[slide 1]
Confidentiality Notice
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION AND ATTORNEY WORK PRODUCT
Prepared by Calderwood & Harkness LLP for the Board Audit Committee of Quorum Insurance Holdings Corp.
Matter No. 1025-00005
March 24, 2026
[slide 2]
Executive Summary
Pinnacle Atlantic Reinsurance Ltd. has issued a pre-suit demand seeking return of $78.4M in recoverables plus $12.6M interest — total demand of $91.0M
Dispute concerns cessions under Treaty No. PA-QCS-2019-EXL-0044 (2019 aggregate excess-of-loss treaty) between QC&S (cedent) and Pinnacle Atlantic (reinsurer)
Treaty years at issue: TY 2022 ($69.7M ceded) and TY 2023 ($8.7M ceded)
Pre-suit demand letter dated February 14, 2026, from Hargrove, Fitch & Calloway LLP
Calderwood & Harkness retained March 2, 2026, following Audit Committee authorization on February 24, 2026
QC&S has strong defenses on all four grounds; recommended strategy: enforce treaty arbitration, propose mediation, prepare robust pre-litigation posture
[slide 3]
Parties and Key Personnel
Cedent: Quorum Casualty & Surety Company — NY-domiciled (NAIC 24891); A.M. Ridgeway: A (Excellent), Stable; statutory surplus $1.42B (Dec. 31, 2025)
Reinsurer: Pinnacle Atlantic Reinsurance Ltd. — Bermuda Class 4 insurer; U.S. office at 1285 Avenue of the Americas, New York
Opposing counsel: Hargrove, Fitch & Calloway LLP (Nathaniel R. Calloway III, Lead Partner; Priya Subramanian, Senior Associate)
QIH counsel: Calderwood & Harkness LLP (Carmichael, Morano, Park, Nakamura)
Key QIH personnel: Rachel Sondergaard (GC), Tobias Engström (SVP, Reinsurance & Capital Markets), Diana Kessler-Hoff (VP, Claims & Reinsurance Recoveries)
Broker: Broadreach Intermediaries Inc. (Jamie Castellano); Consulting Actuaries: Velthorn Actuarial Advisors LLC (Dr. Stephen Tanaka, FCAS, MAAA)
[slide 4]
Treaty Overview — PA-QCS-2019-EXL-0044
Type: Aggregate excess-of-loss reinsurance treaty — casualty lines (CGL, excess/umbrella, professional liability)
Inception: July 1, 2019; original 5-year term through June 30, 2024; extended through June 30, 2026
Retention: $120M per treaty year in aggregate net incurred losses; Cession limit: $200M per treaty year ($120M–$320M)
Premium: Provisional rate of 42% of ceded earned premium; slide-scale adjustment (min 35%, max 52%)
Governing law: New York; Arbitration: Article 22 — three-member panel, ARIAS-U.S. Rules, seated in New York
Intermediary: Broadreach Intermediaries Inc. (Article 9)
Pinnacle Atlantic issued non-renewal notice October 1, 2025; treaty lapses June 30, 2026
[slide 5]
Disputed Cessions — Financial Breakdown
TY 2022: QC&S aggregate net incurred loss of $189.7M − $120.0M retention = $69.7M ceded
TY 2023: QC&S aggregate net incurred loss of $128.7M − $120.0M retention = $8.7M ceded
Total ceded (and billed/paid): $78.4M ($69.7M + $8.7M)
Pinnacle Atlantic paid the full $78.4M across seven billing installments (October 2022 – March 2024)
Pinnacle Atlantic now demands return of $78.4M + $12.6M interest = $91.0M total
Interest calculated at ~8% per annum, approximately 24-month average duration
[slide 6]
Pinnacle Atlantic's Four Grounds for Dispute
1. Late Notice (Article 7): Alleges 14-month, 7-day delay in noticing the Meridian Docks mass tort cluster (first reserve March 15, 2021; notice May 22, 2022)
2. IBNR Misallocation (Article 5): Alleges $22.3M in IBNR reserve strengthening was improperly allocated to TY 2022 instead of TY 2021
3. Follow-the-Fortunes (Article 11): Challenges $34.5M Veridian Financial Services E&O cluster settlement as not in the ordinary course
4. Premium Underreporting (Article 3): Alleges $6.8M underreported TY 2022 ceded earned premium; $2.856M premium underpayment
[slide 7]
QC&S Defenses — Late Notice (Ground 1)
Article 7 has a $1M individual claim reporting threshold; Meridian Docks claims were individually below this threshold until Q1 2022 reserve increases
QC&S provided prompt notice once the aggregate reserve crossed the treaty reporting threshold — notice given May 22, 2022, via Broadreach
NY law applies a prejudice-based standard: Pinnacle Atlantic must show actual prejudice from any delay
Pinnacle Atlantic has not articulated any specific prejudice arising from the timing of notice
