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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Conrad Ashby, Responsible Partner, and Steven Hollander, Lead Associate Calderwood & Harkness LLP White Collar Defense & Investigations Practice Group 1221 Avenue of the Americas, 38th Floor New York, NY 10020

TO: Audit Committee of the Board of Directors of Quorum Insurance Holdings Corp. Priya Subramaniam, Chair Thomas K. Driscoll, Member Angela F. Delvecchio, Member

DATE: February 27, 2026

RE: Preliminary Legal Issue Analysis — Potential Regulatory, Disclosure, and Criminal Exposure Arising from Whistleblower Allegations Concerning Ashgrove Equity Partners Specialty Underwriting, Inc.

MATTER NO.: 1025-00010

REFERENCE: IntegriLine Intake No. IL-QIH-2026-0214-0033

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I. Introduction and Purpose

This memorandum has been prepared by Calderwood & Harkness LLP ("C&H") at the direction and under the authority of the Audit Committee of the Board of Directors of Quorum Insurance Holdings Corp. ("QIH" or the "Company") in connection with the investigation engagement formally opened on February 27, 2026. The Audit Committee retained C&H for the specific purpose of advising on and, if warranted, conducting an independent internal investigation into allegations contained in an anonymous whistleblower complaint submitted through the Company's IntegriLine ethics and compliance reporting portal on February 14, 2026 (Intake No. IL-QIH-2026-0214-0033) (the "Complaint").

The purpose of this memorandum is to provide the Audit Committee with a preliminary analysis of the potential legal exposure — encompassing federal securities law, state insurance regulatory, civil liability, criminal, and insurance-coverage dimensions — that QIH, its subsidiaries, and its officers and directors may face if the allegations contained in the Complaint are substantiated in whole or in part. This memorandum is intended to equip the Audit Committee with an informed framework for decision-making as it considers the appropriate scope and pace of the investigation, disclosure obligations, and related governance actions.

It is essential to emphasize at the outset that no substantive investigation has been commenced as of the date of this memorandum. The analysis set forth herein is based solely on the following limited information: (i) the four-page whistleblower complaint narrative submitted through the IntegriLine portal; (ii) two sample binder-confirmation PDFs attached to the Complaint, bearing aggregate placed-premium face values of approximately $12.4 million; (iii) publicly available filings of QIH with the U.S. Securities and Exchange Commission ("SEC"), including the Company's most recently filed Form 10-K for fiscal year 2025 (filed February 21, 2026) and prior quarterly filings on Form 10-Q; and (iv) information provided during initial discussions held on February 24 and February 26, 2026, with QIH's General Counsel, Owen R. Hargrove, Esq., and Audit Committee Chair Priya Subramaniam. No documents have been collected or reviewed beyond the foregoing. No witness interviews have been conducted. No forensic analysis of financial data, electronic records, or transactional systems has been undertaken.

All conclusions, risk assessments, and recommendations contained in this memorandum are therefore preliminary in nature and are subject to substantial refinement, modification, or revision upon completion of the proposed scoping phase of the investigation (estimated duration: four to six weeks; estimated budget: $175,000 to $225,000 for C&H fees, exclusive of forensic advisory support) and any subsequent full investigation that the Audit Committee may authorize based on the scoping-phase findings.

This memorandum is protected by the attorney-client privilege and the work-product doctrine. The privilege with respect to this memorandum and the investigation as a whole is held by and controlled exclusively by the Audit Committee of the Board of Directors of QIH. No distribution of this memorandum to any person or entity not authorized by the Audit Committee is permitted. Any inadvertent disclosure shall not constitute a waiver of any applicable privilege.

II. Summary of Allegations

The following is a summary of the core allegations as set forth in the Complaint (IntegriLine Intake No. IL-QIH-2026-0214-0033), which was submitted anonymously through QIH's IntegriLine ethics and compliance reporting portal on February 14, 2026, and escalated by the IntegriLine review team to General Counsel Owen R. Hargrove on February 17, 2026.

A. Fabrication of Binder Confirmations and Phantom Premium Placements

The Complaint alleges that, during a period spanning approximately the third quarter of fiscal year 2023 through the fourth quarter of fiscal year 2025 — a period encompassing approximately ten fiscal quarters — senior personnel at Ashgrove Equity Partners Specialty Underwriting, Inc. ("BSU"), QIH's wholly owned subsidiary incorporated and operating in the State of Connecticut, fabricated or materially inflated approximately 147 binder confirmations for commercial property insurance policies. According to the Complaint, these policies were purportedly placed through three retail-broker counterparties that the complainant asserts are fictitious or shell entities: (i) Veltrano Risk Advisors; (ii) Halloran & Pratt Insurance Associates; and (iii) CrestPoint Brokerage LLC (collectively, the "Subject Brokers").

The Complaint alleges that BSU recognized commission income on these phantom placements. The estimated fictitious placed premium associated with the approximately 147 fabricated or inflated binder confirmations is alleged to be approximately $74 million. Applying an approximate average commission rate of 13%, the Complaint asserts that BSU generated approximately $9.6 million in phantom commission income over the relevant period.

Two sample binder-confirmation PDFs are attached to the Complaint. These documents bear aggregate placed-premium face values of approximately $12.4 million and purport to confirm placements through two of the three Subject Brokers (Veltrano Risk Advisors and CrestPoint Brokerage LLC). We have not yet verified the authenticity of these documents or compared them against BSU's internal records.

B. Premature Release of Incurred-But-Not-Reported Loss Reserves

The Complaint further alleges that BSU directed the premature release of approximately $38.5 million in incurred-but-not-reported ("IBNR") loss reserves. According to the Complaint, these reserve releases were undertaken for the purpose of inflating quarterly underwriting income and were concentrated in the fourth quarter of fiscal year 2024 and the second quarter of fiscal year 2025. The Complaint does not specify the precise allocation of the $38.5 million between these two quarters, nor does it identify the specific lines of business or reserve categories from which the releases were drawn. However, the complainant asserts that these releases were not supported by actuarial analysis and represented management overrides of the established reserving process.

C. Aggregate Alleged Financial Misstatement

Taken together, the Complaint alleges an aggregate financial misstatement of approximately $48.1 million, comprising approximately $9.6 million in phantom commission income and approximately $38.5 million in improperly released IBNR reserves. The complainant characterizes these actions as a deliberate scheme to inflate BSU's reported financial performance and, by extension, to inflate QIH's consolidated financial results as reported in its SEC filings.

D. Subject Individuals

The Complaint identifies three named individuals as the principal participants in the alleged scheme:

1. Garrett T. Lomax, President of BSU, who is alleged to have directed the overall scheme and to have authorized or approved the fabrication of binder confirmations and the release of IBNR reserves.

2. Neil W. Stadler, Senior Vice President, Commercial Property Division of BSU, who is alleged to have been directly involved in the fabrication of binder confirmations and the creation of documentation supporting the phantom placements.

3. Rhonda M. Kessler, Vice President, Finance & Operations of BSU, who is alleged to have participated in the recognition of phantom commission income on BSU's books and records and to have directed or facilitated the premature release of IBNR reserves.

The Complaint does not allege that any senior corporate officer of QIH — including CEO Marcus P. Galvin, CFO Denise R. Nakamura, or General Counsel Owen R. Hargrove — had knowledge of or participated in the alleged scheme. However, the Complaint does not expressly exonerate them, and the question of what information flowed from BSU to QIH corporate management is a central issue for investigation.

E. Licensing Allegations Regarding Subject Brokers

The Complaint asserts that the three Subject Brokers — Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC — lack valid surplus-lines licenses in any state and that the addresses associated with these entities are virtual office locations rather than bona fide places of business. If accurate, the placement of commercial property policies through unlicensed surplus-lines brokers would raise additional regulatory concerns, as discussed in Section V of this memorandum.

F. Contextual Financial Data

For purposes of assessing the materiality and significance of the allegations, the following contextual financial data is relevant:

• BSU's fiscal year 2025 placed premium was approximately $487 million.

• BSU's fiscal year 2025 commission and fee income was approximately $63.2 million.

• QIH's fiscal year 2025 gross written premium was approximately $3.17 billion.

• QIH's fiscal year 2025 net earned premium was approximately $2.41 billion.

• QIH's approximate market capitalization as of February 2026 is approximately $4.8 billion.

• QIH is publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC.

The alleged $48.1 million in aggregate financial misstatement represents approximately 2.0% of QIH's net earned premium and approximately 7.6% of BSU's placed premium over the relevant period. The significance of these figures, both quantitatively and qualitatively, is discussed in detail in Section III.A below.

III. Federal Securities Law Exposure

A. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5

QIH is a publicly traded company whose common stock is listed on the Nasdaq Stock Market under the ticker symbol QIHC. As a reporting issuer, QIH is subject to the antifraud provisions of the federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

If the allegations in the Complaint are substantiated, QIH's consolidated financial statements for fiscal years 2023, 2024, and 2025 — as included in the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the SEC — may contain material misstatements. Specifically, the alleged phantom commission income of approximately $9.6 million would have inflated QIH's reported commission and fee revenue, and the alleged premature release of approximately $38.5 million in IBNR reserves would have understated QIH's reported loss reserves and overstated its reported underwriting income. Together, these alleged misstatements would have had the effect of materially overstating QIH's reported earnings during the affected periods.

1. Elements of a Section 10(b) / Rule 10b-5 Claim

A claim under Section 10(b) and Rule 10b-5, whether asserted by the SEC in an enforcement action or by private plaintiffs in a class-action lawsuit, requires the establishment of the following elements: (1) a material misstatement or omission; (2) made in connection with the purchase or sale of a security; (3) with scienter (i.e., intent to deceive, manipulate, or defraud, or severe recklessness); (4) reliance by the plaintiff on the misstatement or omission (in private actions); (5) economic loss; and (6) loss causation (i.e., a causal connection between the misstatement and the plaintiff's loss).

2. Materiality Analysis

The question of materiality is of central importance to the assessment of QIH's securities law exposure. Under the Supreme Court's standard articulated in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), and Basic Inc. v. Levinson, 485 U.S. 224 (1988), a fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision — i.e., if it would have been viewed by the reasonable investor as having significantly altered the "total mix" of information available.

From a purely quantitative perspective, the alleged $48.1 million aggregate misstatement represents approximately 2.0% of QIH's $2.41 billion net earned premium for fiscal year 2025. Under traditional quantitative materiality benchmarks — which typically deem misstatements exceeding 5% of pre-tax income to be presumptively material — the alleged misstatement might fall below the quantitative threshold depending on QIH's pre-tax income for the affected periods. However, it is critical to note that the SEC has long cautioned against an exclusive reliance on quantitative benchmarks. SEC Staff Accounting Bulletin No. 99 ("SAB 99"), Materiality, 64 Fed. Reg. 45,150 (Aug. 19, 1999), directs that qualitative factors must also be considered, and that an otherwise quantitatively small misstatement may be material if qualitative factors so indicate.

In this case, multiple qualitative factors weigh heavily in favor of a finding of materiality:

• Intentional fraud: The allegations describe a deliberate, orchestrated scheme involving the fabrication of documents and the creation of fictitious counterparties. Intentional misstatements are far more likely to be deemed material than unintentional errors. SAB 99 specifically identifies whether the misstatement "arises from an item capable of precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimate" and whether the misstatement "masks a change in earnings or other trends" as relevant qualitative considerations.

• Involvement of senior management: The Complaint names the president of BSU and two other senior executives. The involvement of senior management in a fraud significantly enhances the materiality of the underlying misstatements, as it raises fundamental questions about the integrity of management and the reliability of the Company's internal controls.

