##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-8738
 BANCINSURANCE CORPORATION
 
  Ohio
    
    31-0790882(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)250 East Broad Street, Columbus, Ohio
    
    43215(Address of principal executive offices)
    
    (Zip Code)
 (614) 220-5200
  Title of each class
    
    Name of each exchangeon which registeredNONE
    
    NONE
   
   o þ
  o þ
  þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



PagePART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    9PART IIItem 5. Market for Registrants Common Shares, Related
Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    10Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    27Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    57Item 9A(T). Controls and Procedures
    
    
    57Item 9B. Other Information
    
    
    57PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    58Item 11. Executive Compensation
    
    
    59Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
    
    
    66Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    67Item 14. Principal Accounting Fees and Services
    
    
    69PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    70EX-21EX-23(A)EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



FORWARD-LOOKING INFORMATION
  
 PART I
 
 ITEM 1. BUSINESS
 GENERAL/OVERVIEW
   PRODUCTS AND SERVICES
 Ohio Indemnity Company
  Lender Service Products ®
 3




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##### Table of Contents



Unemployment Compensation Products. ®
 Waste Industry Products
  4




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##### Table of Contents



Other Specialty Products
  Distribution of Products
 Ultimate Services Agency, LLC
  SALE OF AFFILIATE
     COMPETITION
  5




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Importance of Industry Ratings
  Reliance on General Agents and Major Customers
  Type
    
    Gross Premiums Written
    
    
    % of TotalCustomer
    
    $
    23.4
    
    
    
    33.0
    %General Agent
    
    
    10.0
    
    
    
    14.1General Agent
    
    
    5.9
    
    
    
    8.3Customer
    
    
    5.6
    
    
    
    8.0General Agent
    
    
    4.6
    
    
    
    6.5General Agent
    
    
    4.0
    
    
    
    5.6Customer
    
    
    3.6
    
    
    
    5.0General Agent
    
    
    2.2
    
    
    
    3.1Customer(1)
    
    
    2.1
    
    
    
    2.9TOTAL
    
    $
    61.4
    
    
    
    86.5
    %
 
 (1)
    
    This customer exited the auto lending market during the fourth quarter of 2008.
During 2008, this customer had net premiums earned of $2.3 million and its combined
ratio was 70%. We expect little, if any, earned premiums for this customer in 2009.  REINSURANCE
     6




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REGULATION
 Insurance Company Regulation
     7




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##### Table of Contents



Ohio Insurance Holding Company System Regulation
   National Association of Insurance Commissioners
   Ongoing SEC Investigation
   8




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##### Table of Contents



EMPLOYEES
  SERVICE MARKS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
 Highlands Arbitration
 SEC Investigation
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  9




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 MARKET INFORMATION
  Period
    
    High Price
    
    Low PriceQuarterly period ended March 31, 2007
    
    $
    6.50
    
    
    $
    5.60Quarterly period ended June 30, 2007
    
    
    7.00
    
    
    
    5.65Quarterly period ended September 30, 2007
    
    
    6.50
    
    
    
    6.05Quarterly period ended December 31, 2007
    
    
    6.45
    
    
    
    4.80
 Period
    
    High Price
    
    Low PriceQuarterly period ended March 31, 2008
    
    $
    5.20
    
    
    $
    4.30Quarterly period ended June 30, 2008
    
    
    5.10
    
    
    
    4.25Quarterly period ended September 30, 2008
    
    
    6.00
    
    
    
    4.50Quarterly period ended December 31, 2008
    
    
    6.00
    
    
    
    3.25
    HOLDERS
  DIVIDENDS
  REPURCHASE OF COMMON SHARES
  10




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 OVERVIEW
  Products and Services
  Discontinued Bond Program
        11




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Pending Arbitration
    Loss and LAE Reserves.
 December 31,
    
    
    December 31,2008
    
    
    2007Bail Bonds:Case reserves
    
    $
    0.4
    
    
    $
    0.5Incurred but not reported (IBNR) reserves
    
    
    4.2
    
    
    
    4.5Total bail bond reserves
    
    
    4.6
    
    
    
    5.0Immigration Bonds:Case reserves
    
    
    0.2
    
    
    
    0.2IBNR reserves
    
    
    1.8
    
    
    
    1.5Total immigration bond reserves
    
    
    2.0
    
    
    
    1.7Total loss and LAE reserves
    
    $
    6.6
    
    
    $
    6.7
  12




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Recently Issued Accounting Standards
     Reinsurance Transactions
  Automobile Service Contract Program
  13




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Ongoing SEC Investigation
  SUMMARY RESULTS
  Period-to-Period Increase (Decrease)2007-2008Amount
    
    % ChangeNet premiums earned
    
    $
    1,189,518
    
    
    
    2.5
    %Net investment income
    
    
    806
    
    
    
    Net realized losses on investments
    
    
    (2,237,284
    )
    
    
    182.6Net realized gain on sale of affiliate
    
    
    (62,500
    )
    
    
    (100.0
    )Management fees
    
    
    (80,058
    )
    
    
    (17.8
    )Total revenues
    
    
    (1,224,408
    )
    
    
    (2.4
    )Losses and LAE
    
    
    (89,133
    )
    
    
    (0.4
    )Policy acquisition costs
    
    
    730,813
    
    
    
    6.7Other operating expenses
    
    
    545,455
    
    
    
    7.5SEC investigation expenses
    
    
    785,340
    
    
    
    31.4Interest expense
    
    
    (240,437
    )
    
    
    (16.3
    )Income before federal income taxes
    
    
    (2,956,446
    )
    
    
    (85.1
    )Net income
    
    
    (1,642,406
    )
    
    
    (54.7
    )
 14




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2008

    
    2007GAAP:Loss ratio
    
    
    53.0
    %
    
    
    53.9
    %Expense ratio
    
    
    40.3
    
    
    
    38.3Combined ratio
    
    
    93.3
    %
    
    
    92.2
    %Statutory:Loss ratio
    
    
    53.0
    %
    
    
    53.9
    %Expense ratio
    
    
    44.5
    
    
    
    35.1Combined ratio
    
    
    97.5
    %
    
    
    89.0
    %
 RESULTS OF OPERATIONS
 2008 Compared to 2007
 Net Premiums Earned
    ®
  Investment Income
 Net Realized Losses on Investments.
 15




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Management Fees
 Losses and Loss Adjustment Expenses
        Policy Acquisition Costs.
 16




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##### Table of Contents



®
 Other Operating Expenses
 SEC Investigation Expenses.
 Interest Expense
 Federal Income Taxes
 GAAP Combined Ratio
 BUSINESS OUTLOOK
 Current Financial Crisis
  Lender Service Products
   17




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Unemployment Compensation, Waste Industry and Discontinued Bond Program
    Expenses
  18




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##### Table of Contents



4Q2007
    
    1Q2008
    
    2Q2008
    
    3Q2008
    
    4Q2008SEC investigation expenses
    
    $
    2,504,122
    
    
    $
    1,450,872
    
    
    $
    609,584
    
    
    $
    1,035,773
    
    
    $
    193,233
   Investments
   19




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LIQUIDITY AND CAPITAL RESOURCES
  2008
    
    
    2007Trust preferred debt issued to BIC Statutory Trust I
    
    $
    8,248,000
    
    
    $
    8,248,000Trust preferred debt issued to BIC Statutory Trust II
    
    
    7,217,000
    
    
    
    7,217,000Bank line of credit
    
    
    2,500,000
    
    
    
    Total debt obligations
    
    
    17,965,000
    
    
    
    15,465,000Total shareholders equity
    
    
    34,660,381
    
    
    
    38,456,922Total capitalization
    
    $
    52,625,381
    
    
    $
    53,921,922Ratio of total debt obligations to total capitalization
    
    
    34.1
    %
    
    
    28.7
    %
    20




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##### Table of Contents



2008
    
    
    2007Cash & short-term investments
    
    $
    11,439,101
    
    
    $
    4,623,417Money market mutual fund(1)
    
    
    49,096
    
    
    
    2,249,142Total cash & short-term investments
    
    $
    11,488,197
    
    
    $
    6,872,559
 
 (1)
    
    Even though it is classified as an equity security in our accompanying balance
sheet, we treat the money market mutual fund as a short-term investment for purposes of our
liquidity management because of its liquid nature.        21




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INFLATION
  CRITICAL ACCOUNTING POLICIES
  22




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Other-Than-Temporary Impairment of Investments
  Fixed Maturity Securities
 
    
    the length of time and extent to which the estimated fair value has been less than
book value;
    
    the degree to which any appearance of impairment is attributable to an overall change
in market conditions (e.g., interest rates);
    
    the degree to which an issuer is current or in arrears in making principal and
interest/dividend payments on the securities in question;
    
    the financial condition and future prospects of the issuer, including any specific
events that may influence the issuers operations and its ability to make future
scheduled principal and interest payments on a timely basis;
    
    the independent auditors report on the issuers most recent financial statements;
    
    the judgment of our outside fixed income investment manager;
    
    relevant rating history, analysis and guidance provided by rating agencies and
analysts; and
    
    our ability and intent to hold the security for a period of time sufficient to allow
for recovery in the estimated fair value.
  Equity Securities
 
    
    the length of time and extent to which the estimated fair value has been less than
book value;
    
    whether the decline appears to be related to general market or industry conditions or
is issuer-specific;
    
    the financial condition and future prospects of the issuer, including any specific
events that may influence the issuers operations;
    
    the recent income or loss of the issuer;
    
    the independent auditors report on the issuers most recent financial statements;
    
    buy/hold/sell recommendations of investment advisors and analysts;
    
    relevant rating history, analysis and guidance provided by rating agencies and
analysts; and
    
    our ability and intent to hold the security for a period of time sufficient to allow
for recovery in the estimated fair value.
   23




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Loss and Loss Adjustment Expense Reserves
   Assumed Business
   Direct Business
  
    
    ULI -limited liability (ULIL)
    
    ULI  non-limited liability (ULIN)
    
    CPI
    
    GAP
  24




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Loss and LAE Reserves at Year End
 December 31, 2008
    
    
    December 31, 2007IBNR
    
    
    Case
    
    
    IBNR
    
    
    CaseULIL
    
    $
    1,087,000
    
    
    $
    101,182
    
    
    $
    1,316,000
    
    
    $
    57,500ULIN
    
    
    693,728
    
    
    
    472,363
    
    
    
    316,784
    
    
    
    437,541CPI
    
    
    179,472
    
    
    
    21,619
    
    
    
    318,358
    
    
    
    22,286EPD
    
    
    811,000
    
    
    
    339,000
    
    
    
    577,000
    
    
    
    109,850GAP
    
    
    3,410,122
    
    
    
    100,343
    
    
    
    3,006,524
    
    
    
    94,233UC
    
    
    1,747,893
    
    
    
    
    
    
    
    1,988,704
    
    
    
    WIP
    
    
    3,262,742
    
    
    
    
    
    
    
    2,397,572
    
    
    
    30Discontinued bond program
    
    
    6,019,253
    
    
    
    620,207
    
    
    
    6,052,668
    
    
    
    688,696Vehicle service contracts
    
    
    1,436,263
    
    
    
    
    
    
    
    
    
    
    
    Other specialty products
    
    
    17,418
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    18,664,891
    
    
    $
    1,654,714
    
    
    $
    15,973,610
    
    
    $
    1,410,136
     25




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Equity-Based Compensation Expense
  Legal Matters
  Guarantee Liabilities
  Federal Income Taxes
   OFF-BALANCE SHEET TRANSACTIONS
  26




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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
     
  27




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BANCINSURANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
 Years ended December 31,2008
    
    
    2007Revenues:Net premiums earned
    
    $
    48,162,776
    
    
    $
    46,973,258Net investment income
    
    
    3,898,457
    
    
    
    3,897,651Net realized losses on investments
    
    
    (3,462,577
    )
    
    
    (1,225,293
    )Net realized gain on sale of affiliate
    
    
    
    
    
    
    62,500Management fees
    
    
    368,841
    
    
    
    448,899Other income
    
    
    34,232
    
    
    
    69,122Total revenues
    
    
    49,001,729
    
    
    
    50,226,137Expenses:Losses and loss adjustment expenses
    
    
    24,556,501
    
    
    
    23,794,155Discontinued bond program losses and loss adjustment (benefit) expenses
    
    
    (101,904
    )
    
    
    749,575Policy acquisition costs
    
    
    11,704,193
    
    
    
    10,973,380Other operating expenses
    
    
    7,803,122
    
    
    
    7,257,667SEC investigation expenses
    
    
    3,289,462
    
    
    
    2,504,122Interest expense
    
    
    1,232,255
    
    
    
    1,472,692Total expenses
    
    
    48,483,629
    
    
    
    46,751,591Income before federal income taxes
    
    
    518,100
    
    
    
    3,474,546Federal income tax (benefit) expense
    
    
    (843,203
    )
    
    
    470,837Net income
    
    $
    1,361,303
    
    
    $
    3,003,709Net income per share:Basic
    
    $
    .27
    
    
    $
    .60Diluted
    
    $
    .27
    
    
    $
    .59
 See accompanying notes to consolidated financial statements.
 28




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##### Table of Contents



BANCINSURANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
 December 31,2008
    
    
    2007AssetsInvestments:Held to maturity:Fixed maturities, at amortized cost (fair value $5,330,671 in 2008 and $5,291,616 in 2007)
    
    $
    5,198,068
    
    
    $
    5,195,137Available for sale:Fixed maturities, at fair value (amortized cost $67,022,560 in 2008 and $73,309,250 in 2007)
    
    
    59,675,070
    
    
    
    72,626,724Equity securities, at fair value (cost $7,295,353 in 2008 and $11,337,505 in 2007)
    
    
    6,541,864
    
    
    
    12,382,218Short-term investments, at cost which approximates fair value
    
    
    5,939,254
    
    
    
    472,329Restricted short-term investments, at cost which approximates fair value
    
    
    3,886,635
    
    
    
    6,714,935Other invested assets
    
    
    715,000
    
    
    
    715,000Total investments
    
    
    81,955,891
    
    
    
    98,106,343Cash
    
    
    5,499,847
    
    
    
    4,151,088Premiums receivable
    
    
    5,278,710
    
    
    
    7,477,434Reinsurance recoverables
    
    
    4,836,817
    
    
    
    3,842,197Prepaid reinsurance premiums
    
    
    35,615,978
    
    
    
    26,516,796Deferred policy acquisition costs
    
    
    8,263,102
    
    
    
    9,059,182Loans to affiliates
    
    
    1,093,932
    
    
    
    1,034,660Accrued investment income
    
    
    1,008,648
    
    
    
    1,098,214Net deferred tax asset
    
    
    5,583,390
    
    
    
    1,455,438Other assets
    
    
    1,244,583
    
    
    
    1,523,304Total assets
    
    $
    150,380,898
    
    
    $
    154,264,656
 See accompanying notes to consolidated financial statements.
 29




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BANCINSURANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
 December 31,2008
    
    
    2007Liabilities and Shareholders EquityReserve for unpaid losses and loss adjustment expenses
    
    $
    13,680,145
    
    
    $
    10,642,382Discontinued bond program reserve for unpaid losses and loss adjustment expenses
    
    
    6,639,460
    
    
    
    6,741,364Unearned premiums
    
    
    58,201,957
    
    
    
    52,886,528Ceded reinsurance premiums payable
    
    
    2,431,515
    
    
    
    4,663,180Experience rating adjustments payable
    
    
    1,046,391
    
    
    
    1,994,587Retrospective premium adjustments payable
    
    
    1,228,537
    
    
    
    4,216,427Funds held under reinsurance treaties
    
    
    651,267
    
    
    
    663,857Funds held for account of others
    
    
    3,886,635
    
    
    
    6,714,935Contract funds on deposit
    
    
    2,677,244
    
    
    
    2,517,046Taxes, licenses and fees payable
    
    
    336,413
    
    
    
    502,996Current federal income tax payable
    
    
    131,171
    
    
    
    200,688Deferred ceded commissions
    
    
    3,727,297
    
    
    
    3,159,732Commissions payable
    
    
    1,837,757
    
    
    
    2,227,598Other liabilities
    
    
    1,279,728
    
    
    
    3,211,414Bank line of credit
    
    
    2,500,000
    
    
    
    Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000Total liabilities
    
    $
    115,720,517
    
    
    
    115,807,734Commitments and contingenciesShareholders equity:Non-voting preferred shares:Class A Serial Preference shares without par value; authorized 100,000 shares; no shares issued
or outstanding
    
    
    
    
    
    
    Class B Serial Preference shares without par value; authorized 98,646 shares; no shares issued
or outstanding
    
    
    
    
    
    
    Common shares without par value; authorized 20,000,000 shares; 6,170,341 shares issued at December 31,
2008 and 2007; 5,082,574 shares outstanding at December 31, 2008 and 4,997,950 shares outstanding
at December 31, 2007
    
    
    1,794,141
    
    
    
    1,794,141Additional paid-in capital
    
    
    1,638,503
    
    
    
    1,630,394Accumulated other comprehensive (loss) income
    
    
    (5,346,647
    )
    
    
    239,041Retained earnings
    
    
    41,972,699
    
    
    
    40,611,39640,058,696
    
    
    
    44,274,972Less: Treasury shares, at cost (1,087,767 common shares at December 31, 2008 and
1,172,391 common shares at December 31, 2007)
    
    
    (5,398,315
    )
    
    
    (5,818,050
    )Total shareholders equity
    
    
    34,660,381
    
    
    
    38,456,922Total liabilities and shareholders equity
    
    $
    150,380,898
    
    
    $
    154,264,656
 See
accompanying notes to consolidated financial statements.
 30




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BANCINSURANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
 AccumulatedAdditional
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Shares
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    shareholdersClass A
    
    
    Class B
    
    
    shares
    
    
    capital
    
    
    income (loss)
    
    
    earnings
    
    
    shares
    
    
    equityBalance at December 31, 2006
    
    
    
    
    
    
    
    
    
    $
    1,794,141
    
    
    $
    1,554,355
    
    
    $
    1,142,957
    
    
    $
    37,607,687
    
    
    $
    (5,733,521
    )
    
    $
    36,365,619Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,003,709
    
    
    
    
    
    
    
    3,003,709Unrealized losses, net of tax and
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (903,916
    )
    
    
    
    
    
    
    
    
    
    
    (903,916
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,099,793Equity-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339,654117,348 common shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (731,900
    )
    
    
    (731,900
    )56,729 common shares issued in
connection with restricted stock
awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280,809
    )
    
    
    
    
    
    
    
    
    
    
    280,809
    
    
    
    89,000 common shares issued in
connection with the exercise of stock
options, net of tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,194
    
    
    
    
    
    
    
    
    
    
    
    366,562
    
    
    
    383,756Balance at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    1,794,141
    
    
    
    1,630,394
    
    
    
    239,041
    
    
    
    40,611,396
    
    
    
    (5,818,050
    )
    
    
    38,456,922Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,361,303
    
    
    
    
    
    
    
    1,361,303Unrealized losses, net of tax and
reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,585,688
    )
    
    
    
