Graph RRG Rehabilitator's First Status Report 09.15.2025

STATE OF VERMONT

SUPERIOR COURT
WASHINGTON UNIT

COMMISSIONER OF THE	)
DEPARTMENT OF FINANCIAL	)
REGULATION	)
PLAINTIFF,	)	CIVIL DIVISION
	)	DOCKET NO. 24-CV-03563
v.	)
	)
GRAPH INSURANCE GROUP, A RISK	)
RETENTION GROUP, LLC	)
DEFENDANT.	)

REHABILITATOR’S FIRST STATUS REPORT

I, J. David Leslie, Special Deputy Rehabilitator, hereby submit this First Status Report concerning the rehabilitation of Graph Insurance Group, a Risk Retention Group, LLC (“Graph” or “Company”).

1. On September 11, 2024, the Commissioner of the Department of Financial Regulation (“Commissioner”) filed an ex parte Petition for Seizure Order pursuant to 8 V.S.A. §§ 7031(4), 7042(b), 7051(1), (13) seeking, among other things, authorization to take possession and control of Graph RRG. The Court granted the Commissioner’s petition by entering the requested order (“Seizure Order”) on September 12, 2024. On December 26, 2024, the Commissioner filed an ex parte motion to extend the Seizure Order to July 12, 2025. As then explained by the Commissioner, an extension would afford an opportunity “to further assess the situation once the audited financial statements and the opinion of its appointed actuary for 2024 are available in June 2025.” On January 2, 2025, the Court ordered an extension of the Seizure Order to July 12, 2025. The Company reported on February 28, 2025 negative surplus of $9.2

2. million as of December 31, 2024. Consequently, on March 18, 2025 the Commissioner filed an assented Petition for Order of Rehabilitation (“Rehabilitation Petition”), which the Court granted and an Order of Rehabilitation (“Rehabilitation Order”) was entered on March 19, 2025. The Rehabilitation Order, among other things, appointed the Commissioner as Rehabilitator for Graph and authorized him to appoint a special deputy rehabilitator. On March 19, 2025, I was appointed Special Deputy Rehabilitator.

3. The Rehabilitation Petition described how Graph’s investment income (at 3%, 4% or 5% of the invested amount) may fund the payment in full of the Company’s obligations under insurance policies in the normal course of business. Rehabilitation Petition, ¶ 7. The Commissioner described the intended plan of rehabilitation as the runoff of Graph’s insurance obligations in the normal course of business. Rehabilitation Petition, ¶ 10.

4. On June 30, 2025, Graph’s independent auditors issued their report on the Company’s December 31 2024 and December 31, 2023 financial statements. Attached as Exhibit A is the independent auditor’s opinion. Except for the auditors’ inability to ascertain the realizability of policy deductibles recoverable on unpaid losses as of December 31, 2024, and the policy deductibles recoverable and reinsurance recoverable on unpaid losses as of December 31, 2023, the auditors concluded that the financial statements presented fairly, in all material respects, the financial position of the Company in accordance with accounting principles generally accepted in the United States. The reinsurance agreement referenced in the exception described above for the December 31, 2023 financial statements, was commuted December 5, 2024. The issues with the realizability of the reinsurance recovery recorded as of December 31, 2023, as described by the auditors, were tangible, became manifest after the commutation, and

5. were a substantial reason for why Graph reported negative surplus of $9.2 million as of December 31, 2024.

6. Graph’s assets have been invested either in special money market accounts expected to produce an approximately 4% return in 2025 or U.S. Government obligations with maturity dates laddered over the next several years and with coupon rates, on average, somewhat below 4%. The implied annual compounded investment percent for these investments in 2025 is 3.8%.

7. In order to closely monitor the adequacy of Graph’s outstanding loss reserves, the Company’s consulting actuary was asked to analyze unpaid losses as of June 30, 2025. Based on that review, which reduced the projected ultimate losses by approximately $7.5 million from December 31, 2024, the Company reported a liability for estimated outstanding losses and expenses of $111.3 million as of June 30, 2025 This is approximately 3.4% higher than the consulting actuary’s central estimate, which as noted was lower than the estimate as of December 31, 2024. This improvement from December 31, 2024, resulted in Graph reporting a $2.4 million reduction in negative surplus to $4.4 million as of June 30, 2025. Attached as Exhibit B is the Balance Sheet, Income Statement and Cash Flow Statements from Graph’s NAIC format Q2 2025 Financial Statements.

8. The Special Deputy Rehabilitator continues to meet weekly with Graph’s management. He regularly consults with the Graph claim manager to discuss significant open claims and provide settlement authority as appropriate. Disbursements are reviewed and approved in advance each week.