• Trend manipulation: The alleged scheme spans approximately ten quarters and involves both revenue inflation (phantom commission income) and reserve manipulation (premature IBNR releases), both of which would have the effect of smoothing or inflating BSU's reported earnings trajectory over the relevant period. The manipulation of earnings trends is expressly identified in SAB 99 as a qualitative factor supporting materiality.

• Impact on loss reserves: The alleged premature release of $38.5 million in IBNR reserves implicates the adequacy of QIH's reported loss and loss-adjustment-expense reserves, which are among the most significant and closely scrutinized line items in an insurance company's financial statements. Investors, analysts, and rating agencies rely heavily on the adequacy of an insurer's reserves as a key indicator of financial health. Misstatement of reserves is therefore particularly likely to be viewed as material by reasonable investors.

• Regulatory implications: The alleged placement of policies through unlicensed brokers raises insurance regulatory concerns that extend beyond the financial misstatement itself and could expose QIH to regulatory sanctions, corrective orders, or supervision proceedings, each of which would be material to investors.

Based on these qualitative factors, we believe that a court or the SEC would likely conclude that the alleged misstatements are material for purposes of the federal securities laws, notwithstanding the relatively modest quantitative magnitude of the misstatements in relation to QIH's overall premium volume. This conclusion is preliminary and subject to revision as the investigation develops a more precise understanding of the timing, magnitude, and financial statement impact of the alleged misstatements.

3. Scienter. The scienter element requires a showing that the defendant acted with intent to deceive, manipulate, or defraud, or with severe recklessness amounting to a strong inference of such intent. The Complaint alleges that three senior BSU executives — Lomax, Stadler, and Kessler — orchestrated and carried out the scheme. If those allegations are substantiated, establishing scienter as to these individuals should be relatively straightforward, as the alleged fabrication of binder confirmations and creation of fictitious broker counterparties would constitute classic evidence of intentional fraud.

The more complex scienter question concerns whether scienter can be imputed to QIH as a corporate entity and, in particular, to QIH's senior corporate officers — CEO Marcus P. Galvin and CFO Denise R. Nakamura — who signed and certified the Company's SEC filings during the affected periods. Under the standards articulated by the Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), and applied by courts in the Second Circuit (where QIH would most likely face private securities litigation), a complaint must allege facts giving rise to a "strong inference" of scienter — one that is "cogent and at least as compelling as any opposing inference of nonfraudulent intent."

At this early stage, we do not have information indicating that Galvin or Nakamura had direct knowledge of the alleged scheme. However, the investigation must examine: (a) what financial information flowed from BSU to QIH corporate management, including any sub-certifications or management representation letters provided by BSU's leadership; (b) whether QIH's internal audit function reviewed BSU's commercial property division or its commission-income recognition practices during the affected periods; (c) whether any red flags or irregularities were identified and, if so, how they were communicated and addressed; and (d) the adequacy of QIH's internal controls over financial reporting as they relate to subsidiary-level revenue recognition and loss-reserve management.

4. Private Class-Action Risk

If the allegations are substantiated and a corrective disclosure causes a decline in the market price of QIHC common stock, QIH faces a significant risk of a private securities class-action lawsuit under Section 10(b) and Rule 10b-5. Such a suit would likely be filed in the United States District Court for the District of Connecticut or the Southern District of New York by purchasers of QIHC stock during the alleged class period, which could extend from the date of the first allegedly misleading filing (potentially QIH's Form 10-Q for Q3 2023) through the date of a corrective disclosure. Plaintiffs' counsel with established practices in securities class-action litigation closely monitor for restatement announcements, SEC investigations, and whistleblower-related disclosures, and are likely to file suit promptly upon any public disclosure of the matters described in the Complaint.

The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides certain procedural protections, including heightened pleading standards for scienter and a stay of discovery during the pendency of a motion to dismiss. Nevertheless, if the underlying fraud is substantiated, these procedural protections are unlikely to result in dismissal of a class action at the pleading stage, and the Company should anticipate the potential for significant defense costs and settlement exposure.

5. SEC Enforcement Risk

In addition to the risk of private litigation, QIH faces the risk that the SEC's Division of Enforcement may open a formal investigation into the matters alleged in the Complaint. As discussed in Section VIII.B below, the anonymous complainant may have already reported (or may in the future report) the same allegations directly to the SEC under the Dodd-Frank whistleblower bounty program. If the SEC opens an investigation, QIH and its officers and directors could face: (a) formal orders of investigation and related subpoenas; (b) civil enforcement proceedings seeking injunctive relief, disgorgement of profits, prejudgment interest, and civil monetary penalties; (c) officer-and-director bars pursuant to Exchange Act Section 21(d)(2); and (d) cease-and-desist proceedings. Individual subject executives (Lomax, Stadler, Kessler) and, potentially, certifying officers (Galvin, Nakamura) could face individual civil liability.

B. Section 13(a) of the Exchange Act and SEC Reporting Obligations

QIH files annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC, as required by Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 13a-1 and 13a-13 promulgated thereunder, 17 C.F.R. §§ 240.13a-1, 240.13a-13.

QIH filed its annual report on Form 10-K for fiscal year 2025 with the SEC on February 21, 2026. This filing was made after the whistleblower complaint was submitted through the IntegriLine portal (February 14, 2026) and after the complaint was escalated to General Counsel Hargrove (February 17, 2026), but before the Audit Committee had completed any review or materiality determination regarding the allegations. The timing of this filing raises a number of sensitive questions, including whether the Company had sufficient information at the time of filing to warrant delaying the filing, whether the Complaint constituted information that should have been disclosed in the filing, and whether the Company's disclosure controls and procedures operated effectively to ensure that information regarding the Complaint was communicated to the certifying officers prior to filing. These questions will require careful examination during the scoping phase.

If the financial statements included in QIH's Form 10-K for fiscal year 2025, as well as its prior 10-K and 10-Q filings for the affected periods, are determined to contain material misstatements, QIH may have violated Section 13(a) and the associated reporting rules by filing materially inaccurate periodic reports with the SEC.

In addition, the allegations implicate two provisions of Section 13(b) of the Exchange Act:

• Books and Records — Section 13(b)(2)(A): This provision requires every reporting issuer to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." 15 U.S.C. § 78m(b)(2)(A). If BSU's books and records included fabricated binder confirmations, phantom commission-income entries, and improperly released loss reserves, QIH's consolidated books and records did not accurately reflect the Company's transactions, giving rise to a potential books-and-records violation. Notably, books-and-records violations under Section 13(b)(2)(A) do not require a showing of scienter; they are strict-liability provisions.

• Internal Controls — Section 13(b)(2)(B): This provision requires reporting issuers to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that transactions are executed and recorded in conformity with GAAP and management's authorization. 15 U.S.C. § 78m(b)(2)(B). If QIH's internal controls failed to detect the fabrication of 147 binder confirmations over a period of approximately ten quarters, the premature release of $38.5 million in IBNR reserves, and the recognition of $9.6 million in phantom commission income, QIH may have failed to maintain adequate internal accounting controls. As with books-and-records violations, internal-controls violations under Section 13(b)(2)(B) are strict-liability provisions.

C. SOX Certifications — Sections 302 and 906

CEO Marcus P. Galvin and CFO Denise R. Nakamura certified QIH's fiscal year 2025 Form 10-K, as well as the quarterly reports on Form 10-Q for each quarter during the affected periods, under two distinct certification requirements of the Sarbanes-Oxley Act of 2002 ("SOX"):

Section 302 Certifications (Civil — Exchange Act Rule 13a-14(a)): Section 302 of SOX requires the principal executive officer and principal financial officer of each reporting company to certify, in each annual and quarterly report filed under the Exchange Act, that: (i) the signing officer has reviewed the report; (ii) based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (iii) based on the officer's knowledge, the financial statements and other financial information included in the report fairly present in all material respects the financial condition and results of operations of the issuer; and (iv) the signing officer is responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting, has designed such controls to ensure that material information is made known to the certifying officers, has evaluated the effectiveness of such controls, and has disclosed to the auditor and the audit committee any significant deficiencies or material weaknesses in internal controls and any fraud, whether or not material, involving management or other employees who have a significant role in the issuer's internal controls over financial reporting.

Section 906 Certifications (Criminal — 18 U.S.C. § 1350): Section 906 of SOX requires the CEO and CFO to certify, in each periodic report filed under the Exchange Act, that: (i) the periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (ii) the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. A knowing violation of Section 906 carries a maximum penalty of ten years of imprisonment and a fine of up to $1,000,000. A willful violation carries a maximum penalty of twenty years of imprisonment and a fine of up to $5,000,000.

If the alleged scheme resulted in material misstatements in any of the periodic reports certified by Galvin and Nakamura, those certifications may have been inaccurate. The critical question for purposes of individual liability is whether Galvin and Nakamura had knowledge of the alleged scheme or of circumstances that rendered their certifications reckless. This question requires the investigation to determine: (a) what information regarding BSU's revenue line items, commission-income trends, and reserve schedules was reported to QIH corporate management and reviewed by the certifying officers; (b) whether QIH's internal audit function conducted reviews of BSU's commercial property operations during the affected periods and, if so, what findings were communicated; (c) whether BSU management (including Lomax) was required to provide sub-certifications to QIH corporate management attesting to the accuracy of BSU's financial information, and whether any such sub-certifications were provided and relied upon; and (d) whether any red flags or anomalies in BSU's financial performance were identified and investigated by QIH corporate management or the certifying officers.

The answers to these questions will significantly affect the risk profile for Galvin and Nakamura and will inform any analysis regarding cooperation and self-disclosure strategies.

IV. Potential Financial Restatement and Disclosure Obligations

A. Restatement Analysis

If the allegations in the Complaint are substantiated in whole or in material part, QIH's historical financial statements for fiscal years 2023, 2024, and 2025 may require restatement. The nature and scope of a potential restatement would be governed by Accounting Standards Codification ("ASC") Topic 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.

1. Revenue Recognition Impact

The alleged phantom commission income of approximately $9.6 million over approximately ten quarters would need to be reversed in the periods in which it was improperly recognized. The precise allocation of this amount across the affected quarters — and the determination of which specific quarterly and annual filings would require restatement — will require a forensic analysis of BSU's commission-income records, binder-confirmation files, and general-ledger entries for the relevant periods. This analysis is a central component of the proposed scoping-phase work plan and will be conducted in coordination with Claridge Forensic Advisory LLC.

2. Reserve Impact

The alleged premature release of approximately $38.5 million in IBNR reserves — concentrated in the fourth quarter of fiscal year 2024 and the second quarter of fiscal year 2025, according to the Complaint — would need to be reversed, with the reserves re-established on QIH's balance sheet. The re-establishment of these reserves would reduce QIH's reported net income and could reduce policyholder surplus and shareholders' equity for the affected periods. The concentration of reserve releases in two specific quarters suggests that the financial statement impact may be particularly significant for those quarters, potentially resulting in restated earnings figures that differ materially from the originally reported figures.

3. Combined Impact

The combined pre-tax impact of the alleged misstatements is approximately $48.1 million across the affected periods. The after-tax impact will depend on the applicable effective tax rates for each affected period and the tax treatment of the specific adjustments, which has not yet been determined.

4. External Auditor Considerations

QIH's external auditor, Kellner & Strauss LLP ("K&S"), with lead engagement partner Howard M. Bressler, issued an unqualified (clean) opinion on QIH's consolidated financial statements for fiscal year 2025, which were included in the Form 10-K filed February 21, 2026. K&S also issued reports on the effectiveness of QIH's internal control over financial reporting for fiscal year 2025 pursuant to Section 404(b) of SOX.