    
    
    
    
    
    
    
    (5,585,688
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,224,385
    )Equity-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    395,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    395,05484,624 common shares issued in
connection with restricted stock
awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (419,735
    )
    
    
    
    
    
    
    
    
    
    
    419,735
    
    
    
    Tax benefit related to vesting of
restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,790Balance at December 31, 2008
    
    
    
    
    
    
    
    
    
    $
    1,794,141
    
    
    $
    1,638,503
    
    
    $
    (5,346,647
    )
    
    $
    41,972,699
    
    
    $
    (5,398,315
    )
    
    $
    34,660,381
 See accompanying notes to consolidated financial statements.
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BANCINSURANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Years ended December 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    1,361,303
    
    
    $
    3,003,709Adjustments to reconcile net income to net cash provided by (used in) operating activities:Net realized losses on investments
    
    
    3,462,577
    
    
    
    1,225,293Net realized gain on sale of affiliate
    
    
    
    
    
    
    (62,500
    )Net realized gain from sale of property
    
    
    
    
    
    
    (53,182
    )Depreciation and amortization
    
    
    588,696
    
    
    
    506,575Equity-based compensation expense
    
    
    395,054
    
    
    
    339,654Deferred federal income tax benefit
    
    
    (1,250,476
    )
    
    
    (733,612
    )Change in assets and liabilities:Premiums receivable
    
    
    2,198,724
    
    
    
    (2,942,578
    )Reinsurance recoverables
    
    
    (994,620
    )
    
    
    (2,421,787
    )Prepaid reinsurance premiums
    
    
    (9,099,182
    )
    
    
    (17,238,237
    )Deferred policy acquisition costs
    
    
    796,080
    
    
    
    395,228Other assets, net
    
    
    32,034
    
    
    
    (27,878
    )Reserve for unpaid losses and loss adjustment expenses
    
    
    2,935,859
    
    
    
    2,600,506Unearned premiums
    
    
    5,315,429
    
    
    
    15,638,332Ceded reinsurance premiums payable
    
    
    (2,231,665
    )
    
    
    2,884,158Experience rating adjustments payable
    
    
    (948,196
    )
    
    
    (256,584
    )Retrospective premium adjustments payable
    
    
    (2,987,890
    )
    
    
    665,446Funds held under reinsurance treaties
    
    
    (12,590
    )
    
    
    228,299Funds held for account of others
    
    
    (2,828,300
    )
    
    
    4,962,098Contract funds on deposit
    
    
    160,198
    
    
    
    28,375Deferred ceded commissions
    
    
    567,565
    
    
    
    1,407,454Commissions payable
    
    
    (389,841
    )
    
    
    645,773Taxes, license and fees payable
    
    
    (166,583
    )
    
    
    75,068SEC investigation expense payable
    
    
    (1,599,497
    )
    
    
    2,011,500Other liabilities, net
    
    
    (368,914
    )
    
    
    (940,570
    )Net cash (used in) provided by operating activities
    
    
    (5,064,235
    )
    
    
    11,940,540Cash flows from investing activities:Proceeds from sale of affiliate, net
    
    
    
    
    
    
    62,500Proceeds from held to maturity fixed maturities due to redemption or maturity
    
    
    1,255,000
    
    
    
    610,000Proceeds from available for sale fixed maturities sold, redeemed or matured
    
    
    14,878,376
    
    
    
    18,411,192Proceeds from available for sale equity securities sold
    
    
    12,318,746
    
    
    
    8,300,442Cost of held to maturity fixed maturities
    
    
    (1,293,250
    )
    
    
    (1,034,112
    )Cost of available for sale fixed maturities
    
    
    (11,103,831
    )
    
    
    (24,616,578
    )Cost of available for sale equity securities
    
    
    (9,522,920
    )
    
    
    (12,070,413
    )Net change in short-term investments
    
    
    (5,466,925
    )
    
    
    6,038,814Net change in restricted short-term investments
    
    
    2,828,300
    
    
    
    (4,962,098
    )Proceeds from collection of note receivable
    
    
    300,000
    
    
    
    Sale of land, property and leasehold improvements
    
    
    
    
    
    
    359,386Purchase of land, property and leasehold improvements
    
    
    (280,502
    )
    
    
    (314,251
    )Net cash provided by (used in) investing activities
    
    
    3,912,994
    
    
    
    (9,215,118
    )Cash flows from financing activities:Acquisition of treasury shares
    
    
    
    
    
    
    (731,900
    )Proceeds from bank line of credit
    
    
    2,500,000
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    334,375Net cash provided by (used in) financing activities
    
    
    2,500,000
    
    
    
    (397,525
    )Net increase in cash
    
    
    1,348,759
    
    
    
    2,327,897Cash at beginning of year
    
    
    4,151,088
    
    
    
    1,823,191Cash at end of year
    
    $
    5,499,847
    
    
    $
    4,151,088Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    1,246,878
    
    
    $
    1,474,330Federal income taxes
    
    $
    444,000
    
    
    $
    1,221,172
 See accompanying notes to consolidated financial statements.
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BANCINSURANCE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements  December 31, 2008 and 2007
 (1)
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    OrganizationBancinsurance Corporation is a specialty property/casualty insurance holding company
incorporated in the State of Ohio in 1970. The Company has two reportable business segments:
(1) property/casualty insurance; and (2) insurance agency. Unless the context indicates
otherwise, all references herein to Bancinsurance, we, Registrant, us, its, our,
or the Company refer to Bancinsurance Corporation and its consolidated subsidiaries.Property/Casualty Insurance. Our wholly-owned subsidiary, Ohio Indemnity Company
(Ohio Indemnity), is a specialty property/casualty insurance company. Our principal
sources of revenue are premiums and ceded commissions for insurance policies and income
generated from our investment portfolio. Ohio Indemnity, an Ohio corporation, is licensed in
48 states and the District of Columbia. As such, Ohio Indemnity is subject to the regulations
of The Ohio Department of Insurance (the Department) and the regulations of each state in
which it operates. Ohio Indemnitys premiums are derived from three distinct product lines:
(1) lender service; (2) unemployment compensation; and (3) waste industry.Our lender service product line offers four types of products. First, ULTIMATE LOSS
INSURANCE® (ULI), a blanket vendor single interest coverage, is the primary product we
offer to financial institutions nationwide. This product insures banks and financial
institutions against damage to pledged collateral in cases where the collateral is not
otherwise insured. A ULI policy is generally written to cover a lenders complete portfolio
of collateralized personal property loans, typically automobile loans. Second, creditor
placed insurance (CPI) is an alternative to our ULI product. While both products cover the
risk of damage to uninsured collateral in a lenders automobile loan portfolio, CPI covers
the portfolio through tracking individual borrowers insurance coverage. The lender
purchases physical damage coverage for loan collateral after a borrowers insurance has
lapsed. Third, our guaranteed auto protection insurance (GAP) pays the difference or gap
between the amount owed by the customer on a loan or lease and the amount of primary
insurance company coverage in the event a vehicle is damaged beyond repair or stolen and
never recovered. Our GAP product is sold to auto dealers, lenders and lessors and provides
coverage on either an individual or portfolio basis. Fourth, equipment physical damage
insurance (EPD) is an all risk policy written to cover agricultural, construction and
commercial equipment vehicles. EPD was introduced in 2007 and offers insurance protection
for financed equipment purchases. This policy protects both lenders and consumers against
the risk of physical damage or theft of their financed equipment and is available for the
term of the loan or an annual basis. Prior to first quarter of 2008, we reported EPD within
our CPI product line.Our unemployment compensation (UC) products are utilized by entities that are qualified to
elect not to pay unemployment compensation taxes and instead reimburse state unemployment
agencies for benefits paid by the agencies to the entities former employees. Through our
UCassure® and excess of loss products, we indemnify the qualified entity for liability
associated with its reimbursing obligations. In addition, we underwrite surety bonds that
certain states require employers to post in order to obtain reimbursing status for their
unemployment compensation obligations.Our waste industry products (WIP) consist of waste, contract and escrow surety bonds
produced and administered by a general insurance agent. Under this program, we assume and
cede certain waste surety bond business under three quota share reinsurance arrangements.
First, in the second quarter of 2004, we entered into a 50% quota share reinsurance
arrangement whereby we assumed 50% of all waste surety bonds with liability limits up to $4.0
million from two insurance carriers. Effective January 1, 2005, the reinsurance arrangement
was amended whereby our assumed participation was reduced from 50% to 25%. Effective August
1, 2006, the reinsurance arrangement was further amended whereby we assumed 50% of all waste
surety bonds with liability limits up to $1.2 million. Second, effective August 1, 2007, we
entered into a 5% quota share reinsurance arrangement whereby we assumed 5% of all waste
surety bonds with liability limits over $1.2 million up to $10.0 million from one insurance
carrier. Third, in addition to assuming business, we also write on a direct basis waste
surety bonds with liability limits up to $5.0 million. We then cede 50% of that business to
an insurance carrier under a reinsurance arrangement. The majority of the waste surety bonds
under the program satisfy the closure/post-closure financial responsibility obligations
imposed on solid waste treatment, storage and disposal facilities pursuant to Subtitles C and
D of the Federal Resource Conservation and Recovery Act. Closure/post-closure bonds cover
future costs to close and monitor a regulated site such as a landfill. In addition to waste
surety bonds, our WIP program includes certain contract and escrow surety bond business which
the Company writes directly, assumes and cedes under several quota share reinsurance
arrangements. This business is included as part of our WIP program because it is produced by
the same general agent that produces the waste surety bond business. All of the surety bonds
under the WIP program are fully indemnified by the principal and collateral is maintained on
the majority of the bonds. The indemnifications and collateralization of this program
reduces the risk of loss. All surety bonds written directly and assumed under this program
are
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produced and administered by a general insurance agent that is affiliated with one of the
insurance carriers participating in the program. The general insurance agent utilizes
various insurance carriers, including the Company, in placing its surety bond business. Our
direct premium volume for this program is determined by the general insurance agents
decision to place business with the Company. Prior to the first quarter of 2008, contract
and escrow surety bond business produced by this general insurance agent was reported within
our other specialty products line.We have certain other specialty products which consist primarily of two vehicle service
contract programs and two contract surety bonds not produced under our WIP program. The
premiums produced under other specialty products are not considered material to our results
of operations. Our two contract surety bonds are for one contractor and are indemnified by
the principal which reduces our risk of loss. For our two vehicle service contract
programs, we maintain reinsurance and/or collateral in excess of our estimated claim
obligations, which reduces our risk of loss. For more information concerning one of the
vehicle service contract programs, see Automobile Service Contract Program in Note 15.In addition, from 2001 until the end of the second quarter of 2004, the Company participated
in a bail and immigration bond program. This program was discontinued in the second quarter
of 2004. For a more detailed description of this program, see Discontinued Bond Program in
Note 15.We sell our insurance products through multiple distribution channels, including three
managing general agents, approximately thirty independent agents and direct sales.Insurance Agency. In July 2002, we formed Ultimate Services Agency, LLC
(USA), a wholly-owned subsidiary. We formed USA to act as an agency for placing and
servicing property/casualty insurance policies offered and underwritten by Ohio Indemnity and
by other property/casualty insurance companies.(b)
    
    Basis of Financial Statement PresentationOur accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) which vary
in certain respects from accounting practices prescribed or permitted by the Department.The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results
could differ materially from those estimates.(c)
    
    New Accounting StandardsIn September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands disclosure
about fair value measurements. It applies to other pronouncements that require or permit fair
value measurements but does not require any new fair value measurements. The statement
defines fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date.
SFAS No. 157 establishes a fair value hierarchy to increase consistency and comparability in
fair value measurements and disclosures. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position
157-2, Effective Date of FASB Statement No. 157 (FSP SFAS 157-2), which permits a
one-year deferral of the application of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The Company adopted SFAS No.
157 and FSP SFAS 157-2 effective January 1, 2008 for financial assets and liabilities. The
adoption of SFAS No. 157 did not have a material impact on our consolidated financial
statements. The Company adopted SFAS No. 157 for non-financial assets and non-financial
liabilities effective January 1, 2009 which did not have a material impact on the Companys
consolidated financial statements. In October 2008, the FASB issued FASB Staff Position
157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not
Active (FSP SFAS 157-3), which clarifies the application of SFAS No. 157 in a market that
is not active. The adoption of this standard did not have a material impact on the Companys
consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115.  SFAS No. 159
permits all entities to choose to measure and report many financial instruments and certain
other items at fair value at specified election dates. If such an election is made, any
unrealized gains and losses on items for which the fair value option has been elected are
required to be reported in earnings at each subsequent reporting date. In addition, SFAS No.
159 establishes presentation and disclosure requirements designed to facilitate
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comparisons
between companies that choose different measurement attributes for similar types of assets
and liabilities. We were required to adopt the provisions of SFAS No. 159 for financial
statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS
No. 159 did not have a material impact on our consolidated financial statements.In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10, Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements (EITF 06-10). EITF 06-10
provides guidance for determining a liability for the postretirement benefit obligation as
well as recognition and measurement of the associated asset on the basis of the terms of the
collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after
December 15, 2007. The adoption of EITF 06-10 did not have a material impact on our
consolidated financial statements.In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance
Enterprises, applies to financial guarantee insurance contracts issued by insurance
enterprises, including the recognition and measurement of premium revenue and claim
liabilities. SFAS No. 163 also requires expanded disclosures about financial guarantee
insurance contracts. SFAS No. 163 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and all interim periods within those fiscal years,
except for disclosures about the insurance enterprises risk-management activities.
Disclosures about the insurance enterprises risk-management activities are effective the
first period beginning after issuance of SFAS No. 163. The adoption of SFAS No. 163 is not
expected to have a material impact on our consolidated financial statements because the
Company does not provide financial guarantee insurance contracts.(d)
    
    Consolidation PolicyThe accompanying financial statements include the Companys accounts and the accounts of our
wholly-owned subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.(e)
    
    InvestmentsInvestments in held to maturity fixed maturities where we have the ability and intent to hold
to maturity are carried at amortized cost. Investments in fixed maturities held as available
for sale, which include bonds and redeemable preferred stock, are carried at fair value. The
unrealized holding gain or loss, net of applicable deferred taxes and reclassification
adjustment, is reflected in other comprehensive income.Available for sale equity securities, which include common stock, non-redeemable preferred
stock and mutual funds, are reported at fair value with unrealized gains or losses, net of
applicable deferred taxes and reclassification adjustment, reflected in other comprehensive
income. Short-term investments are reported at cost which approximates fair value. Other
invested assets are reported at cost.Realized gains and losses on disposal of investments are determined by the specific
identification method. The carrying value of an investment is revised and the amount of
revision is charged to net realized losses on investments when management determines that a
decline in the value of an investment is other-than-temporary.For fixed maturity securities purchased at a premium or discount, amortization is calculated
using the scientific (constant yield) interest method taking into consideration specified
interest and principal provisions over the life of the security. Fixed maturity securities
containing call provisions (where the security can be called away from the reporting entity
at the issuers discretion) are amortized to the call or maturity value/date which produces
the lowest asset value (yield to worst).(f)
    
    Recognition of RevenueOhio Indemnitys insurance premiums and ceded commissions are earned over the terms of the
related insurance policies and reinsurance contracts. For our ULI, GAP and EPD products,
premiums and ceded commissions are earned over the contract period in proportion to the
amount of insurance protection provided as the amount of insurance protection declines
according to a predetermined schedule. For all other products, premiums and ceded commissions
are earned pro rata over the contract period. The portion of premiums written applicable to
the unexpired portion of insurance policies is recorded in the balance sheet as unearned
premiums.Management fees are recognized when earned based on the development of UC benefit charges.Commission and fee revenues for USA are recognized when earned based on contractual rates and
services provided.(g)
    
    Deferred Policy Acquisition CostsAcquisition expenses, mainly commissions and premium taxes, related to unearned premiums are
deferred and amortized over the
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period the coverage is provided. Anticipated losses and
other expenses related to those premiums are considered in determining the recoverability of
deferred acquisition costs.(h)
    
    Reserve for Unpaid Losses and Loss Adjustment ExpensesLoss and loss adjustment expense (LAE) reserves represent our best estimate of the ultimate
net cost of all reported and unreported losses incurred through December 31. We do not
discount loss and LAE reserves. The reserves for unpaid losses and LAE are estimated using
individual case-basis valuations, statistical analyses and reports received from ceding
insurers under assumed reinsurance. Those estimates are subject to the effects of trends in
loss severity and frequency. Although considerable variability is inherent in such
estimates, we believe the reserves for losses and LAE are adequate. The estimates are
regularly reviewed and adjusted as necessary as experience develops or new information
becomes known. Such adjustments are included in results of operations in the period such
adjustments are made.(i)
    
    ReinsuranceIn the ordinary course of business, we cede and assume reinsurance with other insurers and
reinsurers. We report balances pertaining to reinsurance transactions gross on the balance
sheet, meaning that reinsurance recoverables on unpaid losses and LAE and ceded unearned
premiums are not deducted from insurance reserves but are recorded as assets (reinsurance
recoverables and prepaid reinsurance premiums, respectively). Ceded reinsurance transactions
for the Company include quota share arrangements for certain lender service producers. The
Company also participates in several quota share arrangements under its WIP program in which
the Company assumes and cedes business. Lastly, the Company assumed bail and immigration
bond business from 2001 through the second quarter of 2004, after which time the program was
discontinued. See Note 15 for more information concerning the Companys reinsurance
transactions.(j)
    
    Experience Rating and Retrospective Premium AdjustmentsCertain ULI policies are eligible for premium adjustments based on loss experience. For
certain policies, return premiums are calculated and settled on an annual basis. These
balances are presented in the accompanying balance sheets as retrospective premium
adjustments payable. Certain other policies are eligible for an experience rating adjustment
that is calculated and adjusted from period to period and settled upon cancellation of the
policy. These balances are presented in the accompanying balance sheets as experience rating
adjustments payable. These adjustments are included in the calculation of net premiums
earned.(k)
    
    Restricted Short-Term Investments and Funds Held for Account of OthersThe balances reflected in these accounts relate primarily to the Companys automobile service
contract programs. For these programs, the Company has obtained collateral in the form of
cash and short-term investments to support its claim obligations under the programs. As of
December 31, 2008, the collateral held by the Company exceeds our estimated claim
obligations. As a result, the restricted short-term investments and the funds held amounts
are the same as any excess collateral remaining after the payment of all claim obligations
would be returned to the respective service contract provider.(l)
    
    Contract Funds on DepositPursuant to the terms of certain surety bonds issued by the Company that guarantee the
payment of reimbursable unemployment compensation benefits, certain monies are held by the
Company in contract funds on deposit and are used for the payment of benefit charges. The
Company has agreements with cost containment service firms designed to control the
unemployment compensation costs of the employers enrolled in the program. Any remaining
funds after the payment of all benefit charges are shared between the Company and the cost
containment firms as management fees. Management fees are recognized when earned based on
the development of benefit charges. Management fees of $368,841 and $448,899 were recognized
in 2008 and 2007, respectively, as a result of this arrangement.(m)
    