QC&S claims handling procedures and reserving practices were consistent with industry norms
[slide 8]
QC&S Defenses — IBNR Allocation (Ground 2)
Velthorn Actuarial Advisors' analysis supports allocation to accident-year 2022 based on development factors that crystallized during TY 2022
Treaty Article 5.2 definition of 'losses incurred' supports QC&S's allocation methodology
If Pinnacle Atlantic's reallocation were accepted: TY 2022 ceded loss drops from $69.7M to $47.4M
TY 2021 aggregate was $104.6M (below $120M retention); adding $22.3M yields $126.9M — only $6.9M cession in an undisputed treaty year
Actuarial standards of practice support Velthorn's methodology; Dr. Stephen Tanaka prepared actuarial certificates
Net effect of reallocation dispute: potential $22.3M reduction, not full invalidation
[slide 9]
QC&S Defenses — Follow-the-Fortunes / Veridian Settlement (Ground 3)
Follow-the-fortunes doctrine under NY law provides broad deference to a cedent's good-faith claims handling and settlement decisions
Reinsurer can overcome the doctrine only by showing bad faith, fraud, or gross negligence — a very high bar
Veridian $34.5M settlement resulted from genuine claims evaluation; QC&S retained $26.1M net — significant 'skin in the game'
Pinnacle Atlantic's allegation that settlements were inflated to breach the retention is speculative and unsupported
QC&S claims file documentation supports the reasonableness of each settlement amount
Only $8.7M of the Veridian settlement flowed through to the Treaty (TY 2023 cession)
[slide 10]
QC&S Defenses — Premium Reporting (Ground 4)
Discrepancy arises from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums excluded under Article 3.4
QC&S reported $38.4M ceded earned premium for TY 2022; Pinnacle Atlantic calculates $45.2M — difference of $6.8M
Even if underreporting were established, alleged shortfall is $2.856M ($6.8M × 42%) — a premium adjustment, not grounds for rescission
Article 3 provides no termination right for premium reporting disputes; any shortfall results in offset or true-up
Slide-scale premium adjustment mechanism (35%–52%) contemplates ongoing reconciliation
[slide 11]
Forum and Procedural Strategy — Arbitration vs. Litigation
Treaty Article 22 provides for mandatory arbitration: three-member panel, ARIAS-U.S. Rules, seated in New York
Hargrove, Fitch & Calloway asserts the arbitration clause is inapplicable — we believe this position lacks merit
NY law and the Federal Arbitration Act strongly favor enforcement of broad arbitration clauses in reinsurance treaties
Recommended: demand arbitration immediately; if suit is filed in NY Commercial Division, move to compel arbitration and stay litigation
Arbitration advantages: industry-expert arbitrators, confidentiality, potentially faster resolution
C&H sent demand to arbitrate on March 18, 2026, and has prepared draft motion to compel
[slide 12]
Additional Strategic Recommendations
Propose voluntary mediation — one-day session in New York with a reinsurance-experienced neutral
Mediation proposal sent to HFC on approximately March 25, 2026, without prejudice to arbitration demand
Prepare robust defensive pleadings: verified answer, affirmative defenses, and counterclaim for declaratory judgment
Assert waiver defense: Pinnacle Atlantic paid $78.4M across 7 installments over 18 months without reservation
Coordinate with Harmon & Whitfield LLP on regulatory issues and Meridian Whitcomb on audit implications
Retain independent actuarial expert and reinsurance industry practices expert
[slide 13]
Exposure Analysis — Best / Likely / Worst Case
Best Case: QC&S prevails on all grounds — $0 liability; full $78.4M recoverable preserved
Likely Case: Partial concession on IBNR — net exposure ~$22.3M; recoverable reduced to ~$56.1M plus partial interest
Worst Case: Full disgorgement of $78.4M + $12.6M interest = $91.0M total cash outflow
Assessment: Best case achievable; likely case represents reasonable settlement zone; worst case improbable
Litigation cost overlay: $3.2M–$4.8M through trial/arbitration hearing
[slide 14]
Financial Impact — QC&S Statutory Surplus
QC&S statutory surplus (Dec. 31, 2025): $1.420 billion
Cartwright $750M revolving facility (matures June 2028); minimum statutory surplus covenant: $1.1B