If the investigation determines that a restatement is necessary, several consequences may follow with respect to the audit engagement:

• K&S may need to withdraw or reissue its audit opinion on the fiscal year 2025 financial statements and to reassess its audit opinions for fiscal years 2023 and 2024.

• K&S may need to reassess its report on the effectiveness of QIH's internal control over financial reporting, particularly with respect to the subsidiary-level controls at BSU.

• K&S's own performance in conducting its audits of the affected periods will come under scrutiny, including the sufficiency of its audit procedures with respect to BSU's commission-income recognition, the adequacy of its procedures for testing loss reserves, and its assessment of fraud risk factors under PCAOB Auditing Standards.

• K&S may independently conclude that it has obligations under Section 10A of the Exchange Act (discussed in Section IX of this memorandum), which could accelerate the need for disclosure.

5. Appointed Actuary Considerations

QIH's appointed actuary, Margaret Y. Cho, FCAS, of the Linden Actuarial Consulting Group ("Linden"), is responsible for opining on the adequacy of QIH's loss and loss-adjustment-expense reserves. The actuary's reserve opinions for the affected periods will need to be examined to determine whether the alleged IBNR reserve releases were reflected in Linden's actuarial analyses and opinions or whether they constituted management overrides that occurred after or outside the scope of the actuarial review process. This issue is discussed in greater detail in Section X of this memorandum.

B. Form 8-K Disclosure Obligations

The determination that QIH's previously issued financial statements require restatement — or the receipt by QIH of information indicating that a restatement may be necessary — will trigger certain current-report disclosure obligations under Form 8-K.

Item 4.02 — Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Item 4.02 of Form 8-K requires a registrant to file a current report within four business days after the registrant's board of directors (or an authorized officer or committee thereof), or the registrant's independent accountant, concludes that any previously issued financial statements should no longer be relied upon because of an error in such financial statements, as addressed in ASC Topic 250. If the Audit Committee or K&S concludes that QIH's previously issued financial statements for fiscal years 2023, 2024, or 2025 contain material misstatements requiring restatement, QIH will be required to file an Item 4.02 Form 8-K within four business days of that determination.

Item 2.06 — Material Impairments. Item 2.06 of Form 8-K requires disclosure if the registrant's board of directors (or an authorized officer or committee thereof) concludes that a material charge for impairment must be taken. If the re-establishment of reserves constitutes a material charge, this item may be implicated. However, the interplay between Item 4.02 (restatement) and Item 2.06 (impairment) will depend on the characterization and accounting treatment of the reserve adjustment.

Item 8.01 — Other Events. Even before a formal determination regarding restatement, QIH should consider whether it is advisable to file a voluntary Item 8.01 Form 8-K disclosing the existence of the internal investigation and the nature of the allegations under investigation. The advantages of proactive voluntary disclosure include: (a) demonstrating good corporate governance and transparency; (b) reducing the risk that the Company is accused of concealing material information from investors; and (c) potentially enhancing the Company's position in any subsequent SEC enforcement proceeding by demonstrating prompt remedial action. The disadvantages include: (a) triggering immediate securities class-action litigation before the facts are fully developed; (b) potentially prejudicing the investigation by alerting subject individuals and witnesses to the scope and direction of the inquiry; and (c) causing market disruption and reputational harm before the allegations are verified. The timing and content of any voluntary disclosure require careful deliberation by the Audit Committee and coordination with QIH's standing corporate and securities counsel at Pemberton Hale & Creighton LLP (partner Elaine R. Foxworth).

Coordination with Securities Counsel. The drafting, timing, and filing of any Form 8-K — whether under Item 4.02, Item 2.06, or Item 8.01 — should be closely coordinated with Pemberton Hale & Creighton LLP, which has deep familiarity with QIH's disclosure history and investor-relations practices. C&H will work collaboratively with Pemberton Hale on these matters, subject to the Audit Committee's direction.

Timing Sensitivity. The filing timeline for QIH's upcoming periodic reports creates urgency. QIH's Form 10-K for fiscal year 2025 was filed on February 21, 2026. The filing deadline for QIH's quarterly report on Form 10-Q for the first quarter of fiscal year 2026 (the quarter ending March 31, 2026) will fall in approximately May 2026 (the precise deadline depends on QIH's filer status; as a large accelerated filer, the deadline is 40 calendar days after the end of the fiscal quarter, or approximately May 10, 2026). If the investigation is not sufficiently advanced by that date to permit the Company to file the Q1 2026 Form 10-Q with financial statements that the certifying officers can reliably certify, QIH should consider whether it needs to file a Form 12b-25 (Notification of Late Filing) to obtain an automatic fifteen-calendar-day extension of the filing deadline. Repeated late filings or failures to file could have additional consequences, including potential Nasdaq listing deficiencies.

C. Nasdaq Listing Implications

QIH's common stock is listed on the Nasdaq Stock Market under the ticker symbol QIHC. Nasdaq Listing Rule 5250(c) requires listed companies to timely file all periodic financial reports with the SEC. If QIH is unable to file its periodic reports on a timely basis — whether due to the pendency of the investigation, the need for restatement, or the inability of the certifying officers to provide required certifications — Nasdaq may issue a Staff Deficiency Letter notifying QIH of non-compliance with the continued listing requirements. QIH would then have a specified period within which to submit a plan to regain compliance. If compliance is not regained within the permitted period, QIH's securities could be subject to delisting proceedings.

Additionally, if material nonpublic information regarding the investigation becomes known to the market (whether through leaks, media reports, or the Company's own disclosures), Nasdaq may impose a temporary trading halt pursuant to Nasdaq Listing Rule 4120(a)(7) pending the dissemination of information to ensure a fair and orderly market. QIH may also proactively request a trading halt pending a significant announcement.

The risk of a Nasdaq deficiency notice or trading halt, while not the most immediate concern, should be factored into the Audit Committee's decision-making regarding the timing and content of public disclosures.

V. State Insurance Regulatory Exposure

A. Connecticut Insurance Department

QIH is headquartered in Stamford, Connecticut, and BSU is a Connecticut corporation with principal offices in Hartford, Connecticut. The Connecticut Insurance Department ("CID") is the domestic regulator for QIH's insurance subsidiaries, including BSU, and exercises broad supervisory, examination, and enforcement authority over Connecticut-domiciled insurers, managing general agents, and wholesale brokers.

The allegations in the Complaint implicate several provisions of Connecticut insurance law and raise the possibility of regulatory action by the CID:

1. Surplus-Lines Licensing Requirements

If BSU, acting as a managing general agent or wholesale broker, placed commercial property policies through the three Subject Brokers — Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC — and if those entities lack valid surplus-lines licenses, BSU may have facilitated or effected placements through unlicensed intermediaries in violation of Connecticut's surplus-lines broker licensing requirements under Connecticut General Statutes ("CGS") Title 38a. Depending on the structure of the placements and the roles of the Subject Brokers, additional licensing violations may have occurred if the Subject Brokers were required to hold producer licenses or surplus-lines licenses in the states where the insured risks were located.

2. Unfair Insurance Practices

The fabrication of binder confirmations and the creation of fictitious policy placements could constitute fraudulent insurance acts within the meaning of CGS § 38a-816 et seq. (the Unfair Insurance Practices Act). The CID has authority to investigate unfair or deceptive practices by insurers and insurance intermediaries and to impose cease-and-desist orders, fines, and other sanctions.

3. Reserve Adequacy

The alleged manipulation of IBNR reserves at BSU may implicate the reserve-adequacy requirements applicable to QIH's insurance-company subsidiaries. Connecticut law requires insurers to maintain adequate reserves for all outstanding claims, including incurred-but-not-reported claims. CGS § 38a-82 and related provisions govern reserving requirements. If the alleged premature release of $38.5 million in IBNR reserves caused QIH's insurance-company subsidiaries to maintain inadequate reserves, the CID could take corrective action, including requiring the establishment of additional reserves, issuing corrective orders, or in severe cases, placing the insurer under supervision or initiating delinquency proceedings.

4. CID Examination and Enforcement Authority

The CID has broad statutory authority to conduct financial and market-conduct examinations of Connecticut-domiciled insurers, both on a routine periodic basis and on a targeted or special-examination basis when concerns arise regarding an insurer's financial condition, practices, or compliance. If the CID becomes aware of the allegations in the Complaint — whether through QIH's self-report, an SEC referral, media reports, or other channels — the CID could order a special examination of QIH's insurance subsidiaries, impose fines, require corrective action plans, and, in extreme cases, initiate supervision or conservation proceedings.

5. Self-Reporting Obligations

QIH may have an affirmative obligation under Connecticut law or CID regulations to self-report the allegations to the CID. Our analysis of the applicable self-reporting requirements is underway and will be completed during the scoping phase. Regardless of any legal obligation, the Audit Committee should consider whether voluntary self-reporting to the CID is advisable as a matter of regulatory strategy and good corporate citizenship, particularly if the investigation substantiates the allegations. Timely self-reporting may be viewed favorably by the CID and could mitigate the severity of any regulatory sanctions.

B. Multi-State Licensing and Surplus-Lines Implications

The Complaint alleges that the Subject Brokers placed commercial property policies, which typically involve risks located in multiple states. If policies were placed in states beyond Connecticut through the Subject Brokers, surplus-lines regulators in those states may also have jurisdiction to investigate and take enforcement action. In particular, New York's Department of Financial Services, given New York's proximity to Connecticut and the volume of commercial property insurance placed in the New York market, may have a regulatory interest in the matter.

Verification of the licensing status of Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC across Connecticut, New York, and multi-state surplus-lines databases (including the Surplus Lines Information Portal maintained by the International Insurers Department of the National Association of Insurance Commissioners) is a priority workstream for the scoping phase. Confirmation that these entities lack valid licenses would substantially corroborate the Complaint's allegations and would itself constitute a regulatory violation independent of the financial misstatement allegations.

VI. Potential Criminal Exposure

The allegations in the Complaint, if substantiated, describe conduct that may give rise to federal criminal liability for the individual subject persons and potentially for QIH as a corporate entity. This section identifies the principal federal criminal statutes that may be implicated and discusses the potential for Department of Justice involvement.

A. Federal Criminal Statutes

1. Wire Fraud — 18 U.S.C. § 1343

The federal wire fraud statute prohibits the use of interstate wire communications — including electronic mail, electronic fund transfers, facsimile transmissions, and telephone calls — to execute or further a scheme to defraud or to obtain money or property by means of false or fraudulent pretenses, representations, or promises. If the subject individuals used interstate wire communications in furtherance of the alleged scheme — for example, by transmitting fabricated binder confirmations via email, processing phantom commission payments through electronic banking systems, or communicating with co-conspirators or third parties electronically — each such communication could constitute a separate count of wire fraud. The maximum penalty for wire fraud is twenty years of imprisonment per count. If the fraud affected a financial institution, the maximum penalty increases to thirty years of imprisonment per count and a fine of up to $1,000,000.

2. Mail Fraud — 18 U.S.C. § 1341

The federal mail fraud statute prohibits the use of the United States Postal Service or private interstate carriers to execute or further a scheme to defraud. If physical mailings — such as printed binder confirmations, policy documents, commission checks, or other correspondence — were used in furtherance of the alleged scheme, each such mailing could constitute a separate count of mail fraud. The maximum penalty mirrors that of wire fraud: twenty years of imprisonment per count, or thirty years if a financial institution is affected.

3. Securities Fraud — 18 U.S.C. § 1348

The Sarbanes-Oxley Act created a standalone securities fraud statute at 18 U.S.C. § 1348, which criminalizes any scheme to defraud in connection with the securities of a publicly traded company or to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any security of a publicly traded company. If the alleged scheme had the effect of artificially inflating QIH's reported financial results and, by extension, the market price of QIHC common stock, the subject individuals could face prosecution under this statute. The maximum penalty is twenty-five years of imprisonment.