    Depreciation and AmortizationProperty, equipment and internally-developed computer software are stated at cost and
depreciated using the straight-line method over the estimated useful life, ranging from three
to five years. Leasehold improvements are capitalized and amortized over the remaining office
lease term. Maintenance and repairs are charged directly to expense as incurred. As of
December 31, 2008 and 2007, the carrying value of property, equipment, computer software and
leasehold improvements, net of accumulated depreciation, was $588,696 and $506,756,
respectively. These balances are presented in the accompanying balance sheets as other
assets.(n)
    
    Federal Income TaxesWe file a consolidated federal income tax return with our subsidiaries. Accordingly,
deferred tax liabilities and assets have been recognized for the expected future tax
consequences of events that have been included in the financial statements or tax returns.
Deferred income taxes are recognized at prevailing income tax rates for temporary differences
between financial statement and income tax basis of assets and liabilities for which income
tax benefits will be realized in future years.
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(o)
    
    Cash and Cash EquivalentsCash and cash equivalents include all cash balances and highly liquid investments with an
initial maturity of three months or less. Cash equivalents are stated at cost, which
approximates fair value. The Company places its cash investments with high credit quality
financial institutions.(p)
    
    ReclassificationCertain prior year amounts have been reclassified in order to conform to the 2008
presentation.
 (2)
    
    INVESTMENTSThe amortized cost, gross unrealized gains and losses and estimated fair value of investments in
held to maturity and available for sale securities at December 31, 2008 and 2007 were as follows:
 December 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    faircost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Fixed maturities:US Treasury
securities and obligations of US Government corporations and agencies
    
    $
    2,306,533
    
    
    $
    43,350
    
    
    $
    
    
    
    $
    2,349,883Obligations of states, municipals and political
subdivisions
    
    
    2,891,535
    
    
    
    99,232
    
    
    
    9,979
    
    
    
    2,980,788Total held to maturity
    
    
    5,198,068
    
    
    
    142,582
    
    
    
    9,979
    
    
    
    5,330,671Available for sale:Fixed maturities:Obligations of states, municipals and political
subdivisions
    
    
    64,840,650
    
    
    
    275,143
    
    
    
    7,597,616
    
    
    
    57,518,177Corporate and other taxable debt securities
    
    
    1,800,360
    
    
    
    
    
    
    
    161,717
    
    
    
    1,638,643Redeemable preferred stock
    
    
    381,550
    
    
    
    136,700
    
    
    
    
    
    
    
    518,250Total fixed maturities
    
    
    67,022,560
    
    
    
    411,843
    
    
    
    7,759,333
    
    
    
    59,675,070Equity securities
    
    
    7,295,353
    
    
    
    625,137
    
    
    
    1,378,626
    
    
    
    6,541,864Total available for sale
    
    
    74,317,913
    
    
    
    1,036,980
    
    
    
    9,137,959
    
    
    
    66,216,934Total
    
    $
    79,515,981
    
    
    $
    1,179,562
    
    
    $
    9,147,938
    
    
    $
    71,547,605
 December 31, 2007Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    faircost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Fixed maturities:US Treasury
securities and obligations of US Government corporations and agencies
    
    $
    2,284,314
    
    
    $
    18,365
    
    
    $
    73
    
    
    $
    2,302,606Obligations of states, municipals and political
subdivisions
    
    
    2,910,823
    
    
    
    81,048
    
    
    
    2,861
    
    
    
    2,989,010Total held to maturity
    
    
    5,195,137
    
    
    
    99,413
    
    
    
    2,934
    
    
    
    5,291,616Available for sale:Fixed maturities:Obligations of states, municipals and political
subdivisions
    
    
    70,625,890
    
    
    
    479,798
    
    
    
    1,189,802
    
    
    
    69,915,886Corporate and other taxable debt securities
    
    
    2,382,360
    
    
    
    114,104
    
    
    
    8,026
    
    
    
    2,488,438Redeemable preferred stock
    
    
    301,000
    
    
    
    
    
    
    
    78,600
    
    
    
    222,400Total fixed maturities
    
    
    73,309,250
    
    
    
    593,902
    
    
    
    1,276,428
    
    
    
    72,626,724Equity securities
    
    
    11,337,505
    
    
    
    1,691,735
    
    
    
    647,022
    
    
    
    12,382,218Total available for sale
    
    
    84,646,755
    
    
    
    2,285,637
    
    
    
    1,923,450
    
    
    
    85,008,942Total
    
    $
    89,841,892
    
    
    $
    2,385,050
    
    
    $
    1,926,384
    
    
    $
    90,300,558
 The amortized cost and estimated fair value of fixed maturity investments in held to maturity and
available for sale securities at December 31, 2008, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
 37




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##### Table of Contents



borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
 December 31, 2008Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Estimated
    
    
    Amortized
    
    
    Estimatedcost
    
    
    fair value
    
    
    cost
    
    
    fair valueDue in one year or less
    
    $
    700,150
    
    
    $
    711,031
    
    
    $
    
    
    
    $
    Due after one year but less than five years
    
    
    3,329,986
    
    
    
    3,416,046
    
    
    
    2,169,140
    
    
    
    2,174,673Due after five years but less than ten years
    
    
    523,511
    
    
    
    535,738
    
    
    
    8,376,546
    
    
    
    8,120,564Due after ten years
    
    
    644,421
    
    
    
    667,856
    
    
    
    56,476,874
    
    
    
    49,379,833Total
    
    $
    5,198,068
    
    
    $
    5,330,671
    
    
    $
    67,022,560
    
    
    $
    59,675,070
 Net investment income for each of the years ended December 31 is summarized below:
 2008
    
    
    2007Fixed maturities
    
    $
    3,379,485
    
    
    $
    3,354,860Equity securities
    
    
    617,687
    
    
    
    682,715Short-term investments
    
    
    127,384
    
    
    
    119,235Other
    
    
    34,776
    
    
    
    44,274Expenses
    
    
    (260,875
    )
    
    
    (303,433
    )Net investment income
    
    $
    3,898,457
    
    
    $
    3,897,651
 The proceeds from sales of available for sale securities were $20,809,894 and $17,616,461 for the
years ended December 31, 2008 and 2007, respectively, which includes $10,087,674 and $7,200,032,
respectively, from sales of our money market mutual fund which we buy and sell regularly as part
of our liquidity management.Pre-tax net realized gains (losses) on investments and changes in unrealized gains (losses) on
available for sale investments were as follows for each of the years ended December 31:
 2008
    
    
    2007Gross realized gains:Fixed maturities
    
    $
    100,635
    
    
    $
    106,357Equity securities
    
    
    569,567
    
    
    
    19,559Total gains
    
    
    670,202
    
    
    
    125,916Gross realized losses:Fixed maturities
    
    
    191,252
    
    
    
    92,104Equity securities
    
    
    238,582
    
    
    
    15,979Other-than-temporary impairments
    
    
    3,702,945
    
    
    
    1,243,126Total losses
    
    
    4,132,779
    
    
    
    1,351,209Net realized losses
    
    $
    (3,462,577
    )
    
    $
    (1,225,293
    )Changes in net unrealized
gains (losses) on
available for sale
investments:Fixed maturities
    
    $
    (6,664,962
    )
    
    $
    (1,291,343
    )Equity securities
    
    
    (1,798,202
    )
    
    
    (78,227
    )Net change in net unrealized
losses
    
    $
    (8,463,164
    )
    
    $
    (1,369,570
    )
 We continually monitor the difference between the book value and the estimated fair value of our
investments, which involves judgment as to whether declines in value are temporary in nature.
If we believe a decline in the value of a particular available for sale investment is temporary,
we record the decline as an unrealized loss in our shareholders equity. If we believe the
decline in any investment is other-than-temporarily impaired, we record the decline as a
realized loss through the income statement. If our judgment changes in the future, we may
ultimately record a realized loss for a security after having originally concluded that the
decline in value was temporary. We begin to monitor a security for other-than-temporary
impairment when its fair value to book value ratio (fair value to book ratio) falls below 80%.
Our assessment as to whether a security is other-than-temporarily impaired depends on, among
other things: (1) the length of time and extent to which the estimated fair value has been less
than book value; (2) whether the decline appears to be related to general market or industry
conditions or is issuer specific; (3) our current judgment as to the financial condition and
future prospects of the entity that issued the investment security; and (4) our ability and
intent to hold the security for a period of time sufficient to allow for recovery in the
estimated fair value.
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The following table summarizes the fair value to book ratio for all securities in an unrealized
loss position at December 31, 2008:
 Estimated
    
    
    Gross
    
    
    Aggregate
    
    
    PercentBook
    
    
    fair
    
    
    unrealized
    
    
    fair value to
    
    
    of totalFair value to book ratio
    
    value
    
    
    value
    
    
    loss
    
    
    book ratio
    
    
    book valueFixed maturities:90% to 99%
    
    $
    22,410,310
    
    
    $
    21,412,638
    
    
    $
    997,672
    
    
    
    95.5
    %
    
    
    40.5
    %80% to 89%
    
    
    16,775,908
    
    
    
    14,348,190
    
    
    
    2,427,718
    
    
    
    85.5
    
    
    
    30.370% to 79%
    
    
    11,703,885
    
    
    
    8,920,951
    
    
    
    2,782,934
    
    
    
    76.2
    
    
    
    21.160% to 69%
    
    
    4,294,231
    
    
    
    2,822,767
    
    
    
    1,471,464
    
    
    
    65.7
    
    
    
    7.750% to 59%
    
    
    204,298
    
    
    
    114,774
    
    
    
    89,524
    
    
    
    56.2
    
    
    
    0.4Total fixed maturities
    
    
    55,388,632
    
    
    
    47,619,320
    
    
    
    7,769,312
    
    
    
    86.0
    
    
    
    100.0Equities:90% to 99%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80% to 89%
    
    
    232,550
    
    
    
    191,400
    
    
    
    41,150
    
    
    
    82.3
    
    
    
    4.370% to 79%
    
    
    4,787,788
    
    
    
    3,570,322
    
    
    
    1,217,466
    
    
    
    74.6
    
    
    
    88.660% to 69%
    
    
    383,915
    
    
    
    263,905
    
    
    
    120,010
    
    
    
    68.7
    
    
    
    7.1Total equities
    
    
    5,404,253
    
    
    
    4,025,627
    
    
    
    1,378,626
    
    
    
    74.5
    
    
    
    100.0Total
    
    $
    60,792,885
    
    
    $
    51,644,947
    
    
    $
    9,147,938
    
    
    
    85.0
    %
    
    
    100.0
    %
 We continually monitor the credit quality of our fixed maturity investments to gauge our ability
to be repaid principal and interest. We consider price declines of securities in our
other-than-temporary impairment analysis where such price declines provide evidence of declining
credit quality, and we distinguish between price changes caused by credit deterioration, as
opposed to rising interest rates. In our evaluation of credit quality, we consider, among other
things, credit ratings from major rating agencies, including Moodys and Standard & Poors
(S&P). The following table shows the composition of fixed maturity securities in an
unrealized loss position at December 31, 2008 by the National Association of Insurance
Commissioners (NAIC) rating and the generally equivalent S&P and Moodys ratings. Not all of
these securities are rated by S&P and/or Moodys.
 Equivalent
    
    
    Equivalent
    
    
    
    
    
    
    Estimated
    
    
    Gross
    
    
    Aggregate
    
    
    PercentNAIC
    
    S&P
    
    
    Moodys
    
    
    Book
    
    
    fair
    
    
    unrealized
    
    
    fair value
    
    
    of totalrating
    
    rating
    
    
    rating
    
    
    value
    
    
    value
    
    
    loss
    
    
    to book ratio
    
    
    book value1FE
    
    AAA/AA/A
    
    Aaa/Aa/A
    
    $
    39,482,827
    
    
    $
    34,523,147
    
    
    $
    4,959,680
    
    
    
    87.4
    %
    
    
    71.3
    %2FE
    
    BBB
    
    Baa
    
    
    15,488,507
    
    
    
    12,720,581
    
    
    
    2,767,926
    
    
    
    82.1
    
    
    
    28.03FE
    
    BB
    
    Ba
    
    
    417,298
    
    
    
    375,592
    
    
    
    41,706
    
    
    
    90.0
    
    
    
    0.74FE
    

    B

    
    

    B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5FE
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6FE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    55,388,632
    
    
    $
    47,619,320
    
    
    $
    7,769,312
    
    
    
    86.0
    %
    
    
    100.0
    %
 The following table summarizes the estimated fair value and gross unrealized losses (pre-tax) for
all securities in an unrealized loss position at December 31, 2008 and December 31, 2007,
distinguishing between those securities which have been continuously in an unrealized loss
position for less than twelve months and twelve months or greater.
 Less Than 12 Months
    
    
    12 Months or Greater
    
    
    TotalEstimated
    
    
    Gross
    
    
    Estimated
    
    
    Gross
    
    
    Estimated
    
    
    Grossfair
    
    
    unrealized
    
    
    fair
    
    
    unrealized
    
    
    fair
    
    
    unrealizedAt December 31, 2008
    
    value
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    lossFixed maturities:Obligations of states, municipals
and political subdivisions
    
    $
    25,655,047
    
    
    $
    2,532,779
    
    
    $
    20,575,630
    
    
    $
    5,074,816
    
    
    $
    46,230,677
    
    
    $
    7,607,595Corporate and other taxable debt securities
    
    
    1,294,380
    
    
    
    155,980
    
    
    
    94,263
    
    
    
    5,737
    
    
    
    1,388,643
    
    
    
    161,717Total fixed maturities
    
    
    26,949,427
    
    
    
    2,688,759
    
    
    
    20,669,893
    
    
    
    5,080,553
    
    
    
    47,619,320
    
    
    
    7,769,312Equity securities:Banks, trusts and insurance companies
    
    
    647,299
    
    
    
    205,919
    
    
    
    
    
    
    
    
    
    
    
    647,299
    
    
    
    205,919Industrial and miscellaneous
    
    
    81,662
    
    
    
    26,440
    
    
    
    
    
    
    
    
    
    
    
    81,662
    
    
    
    26,440Closed-end mutual funds
    
    
    970,705
    
    
    
    279,813
    
    
    
    2,325,961
    
    
    
    866,454
    
    
    
    3,296,666
    
    
    
    1,146,267Total equities
    
    
    1,699,666
    
    
    
    512,172
    
    
    
    2,325,961
    
    
    
    866,454
    
    
    
    4,025,627
    
    
    
    1,378,626Total
    
    $
    28,649,093
    
    
    $
    3,200,931
    
    
    $
    22,995,854
    
    
    $
    5,947,007
    
    
    $
    51,644,947
    
    
    $
    9,147,938
 39




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##### Table of Contents



Less Than 12 Months
    
    
    12 Months or Greater
    
    
    TotalEstimated
    
    
    Gross
    
    
    Estimated
    
    
    Gross
    
    
    Estimated
    
    
    Grossfair
    
    
    unrealized
    
    
    fair
    
    
    unrealized
    
    
    fair
    
    
    unrealizedAt December 31, 2007
    
    value
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    lossFixed maturities:U.S.
Treasury securities and obligations of U.S. Government corporations and agencies
    
    $
    332,888
    
    
    $
    73
    
    
    $
    
    
    
    $
    
    
    
    $
    332,888
    
    
    $
    73Obligations of states, municipals
and political subdivisions
    
    
    30,702,474
    
    
    
    1,013,844
    
    
    
    6,202,926
    
    
    
    178,819
    
    
    
    36,905,400
    
    
    
    1,192,663Corporate and other taxable debt securities
    
    
    191,974
    
    
    
    8,026
    
    
    
    
    
    
    
    
    
    
    
    191,974
    
    
    
    8,026Redeemable preferred stock
    
    
    222,400
    
    
    
    78,600
    
    
    
    
    
    
    
    
    
    
    
    222,400
    
    
    
    78,600Total fixed maturities
    
    
    31,449,736
    
    
    
    1,100,543
    
    
    
    6,202,926
    
    
    
    178,819
    
    
    
    37,652,662
    
    
    
    1,279,362Equity securities:Banks, trusts and insurance companies
    
    
    1,208,400
    
    
    
    152,017
    
    
    
    
    
    
    
    
    
    
    
    1,208,400
    
    
    
    152,017Industrial and miscellaneous
    
    
    461,090
    
    
    
    113,462
    
    
    
    
    
    
    
    
    
    
    
    461,090
    
    
    
    113,462Closed-end mutual funds
    
    
    3,392,231
    
    
    
    226,408
    
    
    
    1,525,391
    
    
    
    155,135
    
    
    
    4,917,622
    
    
    
    381,543Total equities
    
    
    5,061,721
    
    
    
    491,887
    
    
    
    1,525,391
    
    
    
    155,135
    
    
    
    6,587,112
    
    
    
    647,022Total
    
    $
    36,511,457
    
    
    $
    1,592,430
    
    
    $
    7,728,317
    
    
    $
    333,954
    
    
    $
    44,239,774
    
    
    $
    1,926,384
 As of December 31, 2008, we had approximately 99 fixed maturity securities and 4 equity
securities that have been in an unrealized loss position for 12 months or longer. All 99 of the
fixed maturity securities are investment grade (rated BBB and Baa or higher by S&P and Moodys,
respectively). All 99 of the fixed maturity securities are current on interest and principal
and we believe that it is probable that all contract terms of each security will be satisfied.
All 4 equity securities relate to investments in closed-end mutual funds. Each of these
investments continues to pay its regularly scheduled monthly dividend and we believe there have
been no material changes in credit quality for any of these funds over the past twelve months.
The increase in unrealized loss position for investments as of December 31, 2008 is primarily
due to our fixed maturity portfolio as a result of the changes in the interest rate environment
and/or current capital market conditions, and we believe we have the positive intent and ability
to hold these securities until they mature or substantially recover in value.Impairment charges included in net realized losses on investments in 2008 and 2007 were
$3,702,945 and $1,243,126, respectively. The impairment charges during 2008 were primarily due
to the following: (1) $1,176,989 in impairment charges for floating rate municipal bond
securities of ten issuers whose fair values were adversely affected primarily by the decline in
short-term interest rates during 2008; (2) $746,019 in impairment charges for equity securities
of seven financial institutions whose fair values were adversely affected primarily by the
credit markets; (3) $420,414 in impairment charges for non-investment grade fixed maturity
securities of five issuers; (4) $332,000 in impairment charges for a corporate fixed maturity
security of a lending institution (SLM Corp. or Sallie Mae) whose fair value was adversely
affected by uncertainty in its investment ratings by certain bond rating agencies; (5) $273,549
in impairment charges for equity securities of four other companies whose fair values were
adversely affected by current market conditions; (6) $231,601 in impairment charges for an
equity security of a financial institution (AIG) who suffered a liquidity crisis following the
downgrade of its credit rating; (7) $200,477 in impairment charges for an equity security of a
financial institution (Lehman Brothers) who filed for bankruptcy due to losses in the credit
markets; (8) $182,119 in impairment charges for two closed-end mutual funds whose fair values
were adversely affected by current market conditions; and (9) $139,777 in impairment charges for
equity securities of a communications company whose fair value was adversely affected primarily
by a recession in the Florida real estate market.At December 31, 2008, investments having an amortized cost of $5,027,450 were on deposit with
various state insurance departments to meet their respective regulatory requirements.
 40




