to the Reinsurer within [30/45] days of the date on which the adjustment calculation is completed and agreed upon by the Parties.
(c) All sliding scale commission adjustment payments shall be remitted through the Intermediary unless the Parties otherwise agree in writing.
(d) The detailed sliding scale commission table, including worked examples illustrating the calculation methodology, is set forth in Schedule C attached hereto.
Section 5.4 — Loss Corridor
Notwithstanding Section 4.1, the Company shall retain one hundred percent (100%) of all Losses falling within the Loss Ratio band between seventy-five percent (75%) and eighty percent (80%) (the "Loss Corridor"). The Loss Corridor operates as follows:
(a) Losses ceded to the Reinsurer at the Quota Share Percentage of forty percent (40%) shall include only those Losses that fall below the seventy-five percent (75%) Loss Ratio level and those Losses that fall above the eighty percent (80%) Loss Ratio level.
(b) All Losses attributable to the Loss Ratio band between 75% and 80% shall be retained entirely by the Company and shall not be ceded to the Reinsurer.
(c) The Loss Corridor shall be calculated on the basis of the Treaty Year earned premium ceded to the Reinsurer.
[The Loss Corridor shall apply [per Accident Year / on a cumulative inception-to-date basis].]
[NOTE: Bracketed — application of the Loss Corridor on a per-accident-year or cumulative basis is a material economic term to be negotiated.]
For the avoidance of doubt, the Loss Corridor is intended to allocate to the Company a greater share of losses in the specified loss ratio band, thereby providing the Reinsurer with protection against adverse development in the mid-range of loss experience and incentivizing the Company to maintain disciplined underwriting within the property book.
ARTICLE VI — PREMIUM ACCOUNTING AND REPORTING
Section 6.1 — Premium Payments
The Company shall remit to the Reinsurer (through the Intermediary) the Ceded Premium, net of the following deductions: (i) the Provisional Ceding Commission; (ii) the Funds Withheld amount; and (iii) the brokerage commission payable to the Intermediary as described in Section 6.3. Premium payments shall be made on a quarterly basis, corresponding to each calendar quarter during the Treaty Period. Based on projected 2026 Gross Written Premium of $338,000,000 and the Quota Share Percentage of 40%, the projected 2026 Ceded Premium is approximately $135,200,000 (subject to adjustment for cancellations, return premiums, and inuring reinsurance, as applicable).
Section 6.2 — Premium Adjustments
(a) Quarterly premium accounts shall be rendered by the Company to the Reinsurer (through the Intermediary) within [45/60] days after the close of each calendar quarter. Each quarterly premium account shall reflect the Gross Written Premium, Net Written Premium, Ceded Premium, Provisional Ceding Commission, brokerage, Funds Withheld, and net remittance for the applicable quarter, substantially in the form set forth in Exhibit 1.
(b) A year-end premium adjustment shall be made within ninety (90) days after December 31, 2026, to reconcile actual premium for the Treaty Period against the quarterly accounts previously rendered. Any over- or under-payment shall be settled promptly following the completion of the year-end reconciliation.
(c) In the event that any premium adjustment results in an amount due from one Party to the other, such amount shall be paid within thirty (30) days of the date on which the adjustment is agreed upon by the Parties.
Section 6.3 — Brokerage
The brokerage commission payable to the Intermediary (Blackbridge Advisory Group LLC) shall be one and one-quarter percent (1.25%) of the Ceded Premium. The brokerage commission shall be deducted from the Ceded Premium remitted to the Reinsurer and paid to the Intermediary by the Company on behalf of the Reinsurer. The brokerage commission is the sole obligation of the Reinsurer and shall not reduce the Ceding Commission payable to the Company.
ARTICLE VII — FUNDS WITHHELD
Section 7.1 — Funds Withheld Amount
The Company shall withhold twenty-five percent (25%) of the Ceded Premium as security for the Reinsurer's obligations under this Treaty (the "Funds Withheld"). The Funds Withheld shall be credited to a Funds Withheld Account maintained on the Company's books and records. The Funds Withheld Account shall be a notional account and shall not constitute a segregated trust or escrow. The Company shall have the right to commingle the Funds Withheld with its general assets, subject to its obligation to credit interest thereon and to release the Funds Withheld in accordance with the terms of this Article VII and Schedule E.
Section 7.2 — Interest on Funds Withheld
The Company shall credit interest on the Funds Withheld balance at a rate equal to the three-month SOFR rate plus seventy-five (75) basis points per annum. Interest shall be calculated on the average daily balance of the Funds Withheld Account for each calendar quarter and shall be credited to the Funds Withheld Account quarterly, within thirty (30) days after the close of each calendar quarter. For purposes of calculating interest, the applicable three-month SOFR rate shall be the rate in effect on the last business day of the preceding calendar quarter as published by the Federal Reserve Bank of New York.
