Geoff Gannon

27 Allen Street
Basking Ridge, NJ 07920
April 7, 2010

Board of Directors
Bancinsurance Corporation
250 East Broad Street
7th Floor
Columbus, Ohio 43215

Gentlemen:

I am writing to you about the $6.00 per share proposal Mr. Sokol made to you on March 22nd.

Offer

Mr. Sokol is offering $6.00 in cash for each share of Bancinsurance he does not already own. In exchange for this
$6.00 in cash shareholders are being asked to give up $8.52 in tangible book value, $1.22 in pre-tax earnings, and
$0.97 in after-tax earnings.

Mr. Sokol’s Offer

Tangible Book Value 0.70x
Pre-Tax Earnings 4.92x
After-Tax Earnings 6.19x

I do not know of any acquisitions of adequately capitalized property/casualty companies with underwriting histories
like Bancinsurance’s done at multiples this low.

Bancinsurance has operated at a combined ratio below 100 in 25 of the last 28 years. The company failed to earn an
underwriting profit in 1982, 1995, and 2004. In all other years – 89% of the time – Bancinsurance earned a profit for
its shareholders before including any of its investment income. Here is Bancinsurance’s underwriting history:

Bancinsurance Industry
1991 72.2 107.5
1992 67.7 114.7
1993 80.6 105.8
1994 95.7 107.1
1995 113.3 105.2
1996 83.7 104.7
1997 76.3 99.9
1998 80.5 103.5
1999 86.4 106.7
2000 88.8 108.9
2001 87.3 114.9
2002 93.9 106.6
2003 92.3 99.7
2004 128.5 97.6
2005 96.7 100.7
2006 96.5 91.5
2007 89.0 94.8
2008 97.5 104.1
2009 90.8 100.0
Median 89.0 104.7
Mean 90.4 103.9

1
It is a truism among investors that an insurance company that averages a combined ratio under 100 for a full cycle is
worth more than tangible equity, because its cost of production is less than zero. Policyholders pay Bancinsurance to
hold their cash. The company invests this negative interest loan in tax-exempt municipal bonds. It is a wonderful
business. And it is worth more than book value.

Underwriting

From 2000-2009, Bancinsurance averaged a combined ratio of 96. This 10-year average includes (presumably non-
recurring) losses from the discontinued bond program. Last year, Bancinsurance wrote net premiums of $7.96 per
share. If the company maintains this same level of premiums and matches its underwriting performance of the last
10 years, it will earn an underwriting profit of $0.32 per share. If Bancinsurance matches its underwriting
performance of the last 5 years, it will earn an underwriting profit of $0.47 per share.

Investments

At the end of last year, Bancinsurace had $17 per share in investments and $1.83 per share in cash. From 1995-2009,
the company’s investments averaged 1.65 times its earned premiums. Net interest income divided by total
investments averaged 0.67 times AAA corporate bond yields. Even if one assumes investments will fall from their
current level of $17 a share to $13.14 a share – bringing investments in line with Bancinsurance’s historical ratio of
investments to premiums – and one assumes yields on the company’s municipal bonds will fall to two-thirds of
AAA corporate yields, Bancinsurance would still earn investment income of $0.47 per share.

Intrinsic Value

If the future unfolds along the tepid lines outlined above, Bancinsurance would earn between $0.79 a share and
$0.94 a share in annual pre-tax profits. Even if one assumes this income is taxed at rates equal to other corporations
(which is unlikely since 83% of the company’s investments are in tax-exempt municipal bonds), Bancinsurance is
worth between $7.90 a share and $9.40 a share.

Book Value

Reasonable people can disagree about Bancinsurance’s intrinsic value. Reasonable people can not disagree about
Bancinsurance’s book value. At the end of last year, it was $8.52 a share. I think Bancinsurance is worth more than
tangible book value because the company has:

 A long history of above-average underwriting profits

 A long history of above-average book value per share growth
 Long-term customer relationships
 And a book of business focused on special products

But I could be wrong.

Therefore, it is reasonable to argue Bancinsurance’s minority owners are not entitled to a premium over the tangible
book value of their investments. However, it is not reasonable to argue that Bancinsurance’s majority owner is
entitled to buy out his fellow shareholders at a discount to the tangible book value of their investments.

Market Price

In his letter to the board, Mr. Sokol wrote that the $6.00 per share cash offer represented a 20% premium over
Bancinsurance’s closing market price. That is true. However, as you know, the market price of Bancinsurance
common stock has been unduly depressed since the company’s problem with its bail bond reinsurance program.