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##### Table of Contents



(3)
    
    DEFERRED POLICY ACQUISITION COSTSChanges in deferred policy acquisition costs for each of the years ended December 31 is
summarized as follows:
 2008
    
    
    2007Deferred, January 1
    
    $
    9,059,182
    
    
    $
    9,454,410Additions:Commissions
    
    
    10,679,456
    
    
    
    10,409,688Premium tax
    
    
    505,499
    
    
    
    543,605Total additions
    
    
    11,184,955
    
    
    
    10,953,293Amortization to expense
    
    
    11,981,035
    
    
    
    11,348,521Deferred, December 31
    
    $
    8,263,102
    
    
    $
    9,059,182
 (4)
    
    GUARANTEESAs previously reported, on February 14, 2005, the Company received notification from the U.S.
Securities and Exchange Commission (SEC) that it was conducting an informal, non-public
inquiry regarding the Company. The inquiry generally concerned the chronology, events and
announcements relating to Ernst & Young LLP (E&Y), the Companys former independent registered
public accounting firm, withdrawing its audit reports for the years 2001 through 2003 for the
Company. On March 29, 2005, the Company was notified by the SEC that the informal, non-public
inquiry had been converted into a formal private investigation. On October 23, 2007, the
Company and certain of its current officers (Chief Executive Officer, Chief Financial Officer
and Vice President of Specialty Products) each received a Wells Notice (the Notice) from the
staff of the SEC indicating that the staff is considering recommending that the SEC bring a
civil action against each of them for possible violations of the federal securities laws. The
Notice provides the Company and each officer the opportunity to present their positions to the
staff before the staff recommends whether any action should be taken by the SEC. The Company
continues to cooperate fully with the SEC in an effort to resolve this matter.Pursuant to separate undertaking agreements dated November 12, 2007 between the Company and each
officer who received the Notice, the Company has agreed to advance reasonable legal fees and
expenses incurred by each officer in connection with the ongoing SEC investigation. The
undertaking agreements require each officer to repay the amounts advanced if it is ultimately
determined, in accordance with Article Five of the Companys Amended and Restated Code of
Regulations (the Regulations), that the officer did not act in good faith or in a manner he
reasonably believed to be in or not opposed to the best interests of the Company with respect to
the matters covered by the SEC investigation. Under the Companys Regulations and Ohio law, the
Company may also be required to indemnify each officer in connection with the SEC investigation.The Company accounts for guarantees in accordance with FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of
FIN 34 (FIN 45). The Company has determined that the above referenced undertaking agreements
are within the scope of FIN 45. In order to estimate the fair value of future obligations under
these undertaking agreements, the Company periodically obtains estimates from each legal counsel
representing the officers involved in the SEC investigation of the additional legal costs
expected to be incurred for the officers to respond to the Notice under the SECs Wells Notice
procedures. Based on these estimates, the Company recorded a FIN 45 liability of $0.4 million
and $1.3 million as of December 31, 2008 and December 31, 2007, respectively, which is included
within other liabilities in the accompanying consolidated balance sheets. The FIN 45 liability
at December 31, 2008 as compared to the FIN 45 liability at December 31, 2007 reflects (a) a
decrease of approximately $1.9 million as a result of actual legal fees and expenses incurred
for services rendered through December 31, 2008 related to the undertaking agreements and (b) an
increase of approximately $1.0 million as a result of a net increase in the estimated future
legal costs related to the undertaking agreements. The Company cannot predict what actions, if
any, the SEC will take after each officer has responded to the Notice. As a result, the Company
cannot estimate any future obligations related to the undertaking agreements beyond the
estimated costs to respond to the Notice. Due to the inherent uncertainties of the SEC
investigation, actual future payments related to the undertaking agreements may be materially
different from the $0.4 million estimated fair value of such future payments as recorded at
December 31, 2008.(5)
    
    BANK LINE OF CREDITBancinsurance Corporation has a $10,000,000 unsecured revolving bank line of credit with a
maturity date of June 30, 2010, having a $2,500,000 and $0 outstanding balance at December 31,
2008 and December 31, 2007, respectively. The terms of the revolving credit agreement contain
various restrictive covenants. As of December 31, 2008, Bancinsurance Corporation was in
compliance with all such covenants. The bank line of credit provides for interest payable
quarterly at an annual rate equal to the prime rate less 75 basis points (2.50% at December 31,
2008). Interest expense related to the bank line of credit for the years ended
 41




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December 31,
2008 and 2007 was $75,676 and $0, respectively. The bank that provides the line of credit is
also a policyholder of the Company.
 (6)
    
    LEASE EXPENSESWe routinely lease premises for use as administrative offices, vehicles and office equipment
under operating leases for varying periods. Management expects that in the normal course of
business, leases will be renewed or replaced by other leases. Effective January 1, 2009, we
entered into a new lease for our Columbus, Ohio office space. Under the provisions of this
lease, no cash payments are due until June 1, 2009. Rent expense is recognized evenly over the
lease term ending December 31, 2015. Rental expenses under our operating lease that expired on
December 31, 2008 were $191,749 and $177,839 for the years ended December 31, 2008 and 2007,
respectively.The future minimum lease payments required under operating leases for the next five fiscal years
are as follows:
 2009
    
    $
    201,2642010
    
    
    207,1142011
    
    
    212,9642012
    
    
    218,8142013
    
    
    222,513Thereafter
    
    
    461,142Total
    
    $
    1,523,811
 (7)
    
    TRUST PREFERRED DEBT ISSUED TO AFFILIATESIn December 2002, we organized BIC Statutory Trust I (BIC Trust I), a Connecticut special
purpose business trust, which issued $8,000,000 of floating rate trust preferred capital
securities in an exempt private placement transaction. BIC Trust I also issued $248,000 of
floating rate common securities to Bancinsurance. In September 2003, we organized BIC Statutory
Trust II (BIC Trust II), a Delaware special purpose business trust, which issued $7,000,000 of
floating rate trust preferred capital securities in an exempt private placement transaction.
BIC Trust II also issued $217,000 of floating rate common securities to Bancinsurance. BIC
Trust I and BIC Trust II were formed for the sole purpose of issuing and selling the floating
rate trust preferred capital securities and investing the proceeds from such securities in
junior subordinated debentures of the Company. In connection with the issuance of the trust
preferred capital securities, the Company issued junior subordinated debentures of $8,248,000
and $7,217,000 to BIC Trust I and BIC Trust II, respectively. The floating rate trust preferred
capital securities and the junior subordinated debentures have substantially the same terms and
conditions. The Company has fully and unconditionally guaranteed the obligations of BIC Trust I
and BIC Trust II with respect to the floating rate trust preferred capital securities. BIC
Trust I and BIC Trust II distribute the interest received from the Company on the junior
subordinated debentures to the holders of their floating rate trust preferred capital securities
to fulfill their dividend obligations with respect to such trust preferred securities. BIC Trust
Is floating rate trust preferred capital securities, and the junior subordinated debentures
issued in connection therewith, pay dividends and interest, as applicable, on a quarterly basis
at a rate equal to three month LIBOR plus four hundred basis points (6.21% and 9.13% at December
31, 2008 and 2007, respectively), are redeemable at par on or after December 4, 2007 and mature
on December 4, 2032. BIC Trust IIs floating rate trust preferred capital securities, and the
junior subordinated debentures issued in connection therewith, pay dividends and interest, as
applicable, on a quarterly basis at a rate equal to three month LIBOR plus four hundred and five
basis points (5.51% and 8.88% at December 31, 2008 and 2007, respectively), are redeemable at
par on or after September 30, 2008 and mature on September 30, 2033. Interest on the junior
subordinated debentures is charged to income as it accrues. Interest expense related to the
junior subordinated debentures for the years ended December 31, 2008 and 2007 was $1,156,567 and
$1,472,459, respectively. The terms of the junior subordinated debentures contain various
covenants. As of December 31, 2008, the Company was in compliance with all such covenants.In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities, which requires the consolidation of certain entities considered to be
variable interest entities (VIEs). An entity is considered to be a VIE when it has equity
investors who lack the characteristics of having a controlling financial interest, or its
capital is insufficient to permit it to finance its activities without additional subordinated
financial support. Consolidation of a VIE by an investor is required when it is determined that
the investor will absorb a majority of the VIEs expected losses if they occur, receive a
majority of the VIEs expected residual returns if they occur, or both. In accordance with FIN
46, BIC Trust I and BIC Trust II are not considered to be VIEs and are not included in the
Companys consolidated financial statements. If they were included in the consolidated
financial statements, there would be no change to net income, only changes in the presentation
of the financial statements.
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(8)
    
    FEDERAL INCOME TAXESDeferred income taxes at December 31 reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such amounts as measured
on an income tax basis. Temporary differences which give rise to the net deferred tax asset at
December 31 are as follows:
 2008
    
    
    2007Deferred tax assets:Net unrealized losses on available for sale securities
    
    $
    2,754,333
    
    
    $
    Unpaid loss and LAE reserves
    
    
    390,216
    
    
    
    240,951Unearned premium reserves
    
    
    1,535,847
    
    
    
    1,793,142Alternative minimum tax
    
    
    1,127,494
    
    
    
    610,909Other-than-temporary impairment of investments
    
    
    1,175,331
    
    
    
    428,535Deferred ceded commissions
    
    
    1,267,281
    
    
    
    1,074,309Guarantee liabilities
    
    
    125,800
    
    
    
    432,650Other
    
    
    458,319
    
    
    
    359,244Total deferred tax assets
    
    
    8,834,621
    
    
    
    4,939,740Deferred tax liabilities:Net unrealized gains on available for sale securities
    
    
    
    
    
    
    (123,142
    )Deferred policy acquisition costs
    
    
    (2,809,455
    )
    
    
    (3,080,122
    )Accrued dividends receivable
    
    
    (15,891
    )
    
    
    (17,771
    )Other
    
    
    (425,885
    )
    
    
    (263,267
    )Total deferred tax liabilities
    
    
    (3,251,231
    )
    
    
    (3,484,302
    )Net deferred tax asset
    
    $
    5,583,390
    
    
    $
    1,455,438
 Net deferred tax assets and liabilities and federal income tax expense in future years can be
materially affected by changes in enacted tax rates or by unexpected adverse events.The provision for federal income taxes for each of the periods ended December 31 consisted of
the following:
 2008
    
    
    2007Current expense
    
    $
    407,272
    
    
    $
    1,204,449Deferred benefit
    
    
    (1,250,475
    )
    
    
    (733,612
    )Federal income tax (benefit) expense
    
    $
    (843,203
    )
    
    $
    470,837
 The difference between federal income taxes provided at our effective tax rate and the 34%
federal statutory rate for each of the periods ended December 31 was as follows:
 2008
    
    
    2007Federal income tax at statutory rate
    
    $
    175,936
    
    
    $
    1,181,346Dividends received deduction and tax exempt interest
    
    
    (940,728
    )
    
    
    (924,539
    )Business meals and entertainment
    
    
    19,243
    
    
    
    27,520Other
    
    
    (97,654
    )
    
    
    186,510Federal income tax (benefit) expense
    
    $
    (843,203
    )
    
    $
    470,837
 In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, which prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. In accordance with FIN 48, we must adjust our financial statements to reflect
only those tax positions that are more-likely-than-not to be sustained as of the adoption date.
We adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a
material impact on our financial condition or results of operations.Based on our evaluation, we have concluded that there are no significant uncertain tax positions
requiring recognition in our consolidated financial statements. Our evaluation was performed for
the tax years ended December 31, 2005, 2006 and 2007, the tax years which remain subject to
examination by major tax jurisdictions as of December 31, 2008. In addition, we do not believe
the Company would be subject to any interest or penalties relative to any open tax years and,
therefore, have not accrued any such amounts. If we were to incur any interest and/or penalties
in connection with income tax deficiencies, we would classify interest in the interest expense
category and classify penalties in the other operating expenses category within our
consolidated statements of income.
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(9)
    
    BENEFIT PLANSThe Ohio Indemnity Company Employee 401(k) and Profit Sharing Plan (the 401(k) Plan) is
available to full-time employees who meet the 401(k) Plans eligibility requirements.  Under the
401(k) Plan, we match 100% of the qualified employees contribution up to 3% of salary and 50%
of the qualified employees contribution between 3% and 5% of salary.  The total cost of the
matching contribution was $100,241 and $98,222 for the years ended December 31, 2008 and 2007,
respectively.(10)
    
    EQUITY-BASED COMPENSATIONWe maintain two equity compensation plans for the benefit of certain of our officers, directors,
employees, consultants and advisors. During the first quarter of 2006, we adopted SFAS
No. 123(R), Share-Based Payment, applying the modified prospective method. SFAS No. 123(R)
requires all equity-based payments to employees and directors, including grants of stock options
and restricted stock, to be recognized in net income based on the grant date fair value of the
award. Under the modified prospective method, we are required to record equity-based
compensation expense for all awards granted after the date of adoption and for the nonvested
portion of previously granted awards outstanding as of the date of adoption. The results for
prior periods have not been restated.We have stock options and restricted stock outstanding at December 31, 2008 under two equity
compensation plans (collectively, the Plans), each of which has been approved by our
shareholders. We will issue authorized but unissued shares or treasury shares to satisfy any
future restricted stock awards or the exercise of stock options.The Bancinsurance Corporation 1994 Stock Option Plan (the 1994 Stock Option Plan) provided for
the grants of options covering up to an aggregate of 500,000 common shares, with a 100,000
common share maximum for any one participant. Key employees, officers and directors of, and
consultants and advisors to, the Company were eligible to participate in the 1994 Stock Option
Plan. The 1994 Stock Option Plan is administered by the Compensation Committee which determined
to whom and when options were granted along with the terms and conditions of the options. Under
the 1994 Stock Option Plan, options for 145,500 common shares were outstanding at December 31,
2008, expire at various dates from 2009 to 2013 and range in option price per share from $4.063
to $6.25. Of the options for 145,500 common shares outstanding, 16,000 have been granted to our
non-employee directors and 129,500 have been granted to employees. All of the options
outstanding were granted to employees and directors for compensatory purposes. No new options
can be granted under the 1994 Stock Option Plan and the plan remains in effect only with respect
to the outstanding options.The Bancinsurance Corporation 2002 Stock Incentive Plan, as amended (the 2002 Plan), provides
for certain equity-based awards, including grants of stock options and restricted stock,
covering up to an aggregate of 950,000 common shares. Key employees, officers and directors of,
and consultants and advisors to, the Company are eligible to participate in the 2002 Plan. The
2002 Plan is administered by the Compensation Committee which determines to whom and when awards
will be granted as well as the terms and conditions of the awards. Under the 2002 Plan, stock
options for 583,000 common shares were outstanding at December 31, 2008, expire at various dates
from 2012 to 2018 and range in option price per share from $4.50 to $8.00. Under the 2002 Plan,
122,443 restricted common shares were also outstanding at December 31, 2008. Of the total
equity-based awards for 705,443 common shares outstanding under the 2002 Plan, 34,000 have been
granted to our non-employee directors and 671,443 have been granted to employees. All of the
equity-based awards outstanding were granted to employees and directors for compensatory
purposes. As of December 31, 2008, there were 225,647 common shares available for future grant
under the 2002 Plan.The outstanding restricted stock awards are time-based restricted common shares. Compensation
expense for restricted stock awards is measured using the grant date fair value and then
recognized over the respective service period, which matches the vesting period. The
outstanding restricted stock awards vest in equal annual installments on the first, second and
third anniversaries of the date of grant subject to the employees continued employment with the
Company on the applicable anniversary date. For the year ended December 31, 2008, the Company
granted 84,624 restricted common shares to employees which were valued at $4.75 per share.
There were 18,910 restricted common shares that vested during the year ended December 31, 2008.The following table summarizes restricted stock award activity under our 2002 Plan from January
1, 2008 through December 31, 2008:
 Weighted-averagegrant date fair valueShares
    
    
    per common shareOutstanding at January 1, 2008
    
    
    56,729
    
    
    $
    6.40Granted
    
    
    84,624
    
    
    
    4.75Vested
    
    
    (18,910
    )
    
    
    6.40Cancelled
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    122,443
    
    
    
    5.26
 All stock options: (1) have been granted with an exercise price equal to the closing price of
our common shares on the date of grant;
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(2) have a 10-year contractual term; (3) with respect to
officers and employees, vest and become exercisable at the rate of 20% per year over a five-year
period (subject to the applicable officers or employees continued employment with the
Company); and (4) with respect to non-employee directors, vest and become exercisable on the
first anniversary of the date of grant (subject to the applicable directors continued service
on the board of directors of the Company). Compensation expense for stock options is measured
on the date of grant at fair value and is recognized over the respective service period, which
matches the vesting period.The fair value of options granted by the Company is estimated on the date of grant using the
Black-Scholes option pricing model (Black-Scholes model). The Black-Scholes model utilizes
ranges of assumptions such as risk-free rate, expected life, expected volatility and dividend
yield. The risk-free rate is based on the United States Treasury strip curve at the time of the
grant with a term approximating that of the expected option life. We analyze historical data
regarding option exercise behaviors, expirations and cancellations to calculate the expected
life of the options granted, which represents the length of time in years that the options
granted are expected to be outstanding. Expected volatilities are based on historical
volatility over a period of time using the expected term of the option grant and using weekly
stock prices of the Company; however, for options granted after February 4, 2005, we exclude
from our historical volatility the period from February 4, 2005 through January 25, 2006 (the
period in which shareholders could not obtain current financial information for the Company and
could not rely on the Companys 2003, 2002, and 2001 financial statements) as we believe that
our stock price during that period is not relevant in evaluating the expected volatility of the
common shares in the future. A 0% dividend yield is used in the Black-Scholes model based on
historical dividends. For the year ended December 31, 2008, the Company granted 12,000 stock
options to non-employee directors which were valued at $2.72 per share. The following table
provides the range of assumptions used for options valued during each of the years ended
December 31:
 2008
    
    2007Risk-free interest rate
    
    
    3.27
    %
    
    
    4.90
    %Expected life
    
    7 years
    
    6 yearsExpected volatility
    
    
    53.2
    %
    
    
    32.4
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 The following table summarizes all stock option activity under the Plans from January 1, 2008 through December 31, 2008:
 Weighted-averageexercise price
    
    Weighted-average
    
    AggregateShares
    
    per common share
    
    contractual life (years)
    
    intrinsic valueOutstanding at January 1, 2008
    
    
    748,500
    
    
    $
    5.65Granted
    
    
    12,000
    
    
    
    4.75Exercised
    
    
    
    
    
    
    Expired
    
    
    (32,000
    )
    
    
    4.84Cancelled
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    728,500
    
    
    
    5.67
    
    
    
    5.25
    
    
    $
    Vested and exercisable at December 31, 2008
    
    
    558,700
    
    
    