9. Based on the Company’s 2025 results to date, the Rehabilitator continues to believe that the Plan of Rehabilitation described in the Rehabilitation Petition (¶ 10) and

10. approved by the Court in the Rehabilitation Order (¶ (d)) remains appropriate and consistent with 8 V.S.A. § 7053(b) and 8 V.S.A. § 7052(b).

11. The Rehabilitator proposes to next report to the Court six months from the filing of this First Status Report.

Dated this 15 day of September, 2025.

/s/ J. David Leslie
J. David Leslie, Special Deputy Rehabilitator

Subscribed and sworn before me this 15 day of September, 2025

/s/ [Signature]
Notary Public KYLE BUOHL
My commission expires: 7.10.2031

[Seal: KYLE BUOHL, NOTARY PUBLIC, COMMONWEALTH OF MASSACHUSETTS, MY COMMISSION EXPIRES JULY 10, 2031]

EXHIBIT A

PKF O'CONNOR DAVIES
ACCOUNTANTS AND ADVISORS

Independent Auditors’ Report

To the Board of Directors
Graph Insurance Group, A Risk Retention Group, LLC

Qualified Opinion

We have audited the accompanying financial statements of Graph Insurance Group, A Risk Retention Group, LLC (the “Company”) which comprise the balance sheet as of December 31, 2024 and 2023 and the related statements of income, changes in members’ equity (deficit) and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, except for the possible effects on the 2024 and 2023 financial statements of the matters described in the Basis for Qualified Opinion section of our report, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Qualified Opinion

We were unable to ascertain the realizability of the policy deductible recoverable on unpaid losses as of December 31, 2024. As discussed notes 2 and 6, the Company commuted its reinsurance policy, as such it no longer has reinsurance to cover these amounts if the insureds default on payment. We were unable to obtain sufficient appropriate audit evidence about the realizability of the policy deductibles recoverable on unpaid losses by other auditing procedures.

We were unable to ascertain the realizability of the reinsurance recoverable and the policy deductible recoverable on unpaid losses as of December 31, 2023. The reinsurance recoverable and the policy deductible recoverable on unpaid losses exceed the liquid assets of the Company’s reinsurer as of December 31, 2023. We were unable to obtain sufficient appropriate audit evidence about the realizability of the balances due from the reinsurer and of the policy deductibles recoverable on unpaid losses by other auditing procedures.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical requirements in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the 2024 and 2023 financial statements.

PKF O'CONNOR DAVIES, LLP
245 Park Avenue, New York, NY 10167 | Tel: 212.867.8000 or 212.286.2600 | Fax: 212.286.4080 | www.pkfod.com PKF O'Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Board of Directors
To the Graph Insurance Group, A Risk Retention Group, LLC

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company’s financial statements reported a members’ deficit of $6,829,013 as of December 31, 2024. In addition, as discussed in Note 2 to the financial statements, the Commissioner of the Vermont Department of Financial Regulation (the “Commissioner”) sought a seizure order, which was subsequently granted by the Vermont Superior Court on September 12, 2024 due to the Commissioner’s concern regarding the uncertain financial condition of the Company, its failure to timely implement its runoff and corrective action plans, as well as its failure to submit a suitable plan to address the Company’s action level risk based capital. On March 18, 2025, the Washington County Superior Court of the State of Vermont vacated the September 12, 2024 order and appointed a rehabilitator. Per Vermont Insurance Law, if there is a mandatory control level event, the Commissioner may take action to cause the insurer to be placed under liquidation. This possible action by the Commissioner and the members’ deficit reported as of December 31, 2024 by the Company raise substantial doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon many factors, including solvency and regulatory action. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Graph Insurance Group, A Risk Retention Group, LLC’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

Board of Directors
Graph Insurance Group, A Risk Retention Group, LLC

Auditors’ Responsibilities for the Audit of the Financial Statements (continued)

In performing an audit in accordance with generally accepted auditing standards, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Other Matter

This report is solely for the information and use of the Board of Directors and Management of Graph Insurance Group, A Risk Retention Group, LLC and for the filing with the state insurance regulatory authorities and is not intended to and should not be used for anyone other than those specified parties.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the disclosures about short-duration insurance contracts, including incurred and cumulative paid losses and allocated loss adjustment expenses, net of reinsurance and average annual percentage payout of incurred claims by age, net of reinsurance, on page 25 be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we have obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures did not provide us with sufficient evidence to express an opinion or provide any assurance.