This is more than a case of irrational pessimism. The February 2005 letter from Ernst & Young set off a chain of
events that decimated investor demand for Bancinsurance stock.

 Ernst & Young withdrew as the company’s independent auditor

2
  NASDAQ delisted the company’s stock
 The SEC began a formal investigation of Bancinsurance
 A.M. Best cut the company’s financial strength rating from A to B++ with a negative ratings watch
 Bancinsurance stopped sending regular reports to the SEC
 And the company’s stock dropped below $5 a share

Some of these problems have been fixed. Others have not. But these events did – and in some cases, continue to do –
enormous harm to investor demand for Bancinsurance’s stock. Bad news always hurts a stock. This was more than
that.

For example, many investors do not buy over-the-counter stocks. When NASDAQ delisted Bancinsurance’s stock,
those potential investors were lost. Likewise, many investors do not invest in companies that are not current in their
SEC filings. Bancinsurance has only fixed one of these problems. The stock still isn’t listed on a major exchange.

The combination of being traded over the counter and (until recently) having a market price under $5 puts a heavy
cost burden on investors. Broker commissions are higher on OTC stocks. Commissions on low priced stocks are
higher (in percentage terms) than commissions on high priced stocks. Some brokers do not accept stocks priced
under $5 as collateral. And many firms have automated systems that make their brokers jump through more hoops to
place a trade for any stock under $5.

For these reasons, the market price of Bancinsurance stock is not a good gauge of the company’s value. The stock is
neither liquid nor listed. Therefore, the board’s own judgment of Bancinsurance’s value is needed.

Legal Risks

Selling the company to its majority owner at a price less than tangible book value will be seen by some – myself
included – as unreasonable and egregious. There is not enough precedent within the industry for a transaction at
multiples like those Mr. Sokol is proposing.

Because Bancinsurance stock is unlisted, illiquid, and has a majority owner, a court is unlikely to give the market
price the weight it normally would. Other standards of value are more likely to be used.

An adverse judgment in a shareholder suit would result in millions of dollars of damages.

Alternatives

The Sokol family’s decades of stewardship made Bancinsurance what it is today. Mr. Sokol is the best manager
Bancinsurance could have. He may also be the best owner. Going private will free Bancinsurance from the costs of
being a public company. It will also free the company’s executives from the headaches that come from reporting to
the SEC and dealing with outside shareholders.

There is nothing wrong with this transaction other than the price. If Mr. Sokol’s offer was increased to a cash
payment equal to the tangible book value per share, it would be acceptable.

Because the investor group controls the vast majority (74.17%) of Bancinsurance’s common stock, raising the cash
offer to tangible book value would be easy. The group is only seeking to buy around 1.345 million shares. I do not
know how the company’s balance sheet has changed since December, but I believe raising the offer to tangible book
value would require only $3 million to $4 million of additional cash.

I think a price equal to Bancinsurance’s per share tangible book value would be fair to both the buyers and sellers.
There are at least 3 ways to structure such a transaction. I hope the board will consider them:

1. The investor group could raise additional cash themselves and increase their per share offer to $8.52 a share
– or, more accurately, whatever the tangible book value per share is today

3
 2. If the buyers do not have access to enough capital to close the deal at tangible book value, the board could
agree to a two-step transaction in which a cash dividend – similar to the one the board declared last year –
would be paid to all shareholders, thereby providing the buyers with cash while simultaneously lowering
the tangible book value of the company’s shares. This would allow the deal to be closed at tangible book
value albeit in a tax inefficient way.
3. Instead of getting cash, the minority shareholders could receive rights under terms like: “At time of
transaction, each share of Bancinsurance common stock not held by the investor group will convert into
right to receive cash equal to tangible book value per share plus interest. Interest will compound daily at
Moody’s AAA corporate bond yield. Payment is due 3 years from time of transaction.”

There are other ways to structure a deal at tangible book value that would neither burden the investor group with
raising the additional cash on its own nor risk Ohio Indemnity’s financial strength rating. I would be happy to
discuss them with you.

I know receiving a letter like this is not an enjoyable experience. And I sympathize with the position this letter puts
you in. I would not have written it if the problem was not as serious and clear cut as I present it to be.

Thank you for your time.

Sincerely,

Geoff Gannon