4. Conspiracy — 18 U.S.C. § 371

If two or more persons agreed to commit any of the foregoing offenses, the agreement itself may constitute a conspiracy in violation of 18 U.S.C. § 371, even if the underlying substantive offense was not ultimately completed. The Complaint's identification of three named subject individuals who are alleged to have coordinated their actions strongly suggests the existence of a conspiratorial agreement. The maximum penalty for conspiracy under Section 371 is five years of imprisonment.

5. False Statements in SEC Filings — 15 U.S.C. § 78ff (Exchange Act § 32(a))

Section 32(a) of the Exchange Act criminalizes the willful and knowing making of false or misleading statements of material fact in any application, report, or document required to be filed with the SEC under the Exchange Act or any rule or regulation thereunder. If QIH's periodic reports (Forms 10-K and 10-Q) for the affected periods contained material misstatements attributable to the alleged scheme, the individuals responsible for those misstatements — and potentially the certifying officers — could face prosecution under this provision. The maximum penalty is twenty years of imprisonment and a fine of up to $5,000,000 for individuals.

6. SOX Section 906 Criminal Certification Violations — 18 U.S.C. § 1350

As discussed in Section III.C above, Section 906 of SOX requires the CEO and CFO to certify the accuracy of periodic reports filed with the SEC. A knowing violation — i.e., certifying a report that the officer knows does not comply with the Exchange Act or does not fairly present the company's financial condition — carries a maximum penalty of ten years of imprisonment and a fine of $1,000,000. A willful violation carries a maximum penalty of twenty years of imprisonment and a fine of $5,000,000. If CEO Galvin or CFO Nakamura are determined to have known that the certified periodic reports contained material misstatements, they could face criminal prosecution under Section 906. As noted above, the investigation must determine what these officers knew or should have known about BSU's financial reporting.

7. Obstruction of Justice — 18 U.S.C. § 1519 (SOX § 802)

Section 802 of SOX, codified at 18 U.S.C. § 1519, criminalizes the knowing destruction, alteration, concealment, or falsification of records, documents, or tangible objects with the intent to impede, obstruct, or influence any federal investigation or the administration of any matter within the jurisdiction of any department or agency of the United States. The maximum penalty is twenty years of imprisonment. This provision is particularly relevant to QIH's document-preservation obligations, which are discussed in Section XII of this memorandum. Additionally, 18 U.S.C. § 1512(c) prohibits tampering with records or otherwise obstructing an official proceeding and carries a maximum penalty of twenty years of imprisonment.

B. DOJ Referral Considerations

If the investigation substantiates intentional fraud by the subject individuals, there is a significant likelihood that the SEC will refer the matter to the Criminal Division or the United States Attorney's Office for criminal prosecution, or that the DOJ may independently open a criminal investigation based on its own intelligence or a direct whistleblower report.

1. DOJ Corporate Enforcement Policies

Under current DOJ policies — including the Deputy Attorney General's memoranda on individual accountability and corporate enforcement — cooperation credit is available to companies that (a) voluntarily self-disclose misconduct to the DOJ before the DOJ independently discovers it, (b) cooperate fully with the DOJ's investigation by providing all relevant, non-privileged facts, including those relating to individual wrongdoing, and (c) timely and appropriately remediate the misconduct, including by disciplining or terminating responsible employees, implementing enhanced compliance controls, and clawing back compensation where appropriate.

A voluntary self-disclosure to the DOJ at the appropriate stage of the investigation could result in significant benefits for QIH as a corporate entity, including: a declination of prosecution, a non-prosecution agreement ("NPA"), a deferred prosecution agreement ("DPA"), or a substantially reduced criminal fine. These benefits are generally conditioned on full cooperation and remediation.

2. Individual Liability Emphasis

DOJ policy prioritizes the prosecution of individuals who are responsible for corporate misconduct. The three subject individuals identified in the Complaint — Lomax, Stadler, and Kessler — would be the primary targets of any criminal investigation. If QIH cooperates with the DOJ and provides information regarding individual wrongdoing, the DOJ may seek to enter into plea agreements with one or more of the subject individuals or to obtain indictments.

3. Timing. We strongly recommend that no criminal referral analysis or voluntary self-disclosure decision be finalized until the scoping phase of the investigation — and, if warranted, a substantial portion of the full investigation — has been completed. Premature self-disclosure to the DOJ, before the Audit Committee has a clear understanding of the facts, could result in inaccurate or incomplete disclosures that undermine QIH's credibility and cooperation posture. At the same time, excessive delay in self-disclosure could reduce the cooperation credit available to QIH, particularly if the DOJ independently discovers the misconduct before QIH self-reports.

The timing of any voluntary self-disclosure is a critical strategic decision that the Audit Committee will need to make in consultation with C&H, balancing the benefits of early disclosure against the risks of premature or incomplete disclosure.

C. Individual Exposure of Subject Persons

The following is a preliminary assessment of the potential criminal exposure of each of the three subject individuals identified in the Complaint, based solely on the allegations as stated:

1. Garrett T. Lomax

Position: President, BSU FY 2025 Compensation: Approximately $1,095,000 ($685,000 base salary; $410,000 performance bonus)

As president of BSU, Lomax is alleged to have directed the overall scheme, including the fabrication of binder confirmations, the creation of fictitious broker counterparties, and the authorization of premature reserve releases. If these allegations are substantiated, Lomax would face significant criminal exposure under the wire fraud, securities fraud, and conspiracy statutes, as well as potential liability under Section 906 of SOX if he provided sub-certifications to QIH corporate management attesting to the accuracy of BSU's financial information. Given his position as the most senior executive of the subsidiary, Lomax would likely be the principal target of any criminal prosecution.

2. Neil W. Stadler

Position: Senior Vice President, Commercial Property Division, BSU FY 2025 Compensation: Approximately $615,000 ($385,000 base salary; $230,000 performance bonus)

Stadler is alleged to have been directly involved in the fabrication of binder confirmations within the commercial property division. His role is described as operational in nature — creating the false documentation that supported the phantom placements. If substantiated, Stadler would face exposure under the wire fraud, mail fraud, securities fraud, and conspiracy statutes.

3. Rhonda M. Kessler

Position: Vice President, Finance & Operations, BSU FY 2025 Compensation: Approximately $435,000 ($290,000 base salary; $145,000 performance bonus)

Kessler is alleged to have participated in recognizing phantom commission income on BSU's books and records and to have directed or facilitated the premature release of IBNR reserves. If substantiated, Kessler would face exposure under the wire fraud, securities fraud, and conspiracy statutes, as well as potential liability for books-and-records violations under the Exchange Act.

4. Retention of Personal Counsel

Each of the subject individuals may choose to retain personal criminal defense counsel. Indeed, if the investigation progresses to a point where the subjects are interviewed or confronted with evidence, the retention of personal counsel should be anticipated. QIH should consider at the appropriate time whether it is obligated — under its charter, bylaws, or individual indemnification agreements — to advance the legal fees and expenses of the subject individuals for their personal defense, subject to an undertaking to repay if indemnification is ultimately determined to be unavailable. This issue is addressed in Section XI of this memorandum. The interplay between advancement obligations and the D&O insurance policies is also discussed in Section VII.

VII. D&O Insurance Implications

A. Policy Overview

Based on information provided during our initial discussions, QIH maintains directors' and officers' liability insurance through Sentinel Mutual Assurance Group ("Sentinel"), structured as a two-tower program:

• Primary (Tower A): Policy No. SMA-EL-2025-07741, with a per-occurrence and aggregate limit of $15,000,000 and a self-insured retention of $1,000,000.

• Excess (Tower B): Policy No. SMA-XS-2025-07742, with a per-occurrence and aggregate limit of $25,000,000, excess of the $15,000,000 primary limit.

The total available D&O insurance tower is therefore $40,000,000, subject to all terms, conditions, endorsements, and exclusions of the underlying policies. The claims contact at Sentinel is Patricia L. Munroe, Vice President — Executive Liability Claims, Sentinel Mutual Assurance Group, 200 Clarendon Street, Suite 4400, Boston, Massachusetts 02116.

We have not yet obtained and reviewed complete copies of the D&O policies and recommend that the Audit Committee direct General Counsel Hargrove to provide complete copies to C&H for detailed coverage analysis during the scoping phase.

B. Notice Requirements

D&O liability insurance policies typically require the insured to provide prompt notice to the insurer of any claim made against an insured person, and of any circumstance that could reasonably be expected to give rise to a claim. The definition of "claim" and the notice requirements vary by policy, and the specific language of the Sentinel policies will govern.

The whistleblower complaint, the Audit Committee's formal resolution to investigate, and the engagement of C&H to conduct the investigation collectively constitute a circumstance that should be reported to Sentinel under the policies. A failure to provide timely notice could jeopardize QIH's coverage under the policies, as Sentinel could assert a late-notice defense.

Given that the Complaint was received on February 14, 2026, escalated to General Counsel Hargrove on February 17, 2026, and the Audit Committee resolved to engage C&H on February 27, 2026, notice to Sentinel should be dispatched as promptly as practicable — ideally within the next several days — to avoid any colorable late-notice defense. We have prepared a draft notice letter for the Audit Committee's review and approval. The draft notice is designed to preserve the Company's rights under the policies while providing sufficient information to satisfy the notice requirements, without disclosing privileged investigation strategy or work product.

C. Coverage Considerations

The following is a preliminary overview of the coverage issues that are likely to arise under the Sentinel D&O policies. A definitive analysis requires review of the complete policy language, which has not yet been provided.

Side A Coverage (Non-Indemnifiable Loss): Side A of a D&O policy provides direct coverage to individual directors and officers for losses arising from claims made against them in their capacity as directors or officers, where the company is unable or unwilling to indemnify them. Side A coverage is available without application of the self-insured retention and provides a critical safety net for individual directors and officers, particularly in situations involving insolvency or where indemnification is legally prohibited (e.g., for breaches of the duty of loyalty). In the present matter, Side A coverage may be relevant if QIH is unable to indemnify the subject individuals due to the nature of their alleged conduct.

Side B Coverage (Corporate Reimbursement): Side B provides reimbursement to the company for amounts the company pays to indemnify its directors and officers for covered losses. Side B coverage is subject to the $1,000,000 self-insured retention on the primary Tower A policy. If QIH advances or pays legal fees and defense costs on behalf of individual directors and officers, those payments may be reimbursable under Side B, subject to the retention and policy terms.

Side C / Entity Coverage: Some D&O policies include "entity coverage" (Side C) that covers the company itself for securities claims brought against it. Whether the Sentinel policies include Side C coverage, and the scope and terms of any such coverage, must be determined through review of the policy language. If Side C coverage is available, it could potentially cover QIH's own defense costs and liability in connection with a securities class-action lawsuit or an SEC enforcement action, subject to applicable exclusions.