Section 7.3 — Release of Funds Withheld
Funds Withheld shall be released to the Reinsurer on a [quarterly / annual] basis to the extent that the balance of the Funds Withheld Account exceeds twenty-five percent (25%) of the then-outstanding Ceded Premium, net of paid Losses and Ceding Commission, as of the applicable measurement date. The measurement of the Funds Withheld balance and the determination of any release amount shall be performed by the Company and shall be reflected in the quarterly premium and loss account statement provided to the Reinsurer. Upon the final settlement of all obligations of the Reinsurer under this Treaty, including all Losses, commission adjustments, and other amounts, the remaining balance of the Funds Withheld Account, including any accrued and unpaid interest, shall be released to the Reinsurer within sixty (60) days of such final settlement.
Section 7.4 — Set-Off
The Company shall have the right to set off against the Funds Withheld Account any amounts due and owing from the Reinsurer to the Company under this Treaty, including but not limited to: (a) unpaid ceding commission adjustments; (b) Loss payments due from the Reinsurer; (c) any amounts due under the sliding scale commission adjustment; and (d) any other amounts owed by the Reinsurer to the Company under this Treaty. The Company shall provide the Reinsurer with written notice of any set-off within ten (10) business days of exercising such right, together with a reasonably detailed description of the amounts set off and the basis therefor.
ARTICLE VIII — LOSSES AND LOSS ADJUSTMENT EXPENSES
Section 8.1 — Liability of the Reinsurer
The Reinsurer shall pay its Quota Share Percentage (40%) of all Losses on the Business Covered during the Treaty Period, subject to:
(a) the maximum per-occurrence limit of twenty-five million dollars ($25,000,000) (Reinsurer's share: ten million dollars ($10,000,000)) as set forth in Section 4.2;
(b) the Loss Corridor provisions of Section 5.4; and
(c) all other terms, conditions, limitations, and exclusions set forth in this Treaty.
Allocated loss adjustment expenses ("ALAE"), including but not limited to legal fees, expert witness fees, court costs, and other expenses directly allocable to the investigation, adjustment, defense, or settlement of a specific claim, shall be included in Losses and ceded to the Reinsurer at the Quota Share Percentage.
[Unallocated loss adjustment expenses ("ULAE"), including but not limited to overhead expenses, salaries, and other costs of the Company's claims department that are not directly allocable to a specific claim, shall be [included in / excluded from] the Losses ceded to the Reinsurer under this Treaty.]
[NOTE: Bracketed — ULAE treatment (included or excluded) to be confirmed. The Company's position is that ULAE should be excluded. The Reinsurer has not yet indicated its position.]
Section 8.2 — Loss Settlements
The Company shall have the sole and exclusive authority to investigate, adjust, compromise, settle, and pay all claims arising under the policies comprising the Business Covered, in accordance with the Company's standard claims handling practices and applicable regulatory requirements. All loss settlements made by the Company in good faith and within the terms and conditions of the underlying policies shall be unconditionally binding on the Reinsurer, and the Reinsurer shall follow the fortunes and follow the settlements of the Company with respect to all such claims.
The "follow the fortunes" and "follow the settlements" doctrine, as applied in this Treaty, means that the Reinsurer shall be bound by the Company's good faith claims decisions, including decisions regarding coverage, liability, and the amount of any settlement or judgment, provided that:
(a) the claim falls within the terms and conditions of the underlying policy;
(b) the claim falls within the scope of the Business Covered under this Treaty; and
(c) the Company's claims handling practices are conducted in good faith and in a manner consistent with applicable law and the Company's standard operating procedures.
Section 8.3 — Cash Loss / Large Loss Notification
The Company shall notify the Reinsurer (through the Intermediary) within [5/10] business days of the Company's receipt of notice of any individual loss or claim where the Company's gross estimated liability exceeds [$1,000,000 / $2,000,000]. Such notification shall include the date of loss, a brief description of the circumstances of the loss, the insured's name and policy number, the Company's preliminary estimate of the gross and ceded loss amount, and any other material information available to the Company at the time of notification.
Upon receipt of a large loss notification, the Reinsurer may elect to associate in the defense and/or control of any claim for which the Company's gross estimated liability exceeds such threshold by providing written notice to the Company within thirty (30) days of receipt of the large loss notification. In the event the Reinsurer elects to associate, the Reinsurer shall have the right to participate in the investigation and defense of the claim, including the right to receive copies of all material correspondence, reports, and expert opinions related thereto; provided, however, that the Company shall retain sole and exclusive authority over the settlement of all claims, and the Reinsurer's right of association shall not impair, diminish, or otherwise affect the Company's settlement authority.
[NOTE: Bracketed — large loss notification threshold ($1,000,000 vs. $2,000,000) and notification period (5 vs. 10 business days) to be confirmed.]
Section 8.4 — Loss Reserves
The Company shall establish and maintain loss reserves with respect to the Business Covered in accordance with (a) the Company's standard reserving practices and methodologies, (b) applicable statutory accounting principles as promulgated by the NAIC, and (c) all applicable requirements of the Connecticut Insurance Department and any other regulatory authority having jurisdiction over the Company. Loss reserves shall include case reserves and estimates of incurred but not reported ("IBNR") losses, and shall be reviewed and updated not less frequently than quarterly.