PKF O'Connor Davies, LLP
June 30, 2025

EXHIBIT B

Statement as of June 30, 2025 of the Graph Insurance Group, A Risk Retention Group, LLC

ASSETS

	1	2	3	4
	Assets	Nonadmitted Assets	Net Admitted Assets (Cols. 1 - 2)	December 31 Prior Year Net Admitted Assets
1. Bonds	59,472,448		59,472,448
2. Stocks:
2.1 Preferred stocks
2.2 Common stocks
3. Mortgage loans on real estate:
3.1 First liens				481,243
3.2 Other than first liens
4. Real estate:
4.1 Properties occupied by the company
4.2 Properties held for the production of income
4.3 Properties held for sale
5. Cash	47,921,924		47,921,924	121,987,346
6. Contract loans
7. Derivatives
8. Other invested assets
9. Receivables for securities
10. Securities lending reinvested collateral assets
11. Aggregate write-ins for invested assets
12. Subtotals, cash and invested assets	107,394,372		107,394,372	122,468,589
13. Title plants
14. Investment income due and accrued	75,708		75,708	460,923
15. Premiums and considerations:
15.1 Uncollected premiums				673,417
15.2 Deferred premiums
15.3 Accrued retrospective premiums
16. Reinsurance:
16.1 Amounts recoverable from reinsurers
16.2 Funds held by or deposited with reinsurers
16.3 Other amounts receivable under reinsurance contracts
17. Amounts receivable relating to uninsured plans
18.1 Current federal and foreign income tax recoverable	1,110,588		1,110,588	1,110,588
18.2 Net deferred tax asset	2,805,588	2,805,588
19. Guaranty funds receivable or on deposit
20. Electronic data processing equipment and software
21. Furniture and equipment
22. Net adjustment in assets and liabilities
23. Receivables from parent, subsidiaries and affiliates
24. Health care
25. Aggregate write-ins for other-than-invested assets	3,299,649		3,299,649	3,328,018
26. Total assets excluding Separate Accounts	114,685,905	2,805,588	111,880,317	128,041,535
27. From Separate Accounts
28. Total (Lines 26 and 27)	114,685,905	2,805,588	111,880,317	128,041,535

DETAILS OF WRITE-IN LINES

1101.
1102.	NONE
1103.
1198. Summary of remaining write-ins
1199. Totals
2501. Letter of Credit	3,000,000		3,000,000	3,000,000
2502. Prepaid Expenses	295,798		295,798	295,798
2503. Deferred Policy Acquisition Costs	3,851		3,851	32,220
2598. Summary of remaining write-ins
2599. Totals	3,299,649		3,299,649	3,328,018

Statement as of June 30, 2025 of the Graph Insurance Group, A Risk Retention Group, LLC

LIABILITIES, SURPLUS AND OTHER FUNDS

	1	2
	Current Statement Date	December 31 Prior Year
1. Losses	87,716,061	102,015,826
2. Reinsurance payable
3. Loss adjustment expenses	23,596,228	27,973,797
4. Commissions payable	23,986	23,986
5. Other expenses	469,202	1,730,295
6. Taxes, licenses and fees	1,017	45,000
7.1 Current federal and foreign income taxes
7.2 Net deferred tax liability
8. Borrowed money
9. Unearned premiums	128,348	356,728
10. Advance premium
11. Dividends declared and unpaid:
12. Ceded reinsurance premiums payable
13. Funds held by company
14. Amounts withheld
15. Remittances and items not allocated
16. Provision for reinsurance
17. Net adjustments in assets and liabilities
18. Drafts outstanding
19. Payable to parent, subsidiaries and affiliates
20. Derivatives
21. Payable for securities
22. Payable for securities lending
23. Liability for amounts held under uninsured plans
24. Capital notes	4,329,177	2,724,916
25. Aggregate write-ins for liabilities
26. Total liabilities excluding protected cell liabilities	116,264,019	134,870,548
27. Protected cell liabilities
28. Total liabilities (Lines 26 and 27)	116,264,019	134,870,548
29. Aggregate write-ins for special surplus funds
30. Common capital stock
31. Preferred capital stock
32. Aggregate write-ins for other than special surplus funds
33. Surplus notes
34. Gross paid in and contributed surplus	6,102,000	6,102,000
35. Unassigned funds (surplus)	(10,485,702)	(12,931,013)
36. Less treasury stock, at cost:
37. Surplus as regards policyholders	(4,383,702)	(6,829,013)
38. Totals (Page 2, Line 28, Col. 3)	111,880,317	128,041,535

DETAILS OF WRITE-IN LINES

2501. Losses Payable	4,329,177	2,724,916
2599. Totals	4,329,177	2,724,916
2901.
2902.	NONE
2903.
2999. Totals
3201.
3202.	NONE
3203.
3299. Totals

Statement as of June 30, 2025 of the Graph Insurance Group, A Risk Retention Group, LLC