Fraud / Dishonesty Exclusion: Most D&O policies contain an exclusion for claims arising from fraudulent, dishonest, or criminal acts. However, this exclusion is typically triggered only upon a final, non-appealable adjudication of fraud or dishonesty (or, in some policies, upon an admission). Until such a final adjudication or admission, the exclusion should not operate to deny coverage or the advancement of defense costs. This is a critical protection for the subject individuals and for QIH during the pendency of the investigation and any subsequent proceedings. However, if any subject individual is ultimately found to have committed fraud or dishonesty through a final adjudication, t

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Conrad Ashby, Responsible Partner, and Steven Hollander, Lead Associate Calderwood & Harkness LLP White Collar Defense & Investigations Practice Group 1221 Avenue of the Americas, 38th Floor New York, NY 10020
TO: Audit Committee of the Board of Directors of Quorum Insurance Holdings Corp. Priya Subramaniam, Chair Thomas K. Driscoll, Member Angela F. Delvecchio, Member
DATE: February 27, 2026
RE: Preliminary Legal Issue Analysis — Potential Regulatory, Disclosure, and Criminal Exposure Arising from Whistleblower Allegations Concerning Ashgrove Equity Partners Specialty Underwriting, Inc.
MATTER NO.: 1025-00010
REFERENCE: IntegriLine Intake No. IL-QIH-2026-0214-0033
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I. Introduction and Purpose
This memorandum has been prepared by Calderwood & Harkness LLP ("C&H") at the direction and under the authority of the Audit Committee of the Board of Directors of Quorum Insurance Holdings Corp. ("QIH" or the "Company") in connection with the investigation engagement formally opened on February 27, 2026. The Audit Committee retained C&H for the specific purpose of advising on and, if warranted, conducting an independent internal investigation into allegations contained in an anonymous whistleblower complaint submitted through the Company's IntegriLine ethics and compliance reporting portal on February 14, 2026 (Intake No. IL-QIH-2026-0214-0033) (the "Complaint").
The purpose of this memorandum is to provide the Audit Committee with a preliminary analysis of the potential legal exposure — encompassing federal securities law, state insurance regulatory, civil liability, criminal, and insurance-coverage dimensions — that QIH, its subsidiaries, and its officers and directors may face if the allegations contained in the Complaint are substantiated in whole or in part. This memorandum is intended to equip the Audit Committee with an informed framework for decision-making as it considers the appropriate scope and pace of the investigation, disclosure obligations, and related governance actions.
It is essential to emphasize at the outset that no substantive investigation has been commenced as of the date of this memorandum. The analysis set forth herein is based solely on the following limited information: (i) the four-page whistleblower complaint narrative submitted through the IntegriLine portal; (ii) two sample binder-confirmation PDFs attached to the Complaint, bearing aggregate placed-premium face values of approximately $12.4 million; (iii) publicly available filings of QIH with the U.S. Securities and Exchange Commission ("SEC"), including the Company's most recently filed Form 10-K for fiscal year 2025 (filed February 21, 2026) and prior quarterly filings on Form 10-Q; and (iv) information provided during initial discussions held on February 24 and February 26, 2026, with QIH's General Counsel, Owen R. Hargrove, Esq., and Audit Committee Chair Priya Subramaniam. No documents have been collected or reviewed beyond the foregoing. No witness interviews have been conducted. No forensic analysis of financial data, electronic records, or transactional systems has been undertaken.
All conclusions, risk assessments, and recommendations contained in this memorandum are therefore preliminary in nature and are subject to substantial refinement, modification, or revision upon completion of the proposed scoping phase of the investigation (estimated duration: four to six weeks; estimated budget: $175,000 to $225,000 for C&H fees, exclusive of forensic advisory support) and any subsequent full investigation that the Audit Committee may authorize based on the scoping-phase findings.
This memorandum is protected by the attorney-client privilege and the work-product doctrine. The privilege with respect to this memorandum and the investigation as a whole is held by and controlled exclusively by the Audit Committee of the Board of Directors of QIH. No distribution of this memorandum to any person or entity not authorized by the Audit Committee is permitted. Any inadvertent disclosure shall not constitute a waiver of any applicable privilege.
II. Summary of Allegations
The following is a summary of the core allegations as set forth in the Complaint (IntegriLine Intake No. IL-QIH-2026-0214-0033), which was submitted anonymously through QIH's IntegriLine ethics and compliance reporting portal on February 14, 2026, and escalated by the IntegriLine review team to General Counsel Owen R. Hargrove on February 17, 2026.
A. Fabrication of Binder Confirmations and Phantom Premium Placements
The Complaint alleges that, during a period spanning approximately the third quarter of fiscal year 2023 through the fourth quarter of fiscal year 2025 — a period encompassing approximately ten fiscal quarters — senior personnel at Ashgrove Equity Partners Specialty Underwriting, Inc. ("BSU"), QIH's wholly owned subsidiary incorporated and operating in the State of Connecticut, fabricated or materially inflated approximately 147 binder confirmations for commercial property insurance policies. According to the Complaint, these policies were purportedly placed through three retail-broker counterparties that the complainant asserts are fictitious or shell entities: (i) Veltrano Risk Advisors; (ii) Halloran & Pratt Insurance Associates; and (iii) CrestPoint Brokerage LLC (collectively, the "Subject Brokers").
The Complaint alleges that BSU recognized commission income on these phantom placements. The estimated fictitious placed premium associated with the approximately 147 fabricated or inflated binder confirmations is alleged to be approximately $74 million. Applying an approximate average commission rate of 13%, the Complaint asserts that BSU generated approximately $9.6 million in phantom commission income over the relevant period.
Two sample binder-confirmation PDFs are attached to the Complaint. These documents bear aggregate placed-premium face values of approximately $12.4 million and purport to confirm placements through two of the three Subject Brokers (Veltrano Risk Advisors and CrestPoint Brokerage LLC). We have not yet verified the authenticity of these documents or compared them against BSU's internal records.
B. Premature Release of Incurred-But-Not-Reported Loss Reserves
The Complaint further alleges that BSU directed the premature release of approximately $38.5 million in incurred-but-not-reported ("IBNR") loss reserves. According to the Complaint, these reserve releases were undertaken for the purpose of inflating quarterly underwriting income and were concentrated in the fourth quarter of fiscal year 2024 and the second quarter of fiscal year 2025. The Complaint does not specify the precise allocation of the $38.5 million between these two quarters, nor does it identify the specific lines of business or reserve categories from which the releases were drawn. However, the complainant asserts that these releases were not supported by actuarial analysis and represented management overrides of the established reserving process.
C. Aggregate Alleged Financial Misstatement
Taken together, the Complaint alleges an aggregate financial misstatement of approximately $48.1 million, comprising approximately $9.6 million in phantom commission income and approximately $38.5 million in improperly released IBNR reserves. The complainant characterizes these actions as a deliberate scheme to inflate BSU's reported financial performance and, by extension, to inflate QIH's consolidated financial results as reported in its SEC filings.
D. Subject Individuals
The Complaint identifies three named individuals as the principal participants in the alleged scheme:
1. Garrett T. Lomax, President of BSU, who is alleged to have directed the overall scheme and to have authorized or approved the fabrication of binder confirmations and the release of IBNR reserves.
2. Neil W. Stadler, Senior Vice President, Commercial Property Division of BSU, who is alleged to have been directly involved in the fabrication of binder confirmations and the creation of documentation supporting the phantom placements.
3. Rhonda M. Kessler, Vice President, Finance & Operations of BSU, who is alleged to have participated in the recognition of phantom commission income on BSU's books and records and to have directed or facilitated the premature release of IBNR reserves.
The Complaint does not allege that any senior corporate officer of QIH — including CEO Marcus P. Galvin, CFO Denise R. Nakamura, or General Counsel Owen R. Hargrove — had knowledge of or participated in the alleged scheme. However, the Complaint does not expressly exonerate them, and the question of what information flowed from BSU to QIH corporate management is a central issue for investigation.
E. Licensing Allegations Regarding Subject Brokers
The Complaint asserts that the three Subject Brokers — Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC — lack valid surplus-lines licenses in any state and that the addresses associated with these entities are virtual office locations rather than bona fide places of business. If accurate, the placement of commercial property policies through unlicensed surplus-lines brokers would raise additional regulatory concerns, as discussed in Section V of this memorandum.
F. Contextual Financial Data
For purposes of assessing the materiality and significance of the allegations, the following contextual financial data is relevant:
• BSU's fiscal year 2025 placed premium was approximately $487 million.
• BSU's fiscal year 2025 commission and fee income was approximately $63.2 million.
• QIH's fiscal year 2025 gross written premium was approximately $3.17 billion.
• QIH's fiscal year 2025 net earned premium was approximately $2.41 billion.
• QIH's approximate market capitalization as of February 2026 is approximately $4.8 billion.
• QIH is publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC.
The alleged $48.1 million in aggregate financial misstatement represents approximately 2.0% of QIH's net earned premium and approximately 7.6% of BSU's placed premium over the relevant period. The significance of these figures, both quantitatively and qualitatively, is discussed in detail in Section III.A below.
III. Federal Securities Law Exposure
A. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5
QIH is a publicly traded company whose common stock is listed on the Nasdaq Stock Market under the ticker symbol QIHC. As a reporting issuer, QIH is subject to the antifraud provisions of the federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
If the allegations in the Complaint are substantiated, QIH's consolidated financial statements for fiscal years 2023, 2024, and 2025 — as included in the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the SEC — may contain material misstatements. Specifically, the alleged phantom commission income of approximately $9.6 million would have inflated QIH's reported commission and fee revenue, and the alleged premature release of approximately $38.5 million in IBNR reserves would have understated QIH's reported loss reserves and overstated its reported underwriting income. Together, these alleged misstatements would have had the effect of materially overstating QIH's reported earnings during the affected periods.
1. Elements of a Section 10(b) / Rule 10b-5 Claim
A claim under Section 10(b) and Rule 10b-5, whether asserted by the SEC in an enforcement action or by private plaintiffs in a class-action lawsuit, requires the establishment of the following elements: (1) a material misstatement or omission; (2) made in connection with the purchase or sale of a security; (3) with scienter (i.e., intent to deceive, manipulate, or defraud, or severe recklessness); (4) reliance by the plaintiff on the misstatement or omission (in private actions); (5) economic loss; and (6) loss causation (i.e., a causal connection between the misstatement and the plaintiff's loss).
2. Materiality Analysis
The question of materiality is of central importance to the assessment of QIH's securities law exposure. Under the Supreme Court's standard articulated in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), and Basic Inc. v. Levinson, 485 U.S. 224 (1988), a fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision — i.e., if it would have been viewed by the reasonable investor as having significantly altered the "total mix" of information available.
From a purely quantitative perspective, the alleged $48.1 million aggregate misstatement represents approximately 2.0% of QIH's $2.41 billion net earned premium for fiscal year 2025. Under traditional quantitative materiality benchmarks — which typically deem misstatements exceeding 5% of pre-tax income to be presumptively material — the alleged misstatement might fall below the quantitative threshold depending on QIH's pre-tax income for the affected periods. However, it is critical to note that the SEC has long cautioned against an exclusive reliance on quantitative benchmarks. SEC Staff Accounting Bulletin No. 99 ("SAB 99"), Materiality, 64 Fed. Reg. 45,150 (Aug. 19, 1999), directs that qualitative factors must also be considered, and that an otherwise quantitatively small misstatement may be material if qualitative factors so indicate.
In this case, multiple qualitative factors weigh heavily in favor of a finding of materiality:
• Intentional fraud: The allegations describe a deliberate, orchestrated scheme involving the fabrication of documents and the creation of fictitious counterparties. Intentional misstatements are far more likely to be deemed material than unintentional errors. SAB 99 specifically identifies whether the misstatement "arises from an item capable of precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimate" and whether the misstatement "masks a change in earnings or other trends" as relevant qualitative considerations.