    5.55
    
    
    
    4.62
    
    
    $
    
 The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the closing
price of our common shares on the OTC Bulletin Board on December 31, 2008 ($3.65), which would
have been received by the option holders had all option holders exercised their options and sold
the underlying common shares as of that date. Because no options were in-the-money at December
31, 2008, the aggregate intrinsic value was zero. There were no stock options exercised during
the year ended December 31, 2008.The following table summarizes nonvested stock option activity under the Plans from January 1,
2008 through December 31, 2008:
 Weighted-averagegrant date fair valueShares
    
    per common shareNonvested at January 1, 2008
    
    
    264,800
    
    
    $
    2.41Granted
    
    
    12,000
    
    
    
    2.72Vested
    
    
    107,000
    
    
    
    2.32Expired
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Nonvested at December 31, 2008
    
    
    169,800
    
    
    
    2.50
 The compensation expense recognized for all equity-based awards is net of forfeitures and is
recognized over the awards respective service periods. We recorded equity-based compensation
expense for the years ended December 31, 2008 and 2007 of $395,054 and
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$339,654 ($260,736 and
$224,172 net of tax), respectively. In accordance with Staff Accounting Bulletin (SAB) No.
107, Share-Based Payment, the equity-based compensation expense is classified within other
operating expenses in the accompanying statements of income to correspond with the same line
item as cash compensation paid to employees.As of December 31, 2008, the total pre-tax equity-based compensation cost related to nonvested
stock options and nonvested restricted stock not yet recognized was $857,123. The
weighted-average period over which this cost is expected to be recognized is approximately 2.1
years.The following table summarizes weighted-average information by range of exercise prices for
stock options outstanding and stock options exercisable at December 31, 2008:
 Options Outstanding
    
    Options ExercisableNumber
    
    Weighted-average
    
    Weighted-average
    
    Number
    
    Weighted-averageoutstanding
    
    remaining
    
    exercise
    
    exercisable
    
    exerciseRange of Exercise Prices
    
    at 12/31/08
    
    contractual life (years)
    
    price
    
    at 12/31/08
    
    price4.063 - 4.82
    
    
    162,000
    
    
    
    3.68
    
    
    $
    4.50
    
    
    
    150,000
    
    
    $
    4.485.00 - 5.375
    
    
    189,500
    
    
    
    3.33
    
    
    
    5.23
    
    
    
    189,500
    
    
    
    5.236.00 - 6.40
    
    
    248,000
    
    
    
    7.40
    
    
    
    6.02
    
    
    
    116,000
    
    
    
    6.047.04 - 8.00
    
    
    129,000
    
    
    
    5.93
    
    
    
    7.11
    
    
    
    103,200
    
    
    
    7.11Total ($4.063 - $8.00)
    
    
    728,500
    
    
    
    5.25
    
    
    
    5.67
    
    
    
    558.700
    
    
    
    5.55
 (11)
    
    STATUTORY RESTRICTIONSGenerally, Ohio Indemnity is restricted by the insurance laws of the State of Ohio as to amounts
that can be transferred to its parent in the form of dividends, loans or advances without the
approval of the Department. Under these restrictions, during 2009, dividends, loans or advances
in excess of $4,516,755 will require the approval of the Department.Ohio Indemnity is subject to a risk-based capital test applicable to property/casualty insurers.
The risk-based capital test serves as a benchmark of an insurance enterprises solvency by
state insurance regulators by establishing statutory surplus targets which will require certain
company level or regulatory level actions. Ohio Indemnitys total adjusted capital was in
excess of all required action levels at December 31, 2008.(12)
    
    STATUTORY SURPLUS AND NET INCOMEOhio Indemnity is statutorily required to file financial statements with state and other
regulatory authorities. The accounting principles used to prepare such statutory financial
statements follow prescribed or permitted accounting practices as defined in the NAIC
Accounting Practices and Procedures Manual, which principles may differ from GAAP. Permitted
statutory accounting practices encompass all accounting practices not so prescribed, but allowed
by the Department. Ohio Indemnity has no permitted statutory accounting practices.As of and for the periods ended December 31, Ohio Indemnitys statutory surplus and net income
determined in accordance with statutory accounting practices differed from shareholders equity
and net income determined in accordance with GAAP by the following:
 Shareholders Equity/Surplus
    
    
    Net Income2008
    
    
    2007
    
    
    2008
    
    
    2007Statutory
    
    $
    45,167,551
    
    
    $
    45,065,039
    
    
    $
    3,115,387
    
    
    $
    6,669,399Reconciling items:Non-admitted assets
    
    
    260,153
    
    
    
    73,078
    
    
    
    
    
    
    
    Deferred policy acquisition costs
    
    
    8,263,102
    
    
    
    9,059,182
    
    
    
    (796,080
    )
    
    
    (395,228
    )Deferred ceded commissions
    
    
    (3,721,329
    )
    
    
    (3,098,845
    )
    
    
    (622,483
    )
    
    
    (1,519,678
    )Current taxes
    
    
    (228,103
    )
    
    
    
    
    
    
    (228,103
    )
    
    
    Deferred taxes
    
    
    2,917,575
    
    
    
    (320,877
    )
    
    
    1,078,998
    
    
    
    408,515Unrealized losses on investments
    
    
    (7,273,854
    )
    
    
    (363,516
    )
    
    
    
    
    
    
    Statutory unearned premium reserve
adjustment
    
    
    838,616
    
    
    
    
    
    
    
    838,616
    
    
    
    Provision for reinsurance
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    GAAP
    
    $
    46,223,711
    
    
    $
    50,423,061
    
    
    $
    3,386,335
    
    
    $
    5,163,008
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(13)
    
    OTHER COMPREHENSIVE INCOME (LOSS)The components of other comprehensive loss and the related federal income tax effects for the
years ended December 31 2008 and 2007, were as follows:
 Year ended December 31, 2008Pre-tax
    
    
    Income tax
    
    
    Net-of-taxamount
    
    
    expense (benefit)
    
    
    amountNet unrealized holding losses on securities:Unrealized holding losses arising during 2008
    
    $
    (11,925,741
    )
    
    $
    (4,054,752
    )
    
    $
    (7,870,989
    )Less: reclassification adjustments for losses
realized in net income
    
    
    (3,462,577
    )
    
    
    (1,177,276
    )
    
    
    (2,285,301
    )Net unrealized holding losses
    
    
    (8,463,164
    )
    
    
    (2,877,476
    )
    
    
    (5,585,688
    )Other comprehensive loss
    
    $
    (8,463,164
    )
    
    $
    (2,877,476
    )
    
    $
    (5,585,688
    )
 Year ended December 31, 2007Pre-tax
    
    
    Income tax
    
    
    Net-of-taxamount
    
    
    expense (benefit)
    
    
    amountNet unrealized holding losses on securities:Unrealized holding losses arising during 2007
    
    $
    (2,594,863
    )
    
    $
    (882,254
    )
    
    $
    (1,712,609
    )Less: reclassification adjustments for losses
realized in net income
    
    
    (1,225,293
    )
    
    
    (416,600
    )
    
    
    (808,693
    )Net unrealized holding losses
    
    
    (1,369,570
    )
    
    
    (465,654
    )
    
    
    (903,916
    )Other comprehensive loss
    
    $
    (1,369,570
    )
    
    $
    (465,654
    )
    
    $
    (903,916
    )
 (14)
    
    RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSESActivity in the reserve for unpaid losses and LAE is summarized as follows (dollars in thousands):
 2008
    
    
    2007Balance at January 1
    
    $
    17,384
    
    
    $
    14,783Less reinsurance recoverables
    
    
    3,842
    
    
    
    1,420Net Balance at January 1
    
    
    13,542
    
    
    
    13,363Incurred related to:Current year
    
    
    25,821
    
    
    
    24,798Prior years
    
    
    (1,366
    )
    
    
    (254
    )Total incurred
    
    
    24,455
    
    
    
    24,544Paid related to:Current year
    
    
    20,123
    
    
    
    20,462Prior years
    
    
    3,835
    
    
    
    3,903Total paid
    
    
    23,958
    
    
    
    24,365Reserves transferred from funds held for account
of others (see Note 15)
    
    
    1,444
    
    
    
    Net Balance at December 31
    
    
    15,483
    
    
    
    13,542Plus reinsurance recoverables
    
    
    4,837
    
    
    
    3,842Balance at December 31
    
    $
    20,320
    
    
    $
    17,384Reserve for unpaid losses and LAE
    
    $
    13,680
    
    
    $
    10,643Discontinued bond program reserve for
unpaid losses and LAE
    
    
    6,640
    
    
    
    6,741Total reserve for unpaid losses and LAE
    
    $
    20,320
    
    
    $
    17,384
 As a result of changes in estimates of insured events in prior years, the provision for unpaid
loss and LAE decreased by approximately $1,366,000 and $254,000 for the years ended December 31,
2008 and 2007, respectively. The decrease in 2008 was primarily due to favorable loss
development for our lender service product line.For more information concerning loss and LAE reserves for the discontinued bond program, see
Discontinued Bond Program in Note 15.(15)
    
    REINSURANCEWe assume and cede reinsurance with other insurers and reinsurers. Such arrangements serve to
enhance our capacity to write business, provide greater diversification, align the interests of
our business partners with our interests, and/or limit our maximum loss arising from certain
risks. Although reinsurance does not discharge the original insurer from its primary liability
to its policyholders, it is the practice of insurers for accounting purposes to treat reinsured
risks as risks of the reinsurer. The primary insurer would
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reassume liability in those
situations where the reinsurer is unable to meet the obligations it assumed under the
reinsurance agreement. The ability to collect reinsurance is subject to the solvency of the
reinsurers and/or collateral provided under the reinsurance agreement.Several of our lender service insurance producers have formed sister reinsurance companies, each
of which is commonly referred to as a producer-owned reinsurance company (PORC). The primary
reason for an insurance producer to form a PORC is to realize the underwriting profits and
investment income from the insurance premiums generated by that producer. In return for ceding
business to the PORC, we receive a ceding commission, which is based on a percentage of the
premiums ceded. Such arrangements align the interests of our business partners with our
interests while preserving valued customer relationships. All of our lender service ceded
reinsurance transactions are PORC arrangements.Effective October 1, 2003, we entered into a producer-owned reinsurance arrangement with a CPI
customer whereby 100% of that customers premiums (along with the associated risk) were ceded to
its PORC. For this reinsurance arrangement, we have obtained collateral in the form of a trust
from the reinsurer to secure our obligations. Under the provisions of the reinsurance
agreement, the collateral must be equal to or greater than 102% of the reinsured reserves and we
have immediate access to such collateral if necessary. Effective April 1, 2008, the policy
related to this arrangement was cancelled. The reinsurance agreement will remain in place until
the business is fully run-off which is expected to be in second quarter of 2009. Under this
arrangement, we ceded premiums earned of $1,958,377 and $3,450,688 for the years ended December
31, 2008 and 2007, respectively.Under our WIP program, we assume and cede certain waste surety bond business under three quota
share reinsurance arrangements. First, in the second quarter of 2004, we entered into a 50%
quota share reinsurance arrangement whereby we assumed 50% of all waste surety bonds with
liability limits up to $4.0 million from two insurance carriers. Effective January 1, 2005, the
reinsurance arrangement was amended whereby our assumed participation was reduced from 50% to
25%. Effective August 1, 2006, the reinsurance arrangement was further amended whereby we
assumed 50% of all waste surety bonds with liability limits up to $1.2 million. Second,
effective August 1, 2007, we entered into a 5% quota share reinsurance arrangement whereby we
assumed 5% of all waste surety bonds with liability limits over $1.2 million up to $10.0 million
from one insurance carrier. Third, in addition to assuming business, we also write on a direct
basis waste surety bonds with liability limits up to $5.0 million. We then cede 50% of that
business to an insurance carrier under a reinsurance arrangement. During 2006, we also began
writing directly, assuming and ceding certain contract and escrow surety bond business under
several quota share reinsurance arrangements. This business is included as part of our WIP
program because it is produced by the same general insurance agent that produces the waste
surety bond business. Under this program, we assumed premiums earned of $5,292,338 and
$3,827,564 for the years ended December 31, 2008 and 2007, respectively, and ceded premiums
earned of $2,438,384 and $1,934,920 for the years ended December 31, 2008 and 2007,
respectively.Effective January 1, 2005, we entered into a producer-owned reinsurance arrangement with a GAP
insurance agent whereby 100% of that agents premiums (along with the associated risk) were
ceded to its PORC. For this reinsurance arrangement, we have obtained collateral in the form of
a letter of credit to secure our obligations. Under the provisions of the reinsurance
agreement, the collateral must be equal to or greater than 102% of the reinsured reserves and we
have immediate access to such collateral if necessary. Under this arrangement, we ceded
premiums earned of $4,657,167 and $3,560,054 for the years ended December 31, 2008 and 2007,
respectively.Effective January 1, 2007, we entered into a producer-owned reinsurance arrangement with a new
EPD customer whereby 100% of that customers premiums (along with the associated risk) were
ceded to its PORC. For this reinsurance arrangement, we have obtained collateral in the form of
funds held and a letter of credit to secure our obligations. Under the provisions of the
reinsurance agreement, the collateral must be equal to or greater than 102% of the reinsured
reserves and we have immediate access to such collateral if necessary. Under this arrangement,
we ceded premiums earned of $11,785,400 and $4,424,122 for the years ended December 31, 2008 and
2007, respectively.In addition to the arrangements discussed above, we have other reinsurance arrangements,
including two lender service PORC quota share arrangements, one UC facultative reinsurance
arrangement, and two reinsurance arrangements for one of our vehicle service contract programs.
For more information concerning this vehicle service contract program, see Automobile Service
Contract Program below. Under these arrangements, we ceded premiums earned of $618,788 and
$720,822 for the years ended December 31, 2008 and 2007, respectively.From 2001 until the end of the second quarter of 2004, we participated in a bail and immigration
bond program. This program was discontinued in the second quarter of 2004. For more
information concerning this program, see Discontinued Bond Program below.
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A reconciliation of direct to net premiums, on both a written and earned basis, for each of the
years ended December 31 is as follows:
 2008
    
    
    2007Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiumswritten
    
    
    earned
    
    
    written
    
    
    earnedDirect
    
    $
    65,958,352
    
    
    $
    64,328,556
    
    
    $
    72,496,436
    
    
    $
    57,236,828Assumed
    
    
    5,041,884
    
    
    
    5,292,338
    
    
    
    4,615,150
    
    
    
    3,827,564Ceded
    
    
    (30,557,301
    )
    
    
    (21,458,118
    )
    
    
    (31,329,371
    )
    
    
    (14,091,134
    )$
    40,442,935
    
    
    $
    48,162,776
    
    
    $
    45,782,215
    
    
    $
    46,973,258
 The amounts of recoveries pertaining to reinsurance that were deducted from losses and LAE
incurred for the years ended December 31, 2008 and 2007 were $11,113,690 and $7,663,800,
respectively. For the years ended December 31, 2008 and 2007, ceded reinsurance decreased
commission expense incurred by $3,182,210 and $2,573,657, respectively.Discontinued Bond ProgramBeginning in 2001 and continuing into the second quarter of 2004, we participated as a reinsurer
in a program covering bail and immigration bonds issued by four insurance carriers and produced
by a bail bond agency (collectively, the discontinued bond program or the program). The
liability of the insurance carriers was reinsured to a group of reinsurers, including us. We
assumed 15% of the business from 2001 through 2003 and 5% of the business during the first half
of 2004. This program was discontinued in the second quarter of 2004.Based on the design of the program, the bail bond agency was to obtain and maintain collateral
and other security and to provide funding for bond losses. The bail bond agency and its
principals were responsible for all losses as part of their program administration. The
insurance carriers and, in turn, the reinsurers were not required to pay losses unless there was
a failure of the bail bond agency. As the bonds were to be 100% collateralized, any losses paid
by the reinsurers were to be recoverable through liquidation of the collateral and collections
from third party indemnitors.In the second quarter of 2004, we came to believe that the discontinued bond program was not
being operated as it had been represented to us by agents of the insurance carriers who had
solicited our participation in the program, and we began disputing certain issues with respect
to the program, including but not limited to: 1) inaccurate/incomplete disclosures relating to
the program; 2) improper supervision by the insurance carriers of the bail bond agency in
administering the program; 3) improper disclosures by the insurance carriers through the bail
bond agency and the reinsurance intermediaries during the life of the program; and 4) improper
premium and claims administration. Consequently, during the second quarter of 2004, we ceased
paying claims on the program and retained outside legal counsel to review and defend our rights
under the program.During 2004 and 2005, we entered into arbitrations with the following four insurance carriers
that participated in the discontinued bond program: 1) Aegis Security Insurance Company
(Aegis); 2) Sirius America Insurance Company (Sirius); 3) Harco National Insurance Company
(Harco); and 4) Highlands Insurance Company (Highlands). During 2006, the arbitrations with
Aegis, Sirius and Harco concluded. For Aegis and Sirius, we entered into settlement agreements
with these insurance carriers resolving all disputes between us and these carriers relating to
the discontinued bond program. These settlement agreements also relieved us from any potential
future liabilities with respect to bonds issued by Aegis and Sirius.For Harco, in August 2006, the Harco arbitration panel issued its Final Decision and Order
ordering each of the reinsurers participating in the arbitration, including us, to pay its
proportionate share of past and future claims paid by Harco, subject to certain adjustments,
offsets and credits (the Final Order). Pursuant to the terms of the Final Order, we have paid
Harco for our proportionate share of all past claims paid by Harco which it has invoiced to us
through December 31, 2008, except as noted below.During the second quarter of 2008, we received an invoice from Harco for approximately $0.2
million representing our proportionate share of additional claims paid by Harco. We requested
that Harco provide us a detailed accounting of its payment activity. Although Harco indicated
that it will provide us this information, we have not received such information as of the date
of this report. We also requested that Harco provide us information regarding any recoveries
that Harco has received with respect to paid claims and its expected future recoveries. Harco
responded that it has received and continues to receive recoveries but does not believe the
reinsurers are entitled to a proportionate share of such recoveries under the terms of the Final
Order. We disagree with this position. Based on recovery information provided by Harco during
the fourth quarter of 2008, we estimate that our proportionate share of Harcos recoveries that
we believe we are entitled to receive under the Final Order is approximately $0.2 million. We
do not intend to pay any current or future Harco invoices until Harco provides us the requested
accounting and we resolve with Harco the reinsurers rights to a proportionate share of Harcos
recoveries.As of December 31, 2008, we are reserving for Harco losses based on amounts invoiced by Harco
for claims paid and on our
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proportionate share of Harcos estimate of its future losses under
the program as reflected in the most recent loss information provided to us by Harco (with $0.2
million offset for recoveries as noted above).It should also be noted that Harco has reported to us that it has received an updated invoice
from the Department of Homeland Security (DHS) for breached immigration bonds and, that as of
December 31, 2008, Harcos immigration bond reserve was less than the amount of the DHS invoice.
As noted above, we are reserving for future Harco losses based on our proportionate share of
Harcos estimate of its future losses under the program. If Harco is required to pay the full
amount of the DHS invoice, it could result in additional losses to us of approximately $0.6
million (based on the difference between our proportionate share of Harcos reserve as of
December 31, 2008 and the updated DHS invoice).Pending Arbitration. Highlands participated as an insurer in the discontinued bond
program for the 2000, 2001 and 2002 program years, and we were one of its reinsurers for the
2001 and 2002 program years. Highlands was placed in receivership during 2003 (which
receivership remains pending). On August 31, 2005, the Highlands Receiver demanded a single
consolidated arbitration for the 2000, 2001 and 2002 program years against us and its other
reinsurers. In November 2005, we responded to this demand by requesting a separate arbitration
for the 2001 and 2002 program years and seeking rescission of the reinsurance agreement for the
2001 and 2002 program years, monetary damages for claims that were paid by us and other
appropriate relief. Highlands is seeking to recover certain of its losses from us under the
reinsurance agreement for the 2001 and 2002 program years. No arbitration panel has yet been
constituted. On April 10, 2008, the Highlands Receiver filed a petition in a Texas state court
seeking to compel a single consolidated arbitration for the 2000, 2001 and 2002 program years
against its reinsurers, including us, and other relief. On June 5, 2008, we responded to the
petition. As of the date of this report, the court has not ruled on the petition.Highlands has entered into settlement agreements with the New Jersey Attorney General for its
New Jersey bail bond obligations and with the DHS for its federal immigration bond obligations
(collectively, the Settlement Agreements). The Settlement Agreements cover both past and
future losses for bonds issued by Highlands. Highlands has invoiced us for our proportionate
share of the settlement value under the Settlement Agreements. Highlands has also provided loss
information to us with respect to potential losses for bail bonds issued in states other than
New Jersey. As of December 31, 2008, we are reserving for Highlands losses based on amounts
invoiced under the Settlement Agreements and on our proportionate share of the most recent
non-New Jersey bail bond loss information provided to us by Highlands. As of both December 31,
2008 and December 31, 2007, our total loss and LAE reserves for Highlands were approximately
$4.8 million.We believe there is potential for us to mitigate our ultimate liability to Highlands through the
arbitration proceeding with Highlands. In accordance with SFAS No. 5, Accounting for
Contingencies, we are reserving to our best estimate of the ultimate liability on the program
at December 31, 2008 without any adjustment for a positive arbitration outcome or a potential
settlement amount with Highlands. If we obtain information to determine an estimate of a final
arbitration value or estimate a settlement value, we will record changes in our reserves, if
any, in the period that an estimate is made. We do not intend to pay any of the Highlands
losses unless and until the arbitration is settled on a mutually agreeable basis and/or a final
binding judgment is made as to our ultimate liability.Given the uncertainties of the outcome of the Highlands arbitration and Highlands receivership
proceeding, uncertainties in the future loss information provided by Harco and Highlands, and
the inherent volatility in assumed reinsurance, actual losses incurred for the discontinued bond
program could be materially different from our estimated reserves at December 31, 2008. As a
result, future loss development on the discontinued bond program could have a material effect on
our results of operations and/or financial condition.Loss and LAE Reserves. The following compares our loss and LAE reserves for the
discontinued bond program at December 31, 2008 and December 31, 2007 (dollars in millions):
 December 31,
    