The Company shall provide the Reinsurer with quarterly reserve reporting via the loss bordereau described in Article X, reflecting the Reinsurer's Quota Share Percentage of outstanding case reserves, IBNR reserves, and paid losses. The Company shall make available to the Reinsurer, upon reasonable request, the actuarial analyses and reserve studies prepared by the Company's appointed actuary or its outside actuarial consultants, Meridian Actuarial Partners LLC, in support of the Company's loss reserve determinations.
ARTICLE IX — COMMUTATION
Section 9.1 — Commutation Right
Either Party shall have the right to elect to commute this Treaty if the Cash Loss Ratio, as defined in Section 1.1(d), equals or exceeds eighty-five percent (85%) on an inception-to-date basis, calculated from the inception of the Original Treaty on January 1, 2022 through the most recent calendar quarter end for which a quarterly bordereau has been provided. The Cash Loss Ratio shall be calculated using paid losses plus outstanding loss reserves (including case reserves and IBNR reserves) ceded to the Reinsurer, divided by total ceded earned premium, in each case on a cumulative inception-to-date basis.
The Party electing to commute shall provide written notice of its intent to commute (a "Commutation Notice") to the other Party at least [60/90] days prior to the proposed commutation date. The Commutation Notice shall specify the proposed commutation date and shall include or reference the Cash Loss Ratio calculation supporting the commutation election.
[NOTE: Bracketed — commutation notice period (60 vs. 90 days) to be confirmed.]
Section 9.2 — Commutation Mechanics
Upon the delivery and receipt of a Commutation Notice, the Parties shall negotiate in good faith to agree upon a commutation payment (the "Commutation Amount") that fully and finally settles all of the Reinsurer's outstanding and prospective obligations under this Treaty (and, to the extent applicable, the Original Treaty and all predecessor treaty years). The Commutation Amount shall be determined based on an actuarial valuation of:
(a) outstanding loss reserves (including case reserves and IBNR reserves) attributable to the Reinsurer's Quota Share Percentage as of the proposed commutation date;
(b) any unearned premium attributable to the Reinsurer's Quota Share Percentage as of the proposed commutation date;
(c) any unpaid ceding commission adjustments (including sliding scale commission true-ups) as of the proposed commutation date; and
(d) the balance of the Funds Withheld Account, including accrued and unpaid interest.
The actuarial valuation shall be performed by an independent actuary mutually selected by the Parties, with costs shared equally. If the Parties are unable to agree on the selection of an independent actuary within thirty (30) days of the Commutation Notice, the independent actuary shall be appointed in accordance with the procedures of the Actuarial Standards Board or, at the election of either Party, the dispute over the Commutation Amount shall be referred to arbitration pursuant to Article XV.
If the Parties are unable to agree on the Commutation Amount within [90/120] days of the Commutation Notice, the dispute shall be submitted to binding arbitration in accordance with Article XV.
[NOTE: Bracketed — commutation negotiation period (90 vs. 120 days) to be confirmed.]
Section 9.3 — Effect of Commutation
Upon payment of the agreed Commutation Amount by the Reinsurer to the Company (or, as applicable, by the Company to the Reinsurer if the Commutation Amount reflects a net credit to the Reinsurer), the Reinsurer shall be fully, finally, and irrevocably released and discharged from all further obligations and liabilities under this Treaty, including, if applicable, all obligations and liabilities under the Original Treaty and all predecessor treaty years. The Company shall simultaneously release to the Reinsurer the entire remaining balance of the Funds Withheld Account (net of any amounts applied to the Commutation Amount), including accrued and unpaid interest. Upon the effective date of the commutation, this Treaty shall terminate and be of no further force or effect, except with respect to provisions that by their terms survive termination (including, without limitation, the confidentiality provisions of Article XX and the arbitration provisions of Article XV).
ARTICLE X — REPORTING AND ACCOUNTS
Section 10.1 — Quarterly Bordereaux
The Company shall provide the Reinsurer (through the Intermediary) with quarterly premium and loss bordereaux within [45/60] days after the close of each calendar quarter during the Treaty Period and during any run-off period following expiration or termination. The first quarterly bordereau under this Treaty shall be due no later than March 31, 2026 (covering the period from January 1, 2026 through March 31, 2026, i.e., Q1 2026). The format of the bordereaux shall be as set forth in Schedule D attached hereto, and the Company shall comply with any reasonable modifications to the bordereau format requested by the Reinsurer, provided that such modifications do not impose an unreasonable administrative burden on the Company.
[NOTE: Bracketed — bordereau due date (45 vs. 60 days) to be confirmed.]
Section 10.2 — Content of Bordereaux
(a) Premium Bordereau. Each quarterly premium bordereau shall contain the following information for each policy ceded under this Treaty during the applicable quarter: policy number, named insured, state or territory, class of business, policy effective date, policy expiration date, gross written premium, net written premium, ceded premium (at 40%), and the ceding commission amount.