• Involvement of senior management: The Complaint names the president of BSU and two other senior executives. The involvement of senior management in a fraud significantly enhances the materiality of the underlying misstatements, as it raises fundamental questions about the integrity of management and the reliability of the Company's internal controls.
• Trend manipulation: The alleged scheme spans approximately ten quarters and involves both revenue inflation (phantom commission income) and reserve manipulation (premature IBNR releases), both of which would have the effect of smoothing or inflating BSU's reported earnings trajectory over the relevant period. The manipulation of earnings trends is expressly identified in SAB 99 as a qualitative factor supporting materiality.
• Impact on loss reserves: The alleged premature release of $38.5 million in IBNR reserves implicates the adequacy of QIH's reported loss and loss-adjustment-expense reserves, which are among the most significant and closely scrutinized line items in an insurance company's financial statements. Investors, analysts, and rating agencies rely heavily on the adequacy of an insurer's reserves as a key indicator of financial health. Misstatement of reserves is therefore particularly likely to be viewed as material by reasonable investors.
• Regulatory implications: The alleged placement of policies through unlicensed brokers raises insurance regulatory concerns that extend beyond the financial misstatement itself and could expose QIH to regulatory sanctions, corrective orders, or supervision proceedings, each of which would be material to investors.
Based on these qualitative factors, we believe that a court or the SEC would likely conclude that the alleged misstatements are material for purposes of the federal securities laws, notwithstanding the relatively modest quantitative magnitude of the misstatements in relation to QIH's overall premium volume. This conclusion is preliminary and subject to revision as the investigation develops a more precise understanding of the timing, magnitude, and financial statement impact of the alleged misstatements.
3. Scienter. The scienter element requires a showing that the defendant acted with intent to deceive, manipulate, or defraud, or with severe recklessness amounting to a strong inference of such intent. The Complaint alleges that three senior BSU executives — Lomax, Stadler, and Kessler — orchestrated and carried out the scheme. If those allegations are substantiated, establishing scienter as to these individuals should be relatively straightforward, as the alleged fabrication of binder confirmations and creation of fictitious broker counterparties would constitute classic evidence of intentional fraud.
The more complex scienter question concerns whether scienter can be imputed to QIH as a corporate entity and, in particular, to QIH's senior corporate officers — CEO Marcus P. Galvin and CFO Denise R. Nakamura — who signed and certified the Company's SEC filings during the affected periods. Under the standards articulated by the Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), and applied by courts in the Second Circuit (where QIH would most likely face private securities litigation), a complaint must allege facts giving rise to a "strong inference" of scienter — one that is "cogent and at least as compelling as any opposing inference of nonfraudulent intent."
At this early stage, we do not have information indicating that Galvin or Nakamura had direct knowledge of the alleged scheme. However, the investigation must examine: (a) what financial information flowed from BSU to QIH corporate management, including any sub-certifications or management representation letters provided by BSU's leadership; (b) whether QIH's internal audit function reviewed BSU's commercial property division or its commission-income recognition practices during the affected periods; (c) whether any red flags or irregularities were identified and, if so, how they were communicated and addressed; and (d) the adequacy of QIH's internal controls over financial reporting as they relate to subsidiary-level revenue recognition and loss-reserve management.
4. Private Class-Action Risk
If the allegations are substantiated and a corrective disclosure causes a decline in the market price of QIHC common stock, QIH faces a significant risk of a private securities class-action lawsuit under Section 10(b) and Rule 10b-5. Such a suit would likely be filed in the United States District Court for the District of Connecticut or the Southern District of New York by purchasers of QIHC stock during the alleged class period, which could extend from the date of the first allegedly misleading filing (potentially QIH's Form 10-Q for Q3 2023) through the date of a corrective disclosure. Plaintiffs' counsel with established practices in securities class-action litigation closely monitor for restatement announcements, SEC investigations, and whistleblower-related disclosures, and are likely to file suit promptly upon any public disclosure of the matters described in the Complaint.
The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides certain procedural protections, including heightened pleading standards for scienter and a stay of discovery during the pendency of a motion to dismiss. Nevertheless, if the underlying fraud is substantiated, these procedural protections are unlikely to result in dismissal of a class action at the pleading stage, and the Company should anticipate the potential for significant defense costs and settlement exposure.
5. SEC Enforcement Risk
In addition to the risk of private litigation, QIH faces the risk that the SEC's Division of Enforcement may open a formal investigation into the matters alleged in the Complaint. As discussed in Section VIII.B below, the anonymous complainant may have already reported (or may in the future report) the same allegations directly to the SEC under the Dodd-Frank whistleblower bounty program. If the SEC opens an investigation, QIH and its officers and directors could face: (a) formal orders of investigation and related subpoenas; (b) civil enforcement proceedings seeking injunctive relief, disgorgement of profits, prejudgment interest, and civil monetary penalties; (c) officer-and-director bars pursuant to Exchange Act Section 21(d)(2); and (d) cease-and-desist proceedings. Individual subject executives (Lomax, Stadler, Kessler) and, potentially, certifying officers (Galvin, Nakamura) could face individual civil liability.
B. Section 13(a) of the Exchange Act and SEC Reporting Obligations
QIH files annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC, as required by Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 13a-1 and 13a-13 promulgated thereunder, 17 C.F.R. §§ 240.13a-1, 240.13a-13.
QIH filed its annual report on Form 10-K for fiscal year 2025 with the SEC on February 21, 2026. This filing was made after the whistleblower complaint was submitted through the IntegriLine portal (February 14, 2026) and after the complaint was escalated to General Counsel Hargrove (February 17, 2026), but before the Audit Committee had completed any review or materiality determination regarding the allegations. The timing of this filing raises a number of sensitive questions, including whether the Company had sufficient information at the time of filing to warrant delaying the filing, whether the Complaint constituted information that should have been disclosed in the filing, and whether the Company's disclosure controls and procedures operated effectively to ensure that information regarding the Complaint was communicated to the certifying officers prior to filing. These questions will require careful examination during the scoping phase.
If the financial statements included in QIH's Form 10-K for fiscal year 2025, as well as its prior 10-K and 10-Q filings for the affected periods, are determined to contain material misstatements, QIH may have violated Section 13(a) and the associated reporting rules by filing materially inaccurate periodic reports with the SEC.
In addition, the allegations implicate two provisions of Section 13(b) of the Exchange Act:
• Books and Records — Section 13(b)(2)(A): This provision requires every reporting issuer to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." 15 U.S.C. § 78m(b)(2)(A). If BSU's books and records included fabricated binder confirmations, phantom commission-income entries, and improperly released loss reserves, QIH's consolidated books and records did not accurately reflect the Company's transactions, giving rise to a potential books-and-records violation. Notably, books-and-records violations under Section 13(b)(2)(A) do not require a showing of scienter; they are strict-liability provisions.
• Internal Controls — Section 13(b)(2)(B): This provision requires reporting issuers to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that transactions are executed and recorded in conformity with GAAP and management's authorization. 15 U.S.C. § 78m(b)(2)(B). If QIH's internal controls failed to detect the fabrication of 147 binder confirmations over a period of approximately ten quarters, the premature release of $38.5 million in IBNR reserves, and the recognition of $9.6 million in phantom commission income, QIH may have failed to maintain adequate internal accounting controls. As with books-and-records violations, internal-controls violations under Section 13(b)(2)(B) are strict-liability provisions.
C. SOX Certifications — Sections 302 and 906
CEO Marcus P. Galvin and CFO Denise R. Nakamura certified QIH's fiscal year 2025 Form 10-K, as well as the quarterly reports on Form 10-Q for each quarter during the affected periods, under two distinct certification requirements of the Sarbanes-Oxley Act of 2002 ("SOX"):
Section 302 Certifications (Civil — Exchange Act Rule 13a-14(a)): Section 302 of SOX requires the principal executive officer and principal financial officer of each reporting company to certify, in each annual and quarterly report filed under the Exchange Act, that: (i) the signing officer has reviewed the report; (ii) based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (iii) based on the officer's knowledge, the financial statements and other financial information included in the report fairly present in all material respects the financial condition and results of operations of the issuer; and (iv) the signing officer is responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting, has designed such controls to ensure that material information is made known to the certifying officers, has evaluated the effectiveness of such controls, and has disclosed to the auditor and the audit committee any significant deficiencies or material weaknesses in internal controls and any fraud, whether or not material, involving management or other employees who have a significant role in the issuer's internal controls over financial reporting.
Section 906 Certifications (Criminal — 18 U.S.C. § 1350): Section 906 of SOX requires the CEO and CFO to certify, in each periodic report filed under the Exchange Act, that: (i) the periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (ii) the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. A knowing violation of Section 906 carries a maximum penalty of ten years of imprisonment and a fine of up to $1,000,000. A willful violation carries a maximum penalty of twenty years of imprisonment and a fine of up to $5,000,000.
If the alleged scheme resulted in material misstatements in any of the periodic reports certified by Galvin and Nakamura, those certifications may have been inaccurate. The critical question for purposes of individual liability is whether Galvin and Nakamura had knowledge of the alleged scheme or of circumstances that rendered their certifications reckless. This question requires the investigation to determine: (a) what information regarding BSU's revenue line items, commission-income trends, and reserve schedules was reported to QIH corporate management and reviewed by the certifying officers; (b) whether QIH's internal audit function conducted reviews of BSU's commercial property operations during the affected periods and, if so, what findings were communicated; (c) whether BSU management (including Lomax) was required to provide sub-certifications to QIH corporate management attesting to the accuracy of BSU's financial information, and whether any such sub-certifications were provided and relied upon; and (d) whether any red flags or anomalies in BSU's financial performance were identified and investigated by QIH corporate management or the certifying officers.
The answers to these questions will significantly affect the risk profile for Galvin and Nakamura and will inform any analysis regarding cooperation and self-disclosure strategies.
IV. Potential Financial Restatement and Disclosure Obligations
A. Restatement Analysis
If the allegations in the Complaint are substantiated in whole or in material part, QIH's historical financial statements for fiscal years 2023, 2024, and 2025 may require restatement. The nature and scope of a potential restatement would be governed by Accounting Standards Codification ("ASC") Topic 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
1. Revenue Recognition Impact
The alleged phantom commission income of approximately $9.6 million over approximately ten quarters would need to be reversed in the periods in which it was improperly recognized. The precise allocation of this amount across the affected quarters — and the determination of which specific quarterly and annual filings would require restatement — will require a forensic analysis of BSU's commission-income records, binder-confirmation files, and general-ledger entries for the relevant periods. This analysis is a central component of the proposed scoping-phase work plan and will be conducted in coordination with Claridge Forensic Advisory LLC.
2. Reserve Impact
The alleged premature release of approximately $38.5 million in IBNR reserves — concentrated in the fourth quarter of fiscal year 2024 and the second quarter of fiscal year 2025, according to the Complaint — would need to be reversed, with the reserves re-established on QIH's balance sheet. The re-establishment of these reserves would reduce QIH's reported net income and could reduce policyholder surplus and shareholders' equity for the affected periods. The concentration of reserve releases in two specific quarters suggests that the financial statement impact may be particularly significant for those quarters, potentially resulting in restated earnings figures that differ materially from the originally reported figures.
3. Combined Impact