    
    December 31,2008
    
    
    2007Bail Bonds:Case reserves
    
    $
    0.4
    
    
    $
    0.5Incurred but not reported (IBNR) reserves
    
    
    4.2
    
    
    
    4.5Total bail bond reserves
    
    
    4.6
    
    
    
    5.0Immigration Bonds:Case reserves
    
    
    0.2
    
    
    
    0.2IBNR reserves
    
    
    1.8
    
    
    
    1.5Total immigration bond reserves
    
    
    2.0
    
    
    
    1.7Total loss and LAE reserves
    
    $
    6.6
    
    
    $
    6.7
 For 2008, we recorded a benefit of $101,904 for the discontinued bond program which was
primarily attributable to Harco providing sufficient information for us to estimate recoveries
that we believe we are entitled to under the Final Order. Discontinued bond
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program losses and LAE were $749,575 for 2007 primarily due to an increase in reported losses
from Highlands which was partially offset by a decrease in reported losses from Harco.Automobile Service Contract Program
During 2001, we began issuing insurance policies which guarantee the performance obligations of
two automobile service contract providers (the Providers). The Providers are owned by a
common parent. We have issued insurance policies covering business produced by the Providers in
five states. Our insurance policies guarantee the fulfillment of the Providers obligations
under the service contracts. Under the program, the Providers maintain the reserves and related
assets and are responsible for the claims administration. We are obligated to pay a claim only
if a Provider fails to do so. Under two reinsurance arrangements, we cede 100% of the business
produced to two different insurance carriers. In addition, we obtained collateral in the form
of a $4.3 million letter of credit to secure our obligations under the program. On February 15,
2007, one of the Providers entered into an Assignment for the Benefit of Creditors liquidation
proceeding. On March 2, 2007, the Illinois Department of Insurance moved for, and obtained, an
Order of Conservation, which granted the Illinois Department of Insurance the authority to
ascertain the condition and conserve the assets of that Provider. On April 13, 2007, this
Provider filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On June 12, 2007,
the Bankruptcy Court ruled that the Provider was an eligible debtor for purposes of the
Bankruptcy Code. This Provider has not written any service contracts under our insurance
policies after the commencement of the February 2007 liquidation proceeding. The other Provider
has not written any service contracts under our insurance policies since December 31, 2007.On August 24, 2007, we drew on the $4.3 million letter of credit, of which approximately $2.7
million was attributable to our obligations in connection with the Provider that is in
bankruptcy and approximately $1.6 million was attributable to our obligations in connection with
the Provider that is not in bankruptcy, and we subsequently obtained an additional $0.5 million
from the Provider that is not in bankruptcy to further secure our insurance obligations. On
December 2, 2008, the Bankruptcy Court entered a ruling approving a settlement and release
agreement between us and the Provider that is in bankruptcy. Under the terms of this settlement
and release agreement, we released from the collateral attributable to the Provider that is in
bankruptcy and held by us approximately $1.0 million to that Providers bankruptcy estate (the
settlement payment) In exchange for the release of this collateral, the bankruptcy trustee,
on behalf of the Provider that is in bankruptcy, agreed to release us from any claims by such
Provider and any third party, other than those defined contract claims that are scheduled on the
settlement and release agreement (the scheduled claims). As of December 31, 2008, after the
settlement payment and all claims paid by us during 2007 and 2008, we retained approximately
$1.4 million of collateral attributable to such Provider which we believe is sufficient to pay
for the $1.4 million in estimated liability for the scheduled claims. As a result of the
settlement and release agreement, the liability associated with the Provider that is in
bankruptcy was transferred to reserve for unpaid losses and loss adjustment expenses in our
accompanying balance sheet (previously reported as funds held for account of others as of
September 30, 2008) and the $1.4 million collateral attributable to such Provider and retained
by us was transferred into our operating assets during the fourth quarter of 2008 (previously
reported as restricted short-term investments as of September 30, 2008).As of the date of this report, the provider that is not in bankruptcy has not defaulted on its
obligations under the service contracts. As of December 31, 2008, the total cash held by us as
collateral for such Provider was approximately $2.1 million, which funds are currently reported
as restricted short-term investments in our accompanying balance sheet. We have estimated the
claim obligations for service contracts issued by this Provider to be approximately $2.0 million
as of December 31, 2008. As the collateral held by us is greater than the estimated claim
obligations, the full $2.1 million is reported as a liability in our accompanying balance sheet
within funds held for account of others.Because we believe our estimated liability for claims under this program is fully collateralized
and our loss exposure is 100% reinsured, we do not believe the events described above will have
a material adverse impact to us. However, if the Provider that is not in bankruptcy defaults on
its obligations, and if our actual liability for claims under this program exceeds the
collateral held by us and if we are unable to collect on the reinsurance, then this program
could have a material adverse effect on our business, financial condition and/or operating
results.(16)
    
    RELATED PARTIESIn 1994, we entered into a Split-Dollar Insurance Agreement with a bank, as trustee, for the
benefit of an officer and his spouse. The trustee has acquired a second-to-die policy on the
lives of the insureds, in the aggregate face amount of $2,700,000. On July 3, 2007, the officer
passed away and he was survived by his spouse. At December 31, 2008 and 2007, we had loaned the
trustee $1,060,743 and $1,004,372, respectively, under this agreement for payment of insurance
premiums, which is included in loans to affiliates in the accompanying balance sheets. Amounts
loaned by the Company to the trustee are to be repaid, in full, without interest, from any of
the following sources: (1) cash surrender value of the underlying insurance policies; (2) death
benefits; and/or (3) the sale of 15,750 common shares of the Company contributed by the officer
to the trust.In February 2000, we entered into a Split-Dollar Insurance Agreement for the benefit of another
officer in the face amount of
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$1,000,000. All premiums paid by the Company in accordance with
this agreement are to be repaid, in full, without interest, upon the death, retirement or
termination of the officer. The Company had paid premiums of $30,000 relating to this
agreement; however, the Company is no longer paying premiums under the agreement. At December
31, 2008 and 2007, $30,000 was included in loans to affiliates in the accompanying balance
sheets for payment of insurance premiums in accordance with this agreement.Bancinsurance shares its executive offices and facilities with certain of its consolidated
subsidiaries. Certain expenses are allocated among Bancinsurance and those subsidiaries
pursuant to cost sharing agreements.See Note 4 for information concerning the undertaking agreements entered into by and between the
Company and certain executive officers in connection with the ongoing SEC investigation.(17)
    
    CONCENTRATIONSThe Company has the following concentrations of total revenues (concentration is defined as 10%
or more of consolidated revenues) with three separate general agents within our
property/casualty insurance business segment for the years ended December 31:
 2008
    
    2007Product  Customer TypeGeneral Agent
    
    $
    7,146,767
    
    
    $
    5,517,249Lender Service Customer
    
    $
    6,515,349
    
    
    $
    4,857,720Managing General Agent
    
    $
    6,136,720
    
    
    $
    5,066,857Managing General Agent
    
    $
    5,080,020
    
    
    $
    6,480,043
 (18)
    
    FAIR VALUE MEASUREMENTSThe Companys estimates of fair value for financial assets and financial liabilities are based
on the framework established in SFAS No. 157. The framework is based on the inputs used in
valuation and gives the highest priority to quoted prices in active markets and requires that
observable inputs be used in the valuations when available. The disclosure of fair value
estimates in the SFAS No. 157 hierarchy is based on whether the significant inputs used in the
valuation are observable. In determining the level of the hierarchy in which the estimate is
disclosed, the highest priority is given to unadjusted quoted prices in active markets and the
lowest priority is given to unobservable inputs that reflect the Companys significant market
assumptions. The three levels of the hierarchy are as follows:
 
    
    Level 1 Quoted prices for identical instruments in active markets.
    
    Level 2 Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs and significant value drivers are observable
in active markets.
    
    Level 3 Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
 Fair Value Hierarchy
The following table presents the level within the fair value hierarchy at which the Companys
financial assets were measured at fair value on a recurring basis as of December 31, 2008:
 December 31, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available for sale investments:Fixed maturities
    
    $
    59,675,070
    
    
    $
    518,250
    
    
    $
    59,156,820
    
    
    $
    Equity securities
    
    
    6,541,864
    
    
    
    6,541,864
    
    
    
    
    
    
    
    Total
    
    $
    66,216,934
    
    
    $
    7,060,114
    
    
    $
    59,156,820
    
    
    $
    
 As of December 31, 2008, the Company had no financial liabilities that were measured at fair
value and no financial assets that were measured at fair value on a non-recurring basis. The
Company also did not have any non-financial assets or non-financial liabilities that were
measured at fair value on a recurring basis.Valuation of Investments
For investments that have quoted market prices in active markets, the Company uses the quoted
market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the
hierarchy. The Company receives the quoted market prices from an independent, nationally
recognized pricing service (the pricing service). When quoted market prices are unavailable,
the Company relies on the pricing service to determine an estimate of fair value and these
prices are included in the amounts disclosed in Level 2 of the hierarchy.
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The Company validates the prices received from the pricing service by examining their
reasonableness. The Companys review process includes comparing the pricing services estimated
fair values to the estimated fair values established by our investment custodian (for both
equity and fixed maturity securities) and our outside fixed income investment manager (for fixed
maturity securities). Our investment custodian utilizes the same pricing service as us, and our
outside fixed income investment manager utilizes another nationally recognized pricing service
for the municipal bond portfolio and utilizes the same pricing service as us for taxable bonds
and closed-end mutual funds. Based on this review, any material differences are investigated
and if we deem prices provided by our pricing service are materially unreasonable, we would use
the estimated fair value established by our investment custodian and/or outside fixed income
investment manager, depending on which prices seemed more reasonable. As of December
31, 2008, the Company did not adjust any prices received from its pricing service.In order to determine the proper SFAS No. 157 classification for each financial asset, the
Company obtains from its pricing service the pricing procedures and inputs used to price our
securities. For our fixed maturity portfolio, the Company also has its outside fixed income
investment manager review its portfolio to ensure the SFAS No. 157 classification is consistent
with the information obtained from the pricing service.The following section describes the valuation methods used by the Company for each type of
financial instrument it holds that is carried at fair value.Available for Sale Equity Securities. The fair values of our equity securities were
based on observable market quotations for identical assets and therefore have been disclosed in
Level 1 of the hierarchy. The Level 1 category includes publicly traded equity securities.Available for Sale Fixed Maturity Securities. The fair values of our redeemable
preferred stocks were based on observable market quotations for identical assets and therefore
have been disclosed in Level 1 of the hierarchy. A number of the Companys investment grade
bonds are frequently traded in active markets and traded market prices for these securities
existed at December 31, 2008. However, these securities were classified as Level 2 because the
pricing service also utilizes valuation models, which uses observable market inputs, in addition
to traded prices. Substantially all of these assumptions are observable in the marketplace or
can be derived or supported by observable market data. The Level 2 category generally includes
municipal and corporate bonds.Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of
fair values of financial instruments. The carrying amount and estimated fair value of
financial instruments subject to SFAS No. 107 disclosure requirements were as follows at
December 31:
 2008
    
    2007Carrying
    
    Estimated
    
    Carrying
    
    Estimatedamount
    
    fair value
    
    amount
    
    fair valueAssets:Held to maturity fixed maturities
    
    $
    5,198,068
    
    
    $
    5,330,671
    
    
    $
    5,195,137
    
    
    $
    5,291,616Available for sale fixed maturities
    
    
    59,675,070
    
    
    
    59,675,070
    
    
    
    72,626,724
    
    
    
    72,626,724Available for sale equity securities
    
    
    6,541,864
    
    
    
    6,541,864
    
    
    
    12,382,218
    
    
    
    12,382,218Short-term investments
    
    
    5,939,254
    
    
    
    5,939,254
    
    
    
    472,329
    
    
    
    472,329Restricted short-term investments
    
    
    3,886,635
    
    
    
    3,886,635
    
    
    
    6,714,935
    
    
    
    6,714,935Cash
    
    
    5,499,847
    
    
    
    5,499,847
    
    
    
    4,151,088
    
    
    
    4,151,088Liabilities:Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000
    
    
    
    15,465,000
    
    
    
    15,465,000Bank line of credit
    
    
    2,500,000
    
    
    
    2,500,000
    
    
    
    
    
    
    
    
 The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate fair value:
 
    
    Cash and short-term investments: The carrying amounts are reasonable estimates of
fair value.
    
    Fixed maturities and equity securities: See Valuation of Investments above, which
also applies to our held to maturity fixed maturities.
    
    Trust preferred debt issued to affiliates and bank line of credit: Fair value is
estimated using discounted cash flow calculations based on interest rates currently
being offered for similar obligations with maturities consistent with the obligation
being valued. As the interest rate adjusts regularly, the carrying amount is a
reasonable estimate of fair value.
 53




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##### Table of Contents



(19)
    
    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)Our results of operations have varied, and in the future may vary, from quarter to quarter,
principally because of fluctuations in our underwriting results, operating expenses and/or
realized gain (loss) activity. Consequently, quarterly results are not necessarily indicative
of full year results, nor are they necessarily comparable to the results of other quarters. The
following table sets forth certain unaudited quarterly consolidated financial and operating
data:
 2008First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    11,779,421
    
    
    $
    14,345,752
    
    
    $
    11,502,832
    
    
    $
    11,373,724(Loss) income before federal income taxes
    
    
    (636,728
    )
    
    
    1,516,041
    
    
    
    (324,773
    )
    
    
    (36,440
    )Net (loss) income
    
    
    (584,898
    )
    
    
    1,416,848
    
    
    
    (189,681
    )
    
    
    719,034Net (loss) income per common share(1):Basic
    
    
    (.12
    )
    
    
    .28
    
    
    
    (.04
    )
    
    
    .14Diluted
    
    
    (.12
    )
    
    
    .28
    
    
    
    (.04
    )
    
    
    .14
 2007First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    11,523,473
    
    
    $
    13,221,209
    
    
    $
    12,872,253
    
    
    $
    12,609,202Income (loss) before federal income taxes
    
    
    1,351,629
    
    
    
    1,270,519
    
    
    
    1,772,428
    
    
    
    (920,030
    )Net income (loss)
    
    
    1,081,303
    
    
    
    1,016,415
    
    
    
    1,604,343
    
    
    
    (698,352
    )Net income (loss) per common share(1):Basic
    
    
    .22
    
    
    
    .20
    
    
    
    .33
    
    
    
    (.14
    )Diluted
    
    
    .21
    
    
    
    .20
    
    
    
    .32
    
    
    
    (.14
    )
 
 (1)
    
    Year-to-date income per share amounts may not foot when adding the quarterly
income per share amounts due to rounding. (20)
    
    COMMITMENTS & CONTINGENCIESSee Note 4 for information concerning the SEC investigation. See Discontinued Bond Program in
Note 15 for information concerning the Highlands arbitration.During 2008, we also were involved in two other legal proceedings arising in the ordinary course
of business. During the third quarter of 2008, we settled both disputes which resulted in
approximately $0.6 million of incurred expenses for the year ended December 31, 2008.In addition, we are involved in other legal proceedings arising in the ordinary course of
business which are routine in nature and incidental to our business. We currently believe that
none of these matters, either individually or in the aggregate, is reasonably likely to have a
material adverse effect on our financial condition, results of operations or liquidity.
However, because litigation is subject to inherent uncertainties and the outcome of such matters
cannot be predicted with certainty, future developments could cause any one or more of these
matters to have a material adverse effect on our financial condition, results of operations and
liquidity.We also are a guarantor for performance on a bridge loan for a non-executive employee whereby
the collateral held by us under the guaranty is the mortgage secured by residential real estate.
Our risk under the guaranty is that the borrower defaults on the mortgage and the proceeds from
the sale of the residential real estate are not sufficient to cover the amount of the mortgage.
The original mortgage was $550,400. As of December 31, 2008, the principal balance of the
mortgage was $492,360 and the borrower was current on all principal and interest payments. In
the event of default by the borrower, we do not believe our fulfillment of the guaranty would
have a material adverse effect on our financial condition, results of operations or liquidity.
 54