STATEMENT OF INCOME

	1	2	3
	Current Year To Date	Prior Year To Date	Prior Year Ended December 31
UNDERWRITING INCOME
1. Premiums earned:
1.1 Direct	228,379	12,359,257	19,100,238
1.2 Assumed
1.3 Ceded		398,531	398,531
1.4 Net	228,379	11,960,726	18,701,707
DEDUCTIONS:
2. Losses incurred	(176,298)	5,967,881	5,553,762
2.2 Assumed
2.3 Ceded		(1,247,234)	8,592,980
2.4 Net	(176,298)	7,215,115	(3,039,218)
3. Loss adjustment expenses incurred	(1,521,329)	1,737,995	23,943,617
4. Other underwriting expenses incurred	1,437,823	3,940,549	5,296,279
5. Aggregate write-ins for underwriting deductions			896,034
6. Total underwriting deductions	(259,804)	12,893,659	27,096,712
7. Net income of protected cells
8. Net underwriting gain (loss)	488,183	(932,933)	(8,395,005)
INVESTMENT INCOME
9. Net investment income earned	1,957,128	785,942	1,507,889
10. Net realized capital gains
11. Net investment gain (loss)	1,957,128	785,942	1,507,889
OTHER INCOME
12. Net gain (or loss) from agents’ balances
13. Finance and service charges
14. Aggregate write-ins for miscellaneous income
15. Total other income
16. Net income before dividends to policyholders	2,445,311	(146,991)	(6,887,116)
17. Dividends to policyholders
18. Net income, after dividends to policyholders	2,445,311	(146,991)	(6,887,116)
19. Federal and foreign income taxes incurred		(19,007)
20. Net income	2,445,311	(127,984)	(6,887,116)
CAPITAL AND SURPLUS ACCOUNT
21. Surplus as regards policyholders, Dec 31 prior year	(6,829,013)	58,103	58,103
22. Net income	2,445,311	(127,984)	(6,887,116)
23. Net transfers (to) from Protected cell accounts
24. Change in net unrealized capital gains
25. Change in net unrealized foreign exchange
26. Change in net deferred income tax			2,038,817
27. Change in nonadmitted assets			(2,038,817)
28. Change in provision for reinsurance
29. Change in surplus notes
30. Surplus (contributed to) withdrawn
31. Cumulative effect of changes in accounting
32. Capital changes:
33. Surplus adjustments:
34. Net remittances from or (to) Home Office
35. Dividends to stockholders
36. Change in treasury stock
37. Aggregate write-ins for gains and losses
38. Change in surplus as regards policyholders	2,445,311	(127,984)	(6,887,116)
39. Surplus as regards policyholders, as of statement date	(4,383,702)	(69,881)	(6,829,013)

DETAILS OF WRITE-IN LINES

0501. Write offs		896,034
0599. Totals		896,034
1499. Totals	NONE
3799. Totals	NONE

Statement as of June 30, 2025 of the Graph Insurance Group, A Risk Retention Group, LLC

CASH FLOW

	1	2	3
	Current Year To Date	Prior Year To Date	Prior Year Ended December 31
Cash from Operations
1. Premiums collected net of reinsurance	673,415	11,074,916	18,988,173
2. Net investment income	2,317,487	846,489	1,376,068
3. Miscellaneous income
4. Total (Lines 1 to 3)	2,990,903	11,921,405	20,364,241
5. Benefit and loss related payments	12,519,206	8,956,363	(81,523,474)
6. Net transfers to Separate Accounts
7. Commissions, expenses paid	5,599,139	6,957,515	8,055,217
8. Dividends paid to policyholders
9. Federal and foreign income taxes paid		18,561
10. Total (Lines 5 through 9)	18,118,345	15,932,439	(73,468,257)
11. Net cash from operations (Line 4 minus Line 10)	(15,127,442)	(4,011,034)	93,832,498
Cash from Investments
12. Proceeds from investments sold, matured or repaid:
12.3 Mortgage loans	481,243
12.8 Total investment proceeds	481,243
13. Cost of investments acquired (long-term only):
13.1 Bonds	59,447,592
13.7 Total investments acquired	59,447,592
14. Net increase/(decrease) in contract loans
15. Net cash from investments (Line 12.8 minus 13.7 and 14)	(58,966,349)
Cash from Financing and Miscellaneous Sources
16. Cash provided (applied):
16.6 Other cash provided (applied)	28,369	6,321,356	(94,269,796)
17. Net cash from financing and miscellaneous sources	28,369	6,321,356	(94,269,796)
RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
18. Net change in cash, cash equivalents and short-term investments	(74,065,422)	2,310,322	(437,298)
19. Cash, cash equivalents and short-term investments:
19.1 Beginning of year	121,987,346	128,728,868	122,424,644
19.2 End of period (Line 18 plus Line 19.1)	47,921,924	131,039,190	121,987,346