The combined pre-tax impact of the alleged misstatements is approximately $48.1 million across the affected periods. The after-tax impact will depend on the applicable effective tax rates for each affected period and the tax treatment of the specific adjustments, which has not yet been determined.
4. External Auditor Considerations
QIH's external auditor, Kellner & Strauss LLP ("K&S"), with lead engagement partner Howard M. Bressler, issued an unqualified (clean) opinion on QIH's consolidated financial statements for fiscal year 2025, which were included in the Form 10-K filed February 21, 2026. K&S also issued reports on the effectiveness of QIH's internal control over financial reporting for fiscal year 2025 pursuant to Section 404(b) of SOX.
If the investigation determines that a restatement is necessary, several consequences may follow with respect to the audit engagement:
• K&S may need to withdraw or reissue its audit opinion on the fiscal year 2025 financial statements and to reassess its audit opinions for fiscal years 2023 and 2024.
• K&S may need to reassess its report on the effectiveness of QIH's internal control over financial reporting, particularly with respect to the subsidiary-level controls at BSU.
• K&S's own performance in conducting its audits of the affected periods will come under scrutiny, including the sufficiency of its audit procedures with respect to BSU's commission-income recognition, the adequacy of its procedures for testing loss reserves, and its assessment of fraud risk factors under PCAOB Auditing Standards.
• K&S may independently conclude that it has obligations under Section 10A of the Exchange Act (discussed in Section IX of this memorandum), which could accelerate the need for disclosure.
5. Appointed Actuary Considerations
QIH's appointed actuary, Margaret Y. Cho, FCAS, of the Linden Actuarial Consulting Group ("Linden"), is responsible for opining on the adequacy of QIH's loss and loss-adjustment-expense reserves. The actuary's reserve opinions for the affected periods will need to be examined to determine whether the alleged IBNR reserve releases were reflected in Linden's actuarial analyses and opinions or whether they constituted management overrides that occurred after or outside the scope of the actuarial review process. This issue is discussed in greater detail in Section X of this memorandum.
B. Form 8-K Disclosure Obligations
The determination that QIH's previously issued financial statements require restatement — or the receipt by QIH of information indicating that a restatement may be necessary — will trigger certain current-report disclosure obligations under Form 8-K.
Item 4.02 — Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Item 4.02 of Form 8-K requires a registrant to file a current report within four business days after the registrant's board of directors (or an authorized officer or committee thereof), or the registrant's independent accountant, concludes that any previously issued financial statements should no longer be relied upon because of an error in such financial statements, as addressed in ASC Topic 250. If the Audit Committee or K&S concludes that QIH's previously issued financial statements for fiscal years 2023, 2024, or 2025 contain material misstatements requiring restatement, QIH will be required to file an Item 4.02 Form 8-K within four business days of that determination.
Item 2.06 — Material Impairments. Item 2.06 of Form 8-K requires disclosure if the registrant's board of directors (or an authorized officer or committee thereof) concludes that a material charge for impairment must be taken. If the re-establishment of reserves constitutes a material charge, this item may be implicated. However, the interplay between Item 4.02 (restatement) and Item 2.06 (impairment) will depend on the characterization and accounting treatment of the reserve adjustment.
Item 8.01 — Other Events. Even before a formal determination regarding restatement, QIH should consider whether it is advisable to file a voluntary Item 8.01 Form 8-K disclosing the existence of the internal investigation and the nature of the allegations under investigation. The advantages of proactive voluntary disclosure include: (a) demonstrating good corporate governance and transparency; (b) reducing the risk that the Company is accused of concealing material information from investors; and (c) potentially enhancing the Company's position in any subsequent SEC enforcement proceeding by demonstrating prompt remedial action. The disadvantages include: (a) triggering immediate securities class-action litigation before the facts are fully developed; (b) potentially prejudicing the investigation by alerting subject individuals and witnesses to the scope and direction of the inquiry; and (c) causing market disruption and reputational harm before the allegations are verified. The timing and content of any voluntary disclosure require careful deliberation by the Audit Committee and coordination with QIH's standing corporate and securities counsel at Pemberton Hale & Creighton LLP (partner Elaine R. Foxworth).
Coordination with Securities Counsel. The drafting, timing, and filing of any Form 8-K — whether under Item 4.02, Item 2.06, or Item 8.01 — should be closely coordinated with Pemberton Hale & Creighton LLP, which has deep familiarity with QIH's disclosure history and investor-relations practices. C&H will work collaboratively with Pemberton Hale on these matters, subject to the Audit Committee's direction.
Timing Sensitivity. The filing timeline for QIH's upcoming periodic reports creates urgency. QIH's Form 10-K for fiscal year 2025 was filed on February 21, 2026. The filing deadline for QIH's quarterly report on Form 10-Q for the first quarter of fiscal year 2026 (the quarter ending March 31, 2026) will fall in approximately May 2026 (the precise deadline depends on QIH's filer status; as a large accelerated filer, the deadline is 40 calendar days after the end of the fiscal quarter, or approximately May 10, 2026). If the investigation is not sufficiently advanced by that date to permit the Company to file the Q1 2026 Form 10-Q with financial statements that the certifying officers can reliably certify, QIH should consider whether it needs to file a Form 12b-25 (Notification of Late Filing) to obtain an automatic fifteen-calendar-day extension of the filing deadline. Repeated late filings or failures to file could have additional consequences, including potential Nasdaq listing deficiencies.
C. Nasdaq Listing Implications
QIH's common stock is listed on the Nasdaq Stock Market under the ticker symbol QIHC. Nasdaq Listing Rule 5250(c) requires listed companies to timely file all periodic financial reports with the SEC. If QIH is unable to file its periodic reports on a timely basis — whether due to the pendency of the investigation, the need for restatement, or the inability of the certifying officers to provide required certifications — Nasdaq may issue a Staff Deficiency Letter notifying QIH of non-compliance with the continued listing requirements. QIH would then have a specified period within which to submit a plan to regain compliance. If compliance is not regained within the permitted period, QIH's securities could be subject to delisting proceedings.
Additionally, if material nonpublic information regarding the investigation becomes known to the market (whether through leaks, media reports, or the Company's own disclosures), Nasdaq may impose a temporary trading halt pursuant to Nasdaq Listing Rule 4120(a)(7) pending the dissemination of information to ensure a fair and orderly market. QIH may also proactively request a trading halt pending a significant announcement.
The risk of a Nasdaq deficiency notice or trading halt, while not the most immediate concern, should be factored into the Audit Committee's decision-making regarding the timing and content of public disclosures.
V. State Insurance Regulatory Exposure
A. Connecticut Insurance Department
QIH is headquartered in Stamford, Connecticut, and BSU is a Connecticut corporation with principal offices in Hartford, Connecticut. The Connecticut Insurance Department ("CID") is the domestic regulator for QIH's insurance subsidiaries, including BSU, and exercises broad supervisory, examination, and enforcement authority over Connecticut-domiciled insurers, managing general agents, and wholesale brokers.
The allegations in the Complaint implicate several provisions of Connecticut insurance law and raise the possibility of regulatory action by the CID:
1. Surplus-Lines Licensing Requirements
If BSU, acting as a managing general agent or wholesale broker, placed commercial property policies through the three Subject Brokers — Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC — and if those entities lack valid surplus-lines licenses, BSU may have facilitated or effected placements through unlicensed intermediaries in violation of Connecticut's surplus-lines broker licensing requirements under Connecticut General Statutes ("CGS") Title 38a. Depending on the structure of the placements and the roles of the Subject Brokers, additional licensing violations may have occurred if the Subject Brokers were required to hold producer licenses or surplus-lines licenses in the states where the insured risks were located.
2. Unfair Insurance Practices
The fabrication of binder confirmations and the creation of fictitious policy placements could constitute fraudulent insurance acts within the meaning of CGS § 38a-816 et seq. (the Unfair Insurance Practices Act). The CID has authority to investigate unfair or deceptive practices by insurers and insurance intermediaries and to impose cease-and-desist orders, fines, and other sanctions.
3. Reserve Adequacy
The alleged manipulation of IBNR reserves at BSU may implicate the reserve-adequacy requirements applicable to QIH's insurance-company subsidiaries. Connecticut law requires insurers to maintain adequate reserves for all outstanding claims, including incurred-but-not-reported claims. CGS § 38a-82 and related provisions govern reserving requirements. If the alleged premature release of $38.5 million in IBNR reserves caused QIH's insurance-company subsidiaries to maintain inadequate reserves, the CID could take corrective action, including requiring the establishment of additional reserves, issuing corrective orders, or in severe cases, placing the insurer under supervision or initiating delinquency proceedings.
4. CID Examination and Enforcement Authority
The CID has broad statutory authority to conduct financial and market-conduct examinations of Connecticut-domiciled insurers, both on a routine periodic basis and on a targeted or special-examination basis when concerns arise regarding an insurer's financial condition, practices, or compliance. If the CID becomes aware of the allegations in the Complaint — whether through QIH's self-report, an SEC referral, media reports, or other channels — the CID could order a special examination of QIH's insurance subsidiaries, impose fines, require corrective action plans, and, in extreme cases, initiate supervision or conservation proceedings.
5. Self-Reporting Obligations
QIH may have an affirmative obligation under Connecticut law or CID regulations to self-report the allegations to the CID. Our analysis of the applicable self-reporting requirements is underway and will be completed during the scoping phase. Regardless of any legal obligation, the Audit Committee should consider whether voluntary self-reporting to the CID is advisable as a matter of regulatory strategy and good corporate citizenship, particularly if the investigation substantiates the allegations. Timely self-reporting may be viewed favorably by the CID and could mitigate the severity of any regulatory sanctions.
B. Multi-State Licensing and Surplus-Lines Implications
The Complaint alleges that the Subject Brokers placed commercial property policies, which typically involve risks located in multiple states. If policies were placed in states beyond Connecticut through the Subject Brokers, surplus-lines regulators in those states may also have jurisdiction to investigate and take enforcement action. In particular, New York's Department of Financial Services, given New York's proximity to Connecticut and the volume of commercial property insurance placed in the New York market, may have a regulatory interest in the matter.
Verification of the licensing status of Veltrano Risk Advisors, Halloran & Pratt Insurance Associates, and CrestPoint Brokerage LLC across Connecticut, New York, and multi-state surplus-lines databases (including the Surplus Lines Information Portal maintained by the International Insurers Department of the National Association of Insurance Commissioners) is a priority workstream for the scoping phase. Confirmation that these entities lack valid licenses would substantially corroborate the Complaint's allegations and would itself constitute a regulatory violation independent of the financial misstatement allegations.
VI. Potential Criminal Exposure
The allegations in the Complaint, if substantiated, describe conduct that may give rise to federal criminal liability for the individual subject persons and potentially for QIH as a corporate entity. This section identifies the principal federal criminal statutes that may be implicated and discusses the potential for Department of Justice involvement.
A. Federal Criminal Statutes
1. Wire Fraud — 18 U.S.C. § 1343
The federal wire fraud statute prohibits the use of interstate wire communications — including electronic mail, electronic fund transfers, facsimile transmissions, and telephone calls — to execute or further a scheme to defraud or to obtain money or property by means of false or fraudulent pretenses, representations, or promises. If the subject individuals used interstate wire communications in furtherance of the alleged scheme — for example, by transmitting fabricated binder confirmations via email, processing phantom commission payments through electronic banking systems, or communicating with co-conspirators or third parties electronically — each such communication could constitute a separate count of wire fraud. The maximum penalty for wire fraud is twenty years of imprisonment per count. If the fraud affected a financial institution, the maximum penalty increases to thirty years of imprisonment per count and a fine of up to $1,000,000.
2. Mail Fraud — 18 U.S.C. § 1341
The federal mail fraud statute prohibits the use of the United States Postal Service or private interstate carriers to execute or further a scheme to defraud. If physical mailings — such as printed binder confirmations, policy documents, commission checks, or other correspondence — were used in furtherance of the alleged scheme, each such mailing could constitute a separate count of mail fraud. The maximum penalty mirrors that of wire fraud: twenty years of imprisonment per count, or thirty years if a financial institution is affected.