Current covenant headroom: $320M ($1.42B − $1.1B)
$78.4M write-off: surplus drops to $1.3416B; headroom narrows to $241.6M (24.5% reduction)
$91.0M adverse outcome: surplus drops to $1.329B; headroom narrows to $229M
In all scenarios: minimum surplus covenant maintained — no technical default
Reporting obligation to Cartwright under material litigation reporting clause
[slide 15]
Financial Impact — QIH Consolidated GAAP and Market Considerations
QIH FY 2025: $4.18B gross written premium, $2.93B net earned premium, ~$6.7B market cap (Nasdaq: QIHC)
$78.4M write-off: pre-tax charge $78.4M; after-tax (21%): $61.936M net income reduction
Meridian Whitcomb issued unqualified FY 2025 audit opinion including the recoverable — coordination required
SEC ASC 450: evaluate as probable, reasonably possible, or remote for 10-Q/10-K contingency footnote
Current assessment: reasonably possible (not probable); contingency range disclosure likely required
$91M demand is ~1.4% of market cap — investor relations impact must be considered
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Regulatory Disclosure and Reporting Obligations
SEC: ASC 450 contingency footnote in upcoming 10-Q — disclose reasonably possible loss range
NYDFS: Potential notification of material litigation/arbitration involving QC&S — coordinate with Harmon & Whitfield
Cartwright National Bank: Notify administrative agent under material litigation reporting clause
Schedule F (statutory reporting): Monitor impact on reinsurance recoverable reporting
D&O notification: Consider whether dispute triggers notice under QIH's D&O policy
[slide 17]
Key Witnesses and Evidence
QC&S fact witnesses: Tobias Engström (treaty negotiation, premium reporting); Diana Kessler-Hoff (claims handling, notice, Meridian Docks/Veridian files)
Broadreach Intermediaries: Jamie Castellano (placement records, billing transmittals, party communications)
Velthorn Actuarial Advisors: Dr. Stephen Tanaka (IBNR methodology, actuarial certificates, loss development)
Pinnacle Atlantic (adversarial): Conrad Hesse (treaty disputes), Lorraine Metcalf (claims review)
Experts to retain: independent actuarial expert (IBNR); reinsurance industry practices expert (notice, follow-the-fortunes, settlement)
Key documents: Treaty and amendments, Broadreach placement files, QC&S claims files, Velthorn workpapers, billing transmittals
[slide 18]
Litigation Timeline and Key Milestones
March 2, 2026: C&H engagement opened; litigation hold issued March 4, 2026
March 18, 2026: Response to pre-suit demand and demand to arbitrate sent to HFC
March 25, 2026: Mediation proposal sent to HFC
April – May 2026: Expected Pinnacle Atlantic response; potential arbitration/litigation filing
June 30, 2026: Treaty lapses (second extension period ends)
Q3–Q4 2026: Discovery / document exchange phase
Q1–Q2 2027: Expert reports and depositions
Q3 2027 (est.): Arbitration hearing or trial — if not resolved earlier
[slide 19]
Budget and Engagement Economics
Phase 1 — Strategy Assessment & Pre-Litigation (March – April 2026): $450,000 – $625,000
Total estimated budget through trial/arbitration hearing: $3.2M – $4.8M
C&H team rates (reflecting 5% client discount): Carmichael $1,650/hr; Morano $1,550/hr; Park $1,050/hr; Nakamura $825/hr
Monthly invoicing, net-30 payment terms; matter number 1025-00005
Additional costs (not in C&H budget): expert retention ($300K–$500K est.), subpoena compliance, mediation/arbitrator fees
Early resolution via mediation or settlement would significantly reduce total spend
[slide 20]
Action Items and Requested Authorizations
Authorize C&H to proceed with arbitration strategy, including motion to compel if Pinnacle Atlantic files suit
Approve preliminary settlement authority range — to be discussed in executive session
Direct Rachel Sondergaard to coordinate 10-Q SEC disclosure language with Meridian Whitcomb
Direct notification to Cartwright National Bank under credit agreement's material litigation clause
Authorize retention of independent actuarial expert and reinsurance industry practices expert
Approve continued Phase 1 / Phase 2 budget; next Audit Committee update in ~60 days
Confirm coordination with Harmon & Whitfield on NYDFS notification obligations