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##### Table of Contents



(21)
    
    SUPPLEMENTAL DISCLOSURE FOR NET INCOME PER SHARE
 2008
    
    
    2007Net income
    
    $
    1,361,303
    
    
    $
    3,003,709Income
available to common shareholders, assuming dilution
    
    $
    1,361,303
    
    
    $
    3,003,709Weighted-average common shares outstanding
    
    
    5,033,423
    
    
    
    4,969,484Dilutive effect of outstanding options
    
    
    13,971
    
    
    
    80,609Diluted common shares
    
    
    5,047,394
    
    
    
    5,050,093Basic net income per common share
    
    $
    0.27
    
    
    $
    0.60Diluted net income per common share
    
    $
    0.27
    
    
    $
    0.59
 (22)
    
    SEGMENT INFORMATIONWe have two reportable business segments: (1) property/casualty insurance; and (2) insurance
agency. The following table provides financial information regarding our reportable business
segments, which includes intersegment management and commission fees. The allocations of certain
general expenses within segments are based on a number of assumptions, and the reported
operating results would change if different assumptions were applied. Segment results for each
of the years ended December 31, 2008 and 2007 were as follows:
 December 31, 2008ReportableProperty/Casualty
    
    Insurance
    
    SegmentInsurance
    
    Agency
    
    TotalRevenues from external customers
    
    $
    45,143,413
    
    
    $
    
    
    
    $
    45,143,413Intersegment revenues
    
    
    
    
    
    
    1,991,010
    
    
    
    1,991,010Interest revenue
    
    
    3,793,261
    
    
    
    1,167
    
    
    
    3,794,428Interest expense
    
    
    12
    
    
    
    
    
    
    
    12Depreciation and amortization
    
    
    482,257
    
    
    
    
    
    
    
    482,257Segment profit
    
    
    3,615,656
    
    
    
    1,991,689
    
    
    
    5,607,345Federal income tax expense
    
    
    229,278
    
    
    
    677,174
    
    
    
    906,452Segment assets
    
    
    143,611,740
    
    
    
    359,794
    
    
    
    143,971,534
 December 31, 2007ReportableProperty/Casualty
    
    Insurance
    
    SegmentInsurance
    
    Agency
    
    TotalRevenues from external customers
    
    $
    46,259,908
    
    
    $
    
    
    
    $
    46,259,908Intersegment revenues
    
    
    
    
    
    
    1,663,700
    
    
    
    1,663,700Interest revenue
    
    
    3,796,874
    
    
    
    2,444
    
    
    
    3,799,318Interest expense
    
    
    233
    
    
    
    
    
    
    
    233Depreciation and amortization
    
    
    398,164
    
    
    
    
    
    
    
    398,164Segment profit
    
    
    6,441,039
    
    
    
    1,665,669
    
    
    
    8,106,708Federal income tax expense
    
    
    1,142,030
    
    
    
    566,327
    
    
    
    1,708,357Segment assets
    
    
    148,864,605
    
    
    
    230,049
    
    
    
    149,094,654
 55




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##### Table of Contents



The following is a reconciliation of the segment results to the consolidated amounts reported in
the consolidated financial statements:
 2008
    
    
    2007RevenuesTotal revenues for reportable segments
    
    $
    50,928,851
    
    
    $
    51,722,926Parent company revenues
    
    
    63,888
    
    
    
    104,411Net realized gain on sale of affiliate
    
    
    
    
    
    
    62,500Elimination of intersegment revenues
    
    
    (1,991,010
    )
    
    
    (1,663,700
    )Total consolidated revenues
    
    $
    49,001,729
    
    
    $
    50,226,137ProfitTotal profit for reportable segments
    
    $
    5,607,345
    
    
    $
    8,106,708Net realized gain on sale of affiliate
    
    
    
    
    
    
    62,500Parent company SEC investigation expenses
    
    
    (3,289,462
    )
    
    
    (2,504,122
    )Parent company other expenses, net of intersegment eliminations
    
    
    (1,799,783
    )
    
    
    (2,190,540
    )Total consolidated net income before income taxes
    
    $
    518,100
    
    
    $
    3,474,546AssetsTotal assets for reportable segments
    
    $
    143,971,534
    
    
    $
    149,094,654Parent company assets
    
    
    6,865,641
    
    
    
    5,627,454Elimination of intersegment receivables
    
    
    (456,277
    )
    
    
    (457,452
    )Total consolidated assets
    
    $
    150,380,898
    
    
    $
    154,264,656
 (23)
    
    COMMON SHARE REPURCHASE PROGRAMOn March 7, 2007, the Board of Directors adopted a common share repurchase program authorizing
the repurchase of up to 500,000 common shares of the Company. This repurchase program expired
on December 31, 2008. Through December 31, 2008, the Company repurchased 117,348 common shares
at an aggregate cost of $731,900 and at an average price per share of $6.24 under this program.
These repurchases occurred during 2007.
 56




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
 DISCLOSURE CONTROLS AND PROCEDURES
    MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL ACCOUNTING
 Internal
Control  Integrated Framework
  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  
 ITEM 9B. OTHER INFORMATION
  57




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 DIRECTORS AND DIRECTOR NOMINEES OF THE COMPANY
  John S. Sokol
 Douglas G. Borror
 Kenton R. Bowen
 Stephen P. Close
 Edward N. Cohn
 Daniel D. Harkins
 Matthew D. Walter
 58




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##### Table of Contents



EXECUTIVE OFFICERS OF THE COMPANY
  Matthew C. Nolan
 Daniel J. Stephan
 Stephen J. Toth
 Margaret A. Noreen
 CODE OF ETHICS
  SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
  AUDIT COMMITTEE
  
 ITEM 11. EXECUTIVE COMPENSATION
 COMPENSATION OF DIRECTORS
  59




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##### Table of Contents



§
    
    $10,000 annual retainer ($20,000 and $13,000 in the case of the Audit Committee Chairman
and the Compensation Committee Chairman, respectively);§
    
    $750 for each Board or committee meeting that he attends in person (provided that a
non-employee director receives only $750 for attending multiple Board and committee
meetings held on the same date);§
    
    $250 for each Board or committee meeting in which he participates telephonically
(provided that a non-employee director receives only $250 for participating telephonically
in multiple Board and committee meetings held on the same date); and§
    
    stock options to purchase 2,000 of our common shares pursuant to the 2002 Stock Plan.
   2008 Director Compensation Table
  FeesEarnedor Paid
    
    Optionin Cash
    
    Awards(1)(2)
    
    TotalName
    
    ($)
    
    ($)
    
    ($)Douglas G. Borror
    
    
    14,250
    
    
    
    4,468
    
    
    
    18,718Kenton R. Bowen
    
    
    16,250
    
    
    
    4,468
    
    
    
    20,718Stephen P. Close
    
    
    16,250
    
    
    
    4,468
    
    
    
    20,718Edward N. Cohn
    
    
    16,000
    
    
    
    4,468
    
    
    
    20,468Daniel D. Harkins
    
    
    28,250
    
    
    
    4,468
    
    
    
    32,718Matthew D. Walter
    
    
    20,000
    
    
    
    4,468
    
    
    
    24,468
 
 (1)
    
    The amounts shown reflect the dollar amount recognized for financial statement reporting
purposes for the 2008 fiscal year, in accordance with Statement of Financial Accounting
Standards No. 123R, Share-Based Payment (FAS 123R), for stock option awards granted by the
Company to the non-employee directors and thus may include amounts from awards granted in and
prior to 2008. Pursuant to applicable SEC rules, the amounts shown exclude the impact of
estimated forfeitures related to service-based vesting conditions. Assumptions used in the
calculation of this amount are included in Note 10 to the Consolidated Financial Statements
included in Item 8 of the Annual Report on Form 10-K.(2)
    
    As of December 31, 2008, the non-employee directors held the following stock options to
purchase the Companys common shares: Douglas G. Borror: 6,000 options (4,000 exercisable and
2,000 unexercisable); Kenton R. Bowen: 8,000 options (6,000 exercisable and 2,000
unexercisable); Stephen P. Close: 6,000 options (4,000 exercisable and 2,000 unexercisable);
Edward N. Cohn: 4,000 options (2,000 exercisable and 2,000 unexercisable); Daniel D. Harkins:
14,000 options (12,000 exercisable and 2,000 unexercisable); and Matthew D. Walter: 12,000
options (10,000 exercisable and 2,000 unexercisable). 60




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##### Table of Contents



COMPENSATION OF EXECUTIVE OFFICERS
 2008 Summary Compensation Table
  Non-EquityStock
    
    Option
    
    Incentive Plan
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards(1)
    
    Awards(1)
    
    Compensation(2)
    
    Compensation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)John S. Sokol
    
    
    2008
    
    
    
    349,650
    
    
    
    
    
    
    
    85,740
    
    
    
    113,125
    
    
    
    127,972
    
    
    
    121,149
    (3)
    
    
    797,636Chairman, Chief 
Executive Officer 
and President
    
    
    2007
    
    
    
    333,000
    
    
    
    
    
    
    
    35,899
    
    
    
    151,334
    
    
    
    109,172
    
    
    
    85,615
    (3)
    
    
    715,020Matthew C. Nolan
    
    
    2008
    
    
    
    210,000
    
    
    
    
    
    
    
    22,867
    
    
    
    16,318
    
    
    
    32,025
    
    
    
    26,607
    (4)
    
    
    307,817Vice President,
Chief Financial Officer,
Treasurer and Secretary
    
    
    2007
    
    
    
    200,000
    
    
    
    
    
    
    
    9,809
    
    
    
    16,318
    
    
    
    27,500
    
    
    
    18,846
    (4)
    
    
    272,473Daniel J. Stephan
    
    
    2008
    
    
    
    180,810
    
    
    
    
    
    
    
    26,335
    
    
    
    20,085
    
    
    
    61,981
    
    
    
    25,037
    (5)
    
    
    314,248President of OIC Lender
Services, a 
division of
 Ohio
Indemnity
    
    
    2007
    
    
    
    172,200
    
    
    
    50,000
    
    
    
    9,643
    
    
    
    25,511
    
    
    
    44,085
    
    
    
    16,034
    (5)
    
    
    317,473
 
 (1)
    
    The amounts shown reflect the dollar amount recognized for financial statement reporting
purposes for the 2008 and 2007 fiscal years, in accordance with FAS 123R, for restricted stock
and/or stock option awards granted by the Company to the NEOs and thus may include amounts
from awards granted in and prior to 2008 and 2007. Pursuant to applicable SEC rules, the
amounts shown exclude the impact of estimated forfeitures related to service-based vesting
conditions. Assumptions used in the calculation of these amounts are included in Note 10 to
the Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K.
See Equity Based Compensation below for more information concerning equity based
compensation awarded to the NEOs for 2008.(2)
    
    The amounts shown reflect cash bonuses earned by the NEOs under the Companys 2008 and 2007
Fiscal Year Executive Officer Bonus Plans. See Annual Bonus below for more information
concerning cash bonuses awarded to the NEOs for their performance in 2008.(3)
    
    Includes (a) $8,552 and $9,000 for the Companys matching contribution under its 401(k) Plan
for the 2008 and 2007 fiscal years, respectively, (b) $12,000 for a Company provided allowance
for life insurance premiums for the benefit of John S. Sokol for each of the 2008 and 2007
fiscal years, (c) $6,042 for the Companys reimbursement of estimated taxes incurred by John
S. Sokol in connection with the Companys provision of the life insurance allowance for each
of the 2008 and 2007 fiscal years and (d) with respect to the 2008 fiscal year, $30,016 for
tax gross-up payments made by the Company as reimbursement for estimated taxes incurred by
John S. Sokol in connection with the vesting of 9,531 restricted common shares on May 30,
2008. Also includes the aggregate incremental cost to the Company for certain other
perquisites, none of which exceeded the greater of $25,000 or ten percent of the total amount
of perquisites. Does not include dues and expenses paid by the Company related to membership
in professional organizations of $29,420 and $39,087 for the 2008 and 2007 fiscal years,
respectively, as such expenses were business-related.(4)
    
    Includes $9,200 and $9,000 for the Companys matching contribution under its 401(k) Plan for
the 2008 and 2007 fiscal years, respectively. With respect to the 2008 fiscal year, includes
$8,201 for tax gross-up payments made by the Company as reimbursement for estimated taxes
incurred by Matthew C. Nolan in connection with the vesting of 2,604 restricted common shares
on May 30, 2008. Also includes the aggregate incremental cost to the Company for certain
perquisites, none of which exceeded the greater of $25,000 or ten percent of the total amount
of perquisites.(5)
    
    Includes $8,988 and $9,000 for the Companys matching contribution under its 401(k) Plan for
the 2008 and 2007 fiscal years, respectively. With respect to the 2008 fiscal year, includes
$8,062 for tax gross-up payments made by the Company as reimbursement for estimated taxes
incurred by Daniel J. Stephan in connection with the vesting of restricted 2,560 common shares
on May 30, 2008. Also includes the aggregate incremental cost to the Company for certain
perquisites, none of which exceeded the greater of $25,000 or ten percent of the total amount
of perquisites. 61




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##### Table of Contents



Annual Bonus
  CompanyTarget Bonus as a %
    
    Goal/Individual GoalNamed Executive Officer
    
    of Base Salary
    
    WeightingJohn S. Sokol
    
    
    60
    %
    
    
    100%/0
    %Matthew C. Nolan
    
    
    25
    %
    
    
    100%/0
    %Daniel J. Stephan
    
    
    50
    %
    
    
    50%/50
    %
 Company Performance Goal Component
   
    
    if ROE for fiscal year 2008 was less than 7.5%, no bonus would be awarded for the Company goal component;
    
    if the Company achieved a ROE of 7.5% for fiscal year 2008, each NEO would be entitled to receive a
bonus equal to the product of (1) 50% of the amount of the NEOs target bonus and (2) the percentage of
his bonus allocated to the Company goal component;
    
    if the Company achieved a ROE of 15% for fiscal year 2008, each NEO would be entitled to receive a bonus
equal to the product of (1) 100% of the amount of the NEOs target bonus and (2) the percentage of his
bonus allocated to the Company goal component; and
    
    if the Company achieved a ROE of at least 20% for fiscal year 2008, each NEO would be entitled to
receive a bonus equal to the product of (1) 125% of the amount of his target bonus and (2) the
percentage of his bonus allocated to the Company goal component.
  Individual Performance Goal Component
  62




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##### Table of Contents



Equity Based Compensation
   Number of RestrictedNamed Executive Officer
    
    Common SharesJohn S. Sokol
    
    
    37,359Matthew C. Nolan
    
    
    9,364Daniel J. Stephan
    
    
    15,012
   Number of RestrictedNamed Executive Officer
    
    Common SharesJohn S. Sokol
    
    
    28,594Matthew C. Nolan
    
    
    7,813Daniel J. Stephan
    
    
    7,681
    Benefits and Perquisites
  63




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##### Table of Contents



Outstanding Equity Awards at 2008 Fiscal Year-End
 Option Awards
    
    Stock AwardsNumber of
    
    Number ofSecurities
    
    Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number ofUnderlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    Market Value ofUnexercised
    
    Unexercised
    
    
    
    
    
    Option
    
    
    
    
    
    Units of Stock
    
    Shares or Units ofOptions
    
    Options
    
    
    
    
    
    Exercise
    
    Option
    
    That Have
    
    Stock That(#)
    
    (#)
    
    
    
    
    
    Price
    
    Expiration
    
    Not Vested
    
    Have Not VestedName
    
    Exercisable
    
    Unexercisable(1)
    
    
    
    
    
    ($)
    
    Date
    
    (#)
    
    ($)(4)John S. Sokol
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    5.38
    
    
    
    7/15/2009100,000
    
    
    
    
    
    
    
    
    
    
    
    4.50
    
    
    
    7/25/2012100,000
    
    
    
    
    
    
    
    
    
    
    
    5.21
    
    
    
    6/1/201380,000
    
    
    
    20,000
    (a)
    
    
    
    
    
    
    7.04
    
    
    
    12/20/201440,000
    
    
    
    60,000
    (b)
    
    
    
    
    
    
    6.00
    
    
    
    5/30/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,063
    (2)
    
    
    69,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,359
    (3)
    
    
    136,360Matthew C. Nolan
    
    
    6,400
    
    
    
    1,600
    (c)
    
    
    
    
    
    
    7.04
    
    
    
    12/20/201410,000
    
    
    
    15,000
    (d)
    
    
    
    
    
    
    6.00
    
    
    
    5/30/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,209
    (2)
    
    
    19,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,364
    (3)
    
    
    34,179Daniel J. Stephan
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    4.06
    
    
    
    5/16/201010,000
    
    
    
    
    
    
    
    
    
    
    
    4.38
    
    
    
    5/16/20115,000
    
    
    
    
    
    
    
    
    
    
    
    4.65
    
    
    
    5/29/201110,000
    
    
    
    
    
    
    
    
    
    
    
    5.00
    
    
    
    5/16/20125,000
    
    
    
    
    
    
    
    
    
    
    
    4.50
    
    
    
    7/25/201210,000
    
    
    
    
    
    
    
    
    
    
    
    5.03
    
    
    
    5/16/20135,000
    
    
    
    
    
    
    
    
    
    
    
    5.21
    
    
    
    6/1/20138,000
    
    
    
    2,000
    (e)
    
    
    
    
    
    
    8.00
    
    
    
    5/16/201410,000
    
    
    
    15,000
    (f)
    
    
    
    
    
    
    6.00
    
    
    
    5/30/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,121
    (2)
    
    
    18,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,012
    (3)
    
    
    54,794
 64




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##### Table of Contents



(1)
    
    The unexercisable stock options vest according to the following schedule: (a)
    
    20,000 common shares on 12/21/2009;(b)
    
    20,000 common shares on each of 5/31/2009, 5/31/2010 and 5/31/2011;(c)
    
    1,600 common shares on 12/21/2009;(d)
    
    5,000 common shares on each of 5/31/2009, 5/31/2010 and 5/31/2011;(e)
    
    2,000 common shares on 5/17/2009; and(f)
    
    5,000 common shares on each of 5/31/2009, 5/31/2010 and 5/31/2011. (2)
    
    Represents unvested restricted common shares granted on May 30, 2007 which vest in one-half
increments on each of May 30, 2009 and 2010, subject to the applicable NEOs continued
employment with the Company on the applicable vesting date.(3)
    
    Represents unvested restricted common shares granted on July 31, 2008 which vest in one-third
increments on each of July 31, 2009, 2010 and 2011, subject to the applicable NEOs continued
employment with the Company on the applicable vesting date.(4)
    
    The market value of the restricted common shares which have not vested is based on the
closing price of the common shares on the OTC Bulletin Board on December 31, 2008 ($3.65). Potential Payments Upon Termination of Employment or Change in Control
   65




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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
 EQUITY COMPENSATION PLAN INFORMATION
 (a)
    