3. Securities Fraud — 18 U.S.C. § 1348
The Sarbanes-Oxley Act created a standalone securities fraud statute at 18 U.S.C. § 1348, which criminalizes any scheme to defraud in connection with the securities of a publicly traded company or to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any security of a publicly traded company. If the alleged scheme had the effect of artificially inflating QIH's reported financial results and, by extension, the market price of QIHC common stock, the subject individuals could face prosecution under this statute. The maximum penalty is twenty-five years of imprisonment.
4. Conspiracy — 18 U.S.C. § 371
If two or more persons agreed to commit any of the foregoing offenses, the agreement itself may constitute a conspiracy in violation of 18 U.S.C. § 371, even if the underlying substantive offense was not ultimately completed. The Complaint's identification of three named subject individuals who are alleged to have coordinated their actions strongly suggests the existence of a conspiratorial agreement. The maximum penalty for conspiracy under Section 371 is five years of imprisonment.
5. False Statements in SEC Filings — 15 U.S.C. § 78ff (Exchange Act § 32(a))
Section 32(a) of the Exchange Act criminalizes the willful and knowing making of false or misleading statements of material fact in any application, report, or document required to be filed with the SEC under the Exchange Act or any rule or regulation thereunder. If QIH's periodic reports (Forms 10-K and 10-Q) for the affected periods contained material misstatements attributable to the alleged scheme, the individuals responsible for those misstatements — and potentially the certifying officers — could face prosecution under this provision. The maximum penalty is twenty years of imprisonment and a fine of up to $5,000,000 for individuals.
6. SOX Section 906 Criminal Certification Violations — 18 U.S.C. § 1350
As discussed in Section III.C above, Section 906 of SOX requires the CEO and CFO to certify the accuracy of periodic reports filed with the SEC. A knowing violation — i.e., certifying a report that the officer knows does not comply with the Exchange Act or does not fairly present the company's financial condition — carries a maximum penalty of ten years of imprisonment and a fine of $1,000,000. A willful violation carries a maximum penalty of twenty years of imprisonment and a fine of $5,000,000. If CEO Galvin or CFO Nakamura are determined to have known that the certified periodic reports contained material misstatements, they could face criminal prosecution under Section 906. As noted above, the investigation must determine what these officers knew or should have known about BSU's financial reporting.
7. Obstruction of Justice — 18 U.S.C. § 1519 (SOX § 802)
Section 802 of SOX, codified at 18 U.S.C. § 1519, criminalizes the knowing destruction, alteration, concealment, or falsification of records, documents, or tangible objects with the intent to impede, obstruct, or influence any federal investigation or the administration of any matter within the jurisdiction of any department or agency of the United States. The maximum penalty is twenty years of imprisonment. This provision is particularly relevant to QIH's document-preservation obligations, which are discussed in Section XII of this memorandum. Additionally, 18 U.S.C. § 1512(c) prohibits tampering with records or otherwise obstructing an official proceeding and carries a maximum penalty of twenty years of imprisonment.
B. DOJ Referral Considerations
If the investigation substantiates intentional fraud by the subject individuals, there is a significant likelihood that the SEC will refer the matter to the Criminal Division or the United States Attorney's Office for criminal prosecution, or that the DOJ may independently open a criminal investigation based on its own intelligence or a direct whistleblower report.
1. DOJ Corporate Enforcement Policies
Under current DOJ policies — including the Deputy Attorney General's memoranda on individual accountability and corporate enforcement — cooperation credit is available to companies that (a) voluntarily self-disclose misconduct to the DOJ before the DOJ independently discovers it, (b) cooperate fully with the DOJ's investigation by providing all relevant, non-privileged facts, including those relating to individual wrongdoing, and (c) timely and appropriately remediate the misconduct, including by disciplining or terminating responsible employees, implementing enhanced compliance controls, and clawing back compensation where appropriate.
A voluntary self-disclosure to the DOJ at the appropriate stage of the investigation could result in significant benefits for QIH as a corporate entity, including: a declination of prosecution, a non-prosecution agreement ("NPA"), a deferred prosecution agreement ("DPA"), or a substantially reduced criminal fine. These benefits are generally conditioned on full cooperation and remediation.
2. Individual Liability Emphasis
DOJ policy prioritizes the prosecution of individuals who are responsible for corporate misconduct. The three subject individuals identified in the Complaint — Lomax, Stadler, and Kessler — would be the primary targets of any criminal investigation. If QIH cooperates with the DOJ and provides information regarding individual wrongdoing, the DOJ may seek to enter into plea agreements with one or more of the subject individuals or to obtain indictments.
3. Timing. We strongly recommend that no criminal referral analysis or voluntary self-disclosure decision be finalized until the scoping phase of the investigation — and, if warranted, a substantial portion of the full investigation — has been completed. Premature self-disclosure to the DOJ, before the Audit Committee has a clear understanding of the facts, could result in inaccurate or incomplete disclosures that undermine QIH's credibility and cooperation posture. At the same time, excessive delay in self-disclosure could reduce the cooperation credit available to QIH, particularly if the DOJ independently discovers the misconduct before QIH self-reports.
The timing of any voluntary self-disclosure is a critical strategic decision that the Audit Committee will need to make in consultation with C&H, balancing the benefits of early disclosure against the risks of premature or incomplete disclosure.
C. Individual Exposure of Subject Persons
The following is a preliminary assessment of the potential criminal exposure of each of the three subject individuals identified in the Complaint, based solely on the allegations as stated:
1. Garrett T. Lomax
Position: President, BSU FY 2025 Compensation: Approximately $1,095,000 ($685,000 base salary; $410,000 performance bonus)
As president of BSU, Lomax is alleged to have directed the overall scheme, including the fabrication of binder confirmations, the creation of fictitious broker counterparties, and the authorization of premature reserve releases. If these allegations are substantiated, Lomax would face significant criminal exposure under the wire fraud, securities fraud, and conspiracy statutes, as well as potential liability under Section 906 of SOX if he provided sub-certifications to QIH corporate management attesting to the accuracy of BSU's financial information. Given his position as the most senior executive of the subsidiary, Lomax would likely be the principal target of any criminal prosecution.
2. Neil W. Stadler
Position: Senior Vice President, Commercial Property Division, BSU FY 2025 Compensation: Approximately $615,000 ($385,000 base salary; $230,000 performance bonus)
Stadler is alleged to have been directly involved in the fabrication of binder confirmations within the commercial property division. His role is described as operational in nature — creating the false documentation that supported the phantom placements. If substantiated, Stadler would face exposure under the wire fraud, mail fraud, securities fraud, and conspiracy statutes.
3. Rhonda M. Kessler
Position: Vice President, Finance & Operations, BSU FY 2025 Compensation: Approximately $435,000 ($290,000 base salary; $145,000 performance bonus)
Kessler is alleged to have participated in recognizing phantom commission income on BSU's books and records and to have directed or facilitated the premature release of IBNR reserves. If substantiated, Kessler would face exposure under the wire fraud, securities fraud, and conspiracy statutes, as well as potential liability for books-and-records violations under the Exchange Act.
4. Retention of Personal Counsel
Each of the subject individuals may choose to retain personal criminal defense counsel. Indeed, if the investigation progresses to a point where the subjects are interviewed or confronted with evidence, the retention of personal counsel should be anticipated. QIH should consider at the appropriate time whether it is obligated — under its charter, bylaws, or individual indemnification agreements — to advance the legal fees and expenses of the subject individuals for their personal defense, subject to an undertaking to repay if indemnification is ultimately determined to be unavailable. This issue is addressed in Section XI of this memorandum. The interplay between advancement obligations and the D&O insurance policies is also discussed in Section VII.
VII. D&O Insurance Implications
A. Policy Overview
Based on information provided during our initial discussions, QIH maintains directors' and officers' liability insurance through Sentinel Mutual Assurance Group ("Sentinel"), structured as a two-tower program:
• Primary (Tower A): Policy No. SMA-EL-2025-07741, with a per-occurrence and aggregate limit of $15,000,000 and a self-insured retention of $1,000,000.
• Excess (Tower B): Policy No. SMA-XS-2025-07742, with a per-occurrence and aggregate limit of $25,000,000, excess of the $15,000,000 primary limit.
The total available D&O insurance tower is therefore $40,000,000, subject to all terms, conditions, endorsements, and exclusions of the underlying policies. The claims contact at Sentinel is Patricia L. Munroe, Vice President — Executive Liability Claims, Sentinel Mutual Assurance Group, 200 Clarendon Street, Suite 4400, Boston, Massachusetts 02116.
We have not yet obtained and reviewed complete copies of the D&O policies and recommend that the Audit Committee direct General Counsel Hargrove to provide complete copies to C&H for detailed coverage analysis during the scoping phase.
B. Notice Requirements
D&O liability insurance policies typically require the insured to provide prompt notice to the insurer of any claim made against an insured person, and of any circumstance that could reasonably be expected to give rise to a claim. The definition of "claim" and the notice requirements vary by policy, and the specific language of the Sentinel policies will govern.
The whistleblower complaint, the Audit Committee's formal resolution to investigate, and the engagement of C&H to conduct the investigation collectively constitute a circumstance that should be reported to Sentinel under the policies. A failure to provide timely notice could jeopardize QIH's coverage under the policies, as Sentinel could assert a late-notice defense.
Given that the Complaint was received on February 14, 2026, escalated to General Counsel Hargrove on February 17, 2026, and the Audit Committee resolved to engage C&H on February 27, 2026, notice to Sentinel should be dispatched as promptly as practicable — ideally within the next several days — to avoid any colorable late-notice defense. We have prepared a draft notice letter for the Audit Committee's review and approval. The draft notice is designed to preserve the Company's rights under the policies while providing sufficient information to satisfy the notice requirements, without disclosing privileged investigation strategy or work product.
C. Coverage Considerations
The following is a preliminary overview of the coverage issues that are likely to arise under the Sentinel D&O policies. A definitive analysis requires review of the complete policy language, which has not yet been provided.
Side A Coverage (Non-Indemnifiable Loss): Side A of a D&O policy provides direct coverage to individual directors and officers for losses arising from claims made against them in their capacity as directors or officers, where the company is unable or unwilling to indemnify them. Side A coverage is available without application of the self-insured retention and provides a critical safety net for individual directors and officers, particularly in situations involving insolvency or where indemnification is legally prohibited (e.g., for breaches of the duty of loyalty). In the present matter, Side A coverage may be relevant if QIH is unable to indemnify the subject individuals due to the nature of their alleged conduct.
Side B Coverage (Corporate Reimbursement): Side B provides reimbursement to the company for amounts the company pays to indemnify its directors and officers for covered losses. Side B coverage is subject to the $1,000,000 self-insured retention on the primary Tower A policy. If QIH advances or pays legal fees and defense costs on behalf of individual directors and officers, those payments may be reimbursable under Side B, subject to the retention and policy terms.
Side C / Entity Coverage: Some D&O policies include "entity coverage" (Side C) that covers the company itself for securities claims brought against it. Whether the Sentinel policies include Side C coverage, and the scope and terms of any such coverage, must be determined through review of the policy language. If Side C coverage is available, it could potentially cover QIH's own defense costs and liability in connection with a securities class-action lawsuit or an SEC enforcement action, subject to applicable exclusions.
Fraud / Dishonesty Exclusion: Most D&O policies contain an exclusion for claims arising from fraudulent, dishonest, or criminal acts. However, this exclusion is typically triggered only upon a final, non-appealable adjudication of fraud or dishonesty (or, in some policies, upon an admission). Until such a final adjudication or admission, the exclusion should not operate to deny coverage or the advancement of defense costs. This is a critical protection for the subject individuals and for QIH during the pendency of the investigation and any subsequent proceedings. However, if any subject individual is ultimately found to have committed fraud or dishonesty through a final adjudication, t

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