    
    (b)
    
    
    (c)Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuancebe issued upon exercise
    
    
    exercise price of
    
    
    under equity compensation plansof outstanding options,
    
    
    outstanding options,
    
    
    (excluding securities reflected inPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation plansapproved by security holders
    
    
    728,500
    
    
    $
    5.67
    
    
    
    225,647
    (1)Equity compensation plansnot approved by security holders
    
    None
    

    None

    
    NoneTotal
    
    
    728,500
    
    
    $
    5.67
    
    
    
    225,647
    (1)
 
 (1)
    
    Reflects the number of common shares available for future grant under the 2002
Stock Plan as of December 31, 2008. The 2002 Stock Plan provides for the grant of
equity-based awards, including stock options and restricted stock, to key employees, officers
and directors of, and consultants and advisors to, the Company. PRINCIPAL SHAREHOLDERS
  Number of Common
    
    PercentShares Beneficially
    
    ofName
of Beneficial Owner
    
    Owned(1)
    
    ClassBarbara K. Sokol
    
    
    2,397,068
    (2, 3)
    
    
    47.16
    %John S. Sokol
    
    
    2,411,991
    (2, 4, 5, 6)
    
    
    44.32
    %Douglas G. Borror
    
    
    9,000
    (5)
    
    
    (7)Kenton R. Bowen
    
    
    26,000
    (5)
    
    
    (7)Stephen P. Close
    
    
    4,000
    (5)
    
    
    (7)Edward N. Cohn
    
    
    4,000
    (5)
    
    
    (7)Daniel D. Harkins
    
    
    61,150
    (5)
    
    
    1.20
    %Matthew D. Walter
    
    
    35,000
    (5)
    
    
    (7)Matthew C. Nolan
    
    
    33,577
    (5, 6)
    
    
    (7)Daniel J. Stephan
    
    
    95,693
    (5, 6)
    
    
    1.86
    %All directors and executive officers
as a group (12 persons)
    
    
    3,390,678
    
    
    
    60.44
    %
 
 (1)
    
    Except as otherwise noted, the beneficial owner has sole voting and dispositive power over
the common shares shown.(2)
    
    Falcon Equity Partners, L.P. (Falcon Equity Partners), an Ohio limited partnership whose
sole partners are members of the Si Sokol family and trusts for the benefit of members of the
Si Sokol family, owns of record 1,750,000 common shares. Barbara K. Sokol owns, directly and
indirectly as trustee of a trust of which she is the sole trustee and beneficiary, a 34.8%
interest in 66




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Falcon Equity Partners, John S. Sokol owns, directly and indirectly as trustee of
trusts for the benefit of members of the Si Sokol family, a 44.4% interest in Falcon Equity
Partners and James K. Sokol and Carla A. Sokol (together with John S. Sokol, the children of
Si Sokol and Barbara K. Sokol) each own directly a 10.4% interest in Falcon Equity Partners.
As the sole managing general partner, John S. Sokol has sole power to dispose or direct the
disposition of the common shares held of record by Falcon Equity Partners. As the general
partners, John S. Sokol and Barbara K. Sokol share the power to vote or direct the vote of the
common shares held of record by Falcon Equity Partners. James K. Sokol and Carla A. Sokol also
own
of record or through a broker 31,400 and 63,611 common shares, respectively.(3)
    
    1,750,000 of these common shares are beneficially owned by Barbara K. Sokol as a general
partner of Falcon Equity Partners, as more fully described in note (2) above. 466,272 of
these common shares are owned of record or through a broker by Barbara K. Sokol individually.
180,796 of these common shares are held by the Family Share of the Si Sokol Trust, of which
Barbara K. Sokol is the sole trustee and beneficiary and exercises all rights with respect to
such common shares.(4)
    
    1,750,000 of these common shares are beneficially owned by John S. Sokol as the sole managing
general partner and a general partner of Falcon Equity Partners, as more fully described in
note (2) above. 190,272 of these common shares are owned of record or through a broker by John
S. Sokol individually. 53,197 of these common shares are held by John S. Sokol as custodian
for his minor children. 2,100 of these common shares are owned of record or through a broker
by John S. Sokols wife individually as to which he disclaims beneficial ownership.(5)
    
    Includes 360,000, 4,000, 6,000, 4,000, 2,000, 12,000, 10,000, 16,400 and 73,000 common shares
that underlie currently exercisable options or options exercisable within 60 days of February
2, 2009 held by John S. Sokol, Douglas G. Borror, Kenton R. Bowen, Stephen P. Close, Edward N.
Cohn, Daniel D. Harkins, Matthew D. Walter, Matthew C. Nolan and Daniel J. Stephan,
respectively.(6)
    
    Includes 19,063, 5,209 and 5,121 restricted Common Shares held by John S. Sokol, Matthew C.
Nolan and Daniel J. Stephan, respectively, which vest in one-half increments on May 30, 2009
and 2010 subject to such executive officers continued employment with the Company on the
applicable vesting date. Also includes 37,359, 9,364 and 15,012 restricted Common Shares held
by John S. Sokol, Matthew C. Nolan and Daniel J. Stephan, respectively, which vest in
one-third increments on July 31, 2009, 2010 and 2011 subject to such executive officers
continued employment with the Company on the applicable vesting date.(7)
    
    Represents ownership of less than 1% of the outstanding Common Shares.  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 DIRECTOR INDEPENDENCE
  BOARD COMMITTEES
  67




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TRANSACTIONS WITH RELATED PERSONS
 Undertaking Agreements
    2008
    
    
    2007John S. Sokol
    
    $
    284,718
    
    
    $
    679,000Matthew C. Nolan
    
    
    203,128
    
    
    
    860,500Stephen J. Toth
    
    
    486,972
    
    
    
    349,000Total Expenses
    
    $
    974,818
    
    
    $
    1,888,500
  Split-Dollar Agreement
 68




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 INDEPENDENT AUDITOR FEES
  2008
    
    
    2007Audit Fees(1)
    
    $
    206,000
    
    
    $
    185,000Audit-Related Fees(2)
    
    
    
    
    
    
    4,375Tax Fees
    
    
    
    
    
    
    All Other Fees(3)
    
    
    540,933
    
    
    
    Total Fees
    
    $
    746,933
    
    
    $
    189,375
 
 (1)
    
    Audit Fees consist of the aggregate fees for professional services rendered by Daszkal
for the audit of the Companys annual consolidated financial statements and review of the
condensed consolidated financial statements included in the Companys Quarterly Reports on
Form 10-Q.(2)
    
    Audit-Related Fees consist of the aggregate fees billed for assurance and related
services that are reasonably related to the performance of the audit or review of the
Companys consolidated financial statements and are not reported under Audit Fees. These
services include accounting consultations and attest services related to financial
reporting that are not required by statute or regulation and consultations concerning
financial accounting and reporting standards.(3)
    
    All Other Fees consist of the aggregate fees and expenses billed related to Daszkals
responses to certain investigative subpoenas received from the SEC Staff in connection with
the ongoing SEC investigation as more fully described above in Regulation-Ongoing SEC
Investigation in Item 1 of the Annual Report on Form 10-K and Note 4 to the Consolidated
Financial Statements included in Item 8 of the Annual Report on Form 10-K. These fees and
expenses were billed to the Company pursuant to the terms of the engagement letter between
the Company and Daszkal, and included $455,086 for Daszkals outside counsel, $59,803 for
Daszkal employees and $26,044 for former Daszkal employees. AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
   69




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as a part of this report:
 Page inthisReport(1) Financial StatementsThe following financial statements, which are included in Item 8 of Part II of this report:Report of Independent Registered Public Accounting Firm
    
    
    27Consolidated Statements of Income for the years ended December 31, 2008 and 2007
    
    
    28Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    29Consolidated Statements of Shareholders Equity for the years ended December 31, 2008 and 2007
    
    
    31Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007
    
    
    32Notes to Consolidated Financial Statements
    
    
    33(2) Financial Statement SchedulesThe following financial statement schedules are included in this Item 15 of Part IV of this report:Schedule I Summary of investments  other than investments in related parties
    
    
    73Schedule II Condensed financial information of Bancinsurance Corporation (Parent Company Only)
    
    
    74
    3(a)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation
(reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31,
1984 (file number 0-8738), which is incorporated herein by reference).3(b)
    
    Certificate of Amendment to the Amended and Restated Articles of
Incorporation of Bancinsurance Corporation dated March 10, 1993 (reference is made to
Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 2001 (file number
0-8738), which is incorporated herein by reference).3(c)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation
(reflecting amendments through March 10, 1993) (for SEC reporting purposes only)
(reference is made to Exhibit 3(c) of Form 10-K for the fiscal year ended December 31,
2001 (file number 0-8738), which is incorporated herein by reference).3(d)
    
    Amended and Restated Code of Regulations of Bancinsurance Corporation
(reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31,
1984 (file number 0-8738), which is incorporated herein by reference).4(a)
    
    Indenture dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National
Association (reference is made to Exhibit 4(g) of Form 10-K for the fiscal year ended
December 31, 2002 (file number 0-8738), which is incorporated herein by reference).4(b)
    
    Amended and Restated Declaration of Trust dated as of December 4, 2002 by and
among Bancinsurance Corporation, State Street Bank and Trust Company of Connecticut,
National Association, John Sokol, Si Sokol and Sally Cress (reference is made to
Exhibit 4(h) of Form 10-K for the fiscal year ended December 31, 2002 (file number
0-8738), which is incorporated herein by reference).4(c)
    
    Guarantee Agreement dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National
Association (reference is made to Exhibit 4(i) of Form 10-K for the fiscal
 70




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##### Table of Contents



year ended
December 31, 2002 (file number 0-8738), which is incorporated herein by reference).4(d)
    
    Indenture dated as of September 30, 2003 by and between Bancinsurance
Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(b) of Form 10-Q
for the fiscal quarter ended September 30, 2003 (file number 0-8738), which is
incorporated herein by reference).4(e)
    
    Amended and Restated Declaration of Trust dated as of September 30, 2003 by
and among Bancinsurance Corporation, JPMorgan Chase Bank, Chase Manhattan Bank USA,
National Association, John Sokol, Si Sokol and Sally Cress (reference is made to
Exhibit 4(c) of Form 10-Q for the fiscal quarter ended September 30, 2003 (file number
0-8738), which is incorporated herein by reference).4(f)
    
    Guarantee Agreement dated as of September 30, 2003 by and between
Bancinsurance Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(d)
of Form 10-Q for the fiscal quarter ended September 30, 2003 (file number 0-8738),
which is incorporated herein by reference).4(g)
    
    Amended and Restated Credit Agreement effective as of June 15, 2006 by and
between Bancinsurance Corporation and Fifth Third Bank of Columbus, Ohio (reference is
made to Exhibit 4.1 of Current Report on Form 8-K filed June 16, 2006 (file number
0-8738), which is incorporated herein by reference).4(h)
    
    Eleventh Amendment and Restatement of Note effective as of June 15, 2006 by
and between Bancinsurance Corporation and Fifth Third Bank of Columbus, Ohio
(reference is made to Exhibit 4.2 of Form 8-K filed June 16, 2006 (file number
0-8738), which is incorporated herein by reference).4(i)
    
    First Addendum to Eleventh Amendment and Restatement of Note effective as of
September 27, 2007 by and between Bancinsurance Corporation and Fifth Third Bank
(reference is made to Exhibit 10.1 of Current Report on Form 10-Q filed November 13,
2007 (File No. 0-8738), which is incorporated herein by reference).10(a)
    
    Amended Tax Allocation Agreement by and between Bancinsurance Corporation
and Ohio Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the
fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein
by reference).10(b)#
    
    Bancinsurance Corporation 1994 Stock Option Plan (reference is made to Exhibit 10(f)
of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is
incorporated herein by reference).10(c)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and
John S. Sokol (reference is made to Exhibit 99.2 of Current Report on Form 8-K filed
April 15, 2005 (file number 0-8738), which is incorporated herein by reference).10(d)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and
Sally J. Cress (reference is made to Exhibit 99.3 of Current Report on Form 8-K filed
April 15, 2005 (file number 0-8738), which is incorporated herein by reference).10(e)#
    
    First Amendment to Undertaking Agreement dated October 17, 2005 between
Bancinsurance Corporation and Sally J. Cress (reference is made to Exhibit 99.1 of
Current Report on Form 8-K filed October 21, 2005 (file number 0-8738), which is
incorporated herein by reference).10(f)#
    
    Bancinsurance Corporation 2002 Stock Incentive Plan Form of Award Agreement
(reference is made to Exhibit 10.1 of Current Report on Form 8-K filed June 6, 2006
(file number 0-8738), which is incorporated herein by reference).10(g)#
    
    Form of Restricted Stock Award Agreement (reference is made to Exhibit 10.1 of
Current Report on Form 8-K filed June 4, 2007 (File No. 0-8738), which is incorporated
herein by reference).10(h)#
    
    Form of Undertaking Agreement dated November 12, 2007 by and between Bancinsurance
Corporation and John S. Sokol, Matthew C. Nolan and Stephen J. Toth (reference is made
to Exhibit 10.2 of Current Report on Form 10-Q filed November 13, 2007 (File No.
0-8738), which is incorporated herein by reference).10(i)#
    
    Split Dollar Insurance Agreement, dated June 20, 1994, between Bancinsurance
Corporation and Fifth Third Bank of Columbus, as Trustee of the Si and Barbara K.
Sokol Irrevocable Trust dated May 6, 1994 (reference is made to Exhibit 10(p) of Form
10-K for the fiscal year ended December 31, 2007 (file number 0-8738), which is
incorporated herein by reference).10(j)#
    
    Split Dollar Insurance Agreement Collateral Assignment, dated June 21, 1994, by and
between Bancinsurance Corporation and Fifth Third Bank of Columbus, Trustee of the Si
and Barbara K. Sokol Irrevocable Trust dated May 6, 1994 (reference is made to Exhibit
10(q) of Form 10-K for the fiscal year ended December 31, 2007 (file number 0-8738),
which is incorporated herein by reference).
 71




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##### Table of Contents



10(k)#
    
    Summary of Bancinsurance Corporation 2008 Fiscal Year Executive Officer Bonus Plan
(reference is made to Exhibit 10.1 of Current Report on Form 8-K filed March 7, 2008
(file number 0-8738), which is incorporated herein by reference).10(l)
    
    Commercial Lease Agreement between Ohio Indemnity Company and 250 East Broad
Street Properties, LLC, dated August 11, 2008 (reference is made to Exhibit 10.1 of
Current Report on Form 8-K filed on August 20, 2008 (file number 0-08738), which is
incorporated herein by reference).10(m)#
    
    Amended and Restated Bancinsurance Corporation 2002 Stock Incentive Plan effective
as of January 1, 2009 (reference is made to Exhibit 10.1 of Current Report on Form
10-Q filed October 31, 2008 (file number 0-8738), which is incorporated herein by
reference).10(n)#
    
    First Amendment to Bancinsurance Corporation 1994 Stock Option Plan effective as of
January 1, 2009 (reference is made to Exhibit 10.2 of Current Report on Form 10-Q
filed October 31, 2008 (file number 0-8738), which is incorporated herein by
reference).21*
    
    Subsidiaries of the Registrant as of December 31, 2008.23(a)*
    
    Consent of Daszkal Bolton LLP.31.1*
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed with this Annual Report on Form 10-K.#
    
    Constitutes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K. (b)
    
    ExhibitsSee Item 15(a)(3).(c)
    
    Financial Statement SchedulesSee Item 15(a)(2).
 72




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##### Table of Contents



Column A
    
    Column B
    
    
    Column C
    
    

Column DType of Investment
    
    Cost (1)
    
    
    Estimated
    
    
    Amount at whichfair
    
    
    shown in thevalue
    
    
    balance sheetHeld to maturity:Fixed maturities:Governments
    
    $
    2,306,533
    
    
    $
    2,349,883
    
    
    $
    2,306,533Political subdivisions
    
    
    1,523,604
    
    
    
    1,574,019
    
    
    
    1,523,604Special revenue and assessments
    
    
    1,367,931
    
    
    
    1,406,769
    
    
    
    1,367,931Total held to maturity
    
    
    5,198,068
    
    
    
    5,330,671
    
    
    
    5,198,068Available for sale:Fixed maturities:States, territories and
Possessions
    
    
    5,411,990
    
    
    
    5,073,384
    
    
    
    5,073,384Political subdivisions
    
    
    817,634
    
    
    
    810,783
    
    
    
    810,783Special revenue and assessments
    
    
    58,611,026
    
    
    
    51,634,010
    
    
    
    51,634,010Taxable municipal bonds
    
    
    600,000
    
    
    
    579,263
    
    
    
    579,263Corporate debt securities
    
    
    1,200,360
    
    
    
    1,059,380
    
    
    
    1,059,380Redeemable preferred stocks
    
    
    381,550
    
    
    
    518,250
    
    
    
    518,250Total available for sale fixed
maturities
    
    
    67,022,560
    
    
    
    59,675,070
    
    
    
    59,675,070Equity securities:Non-redeemable preferred stocks:Banks, trusts and insurance
Companies
    
    
    930,715
    
    
    
    862,389
    
    
    
    862,389Industrial and miscellaneous
    
    
    13,723
    
    
    
    13,723
    
    
    
    13,723Total non-redeemable preferred stocks
    
    
    944,438
    
    
    
    876,112
    
    
    
    876,112Common stocks:Banks, trusts and insurance
Companies
    
    
    1,206,706
    
    
    
    1,649,940
    
    
    
    1,649,940Industrial and miscellaneous
    
    
    355,554
    
    
    
    373,423
    
    
    
    373,423Investment in mutual funds
    
    
    4,788,655
    
    
    
    3,642,389
    
    
    
    3,642,389Total common stocks
    
    
    6,350,915
    
    
    
    5,665,752
    
    
    
    5,665,752Total available for sale equity securities
    
    
    7,295,353
    
    
    
    6,541,864
    
    
    
    6,541,864Short-term investments
    
    
    5,939,254
    
    
    
    5,939,254
    
    
    
    5,939,254Restricted short-term investments
    
    
    3,886,635
    
    
    
    3,886,635
    
    
    
    3,886,635Other invested assets
    
    
    715,000
    
    
    
    715,000
    
    
    
    715,000Total investments
    
    $
    90,056,870
    
    
    $
    82,088,494
    
    
    $
    81,955,891
 
 (1)
    
    Original cost of equity securities, adjusted for any write-downs, and, as to fixed maturities
and short-term investments, original cost reduced by repayments, write-downs and adjusted for
amortization of premiums or accrual of discounts. 73




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##### Table of Contents



December 31,2008
    
    
    2007AssetsCash
    
    $
    3,261,413
    
    
    $
    1,613,854Unaffiliated investments
    
    
    715,000
    
    
    
    715,000Investments in subsidiaries (at equity)
    
    
    46,392,329
    
    
    
    50,657,001Federal income tax recoverable
    
    
    194,218
    
    
    
    461,389Receivable from subsidiaries, net
    
    
    67,691
    
    
    
    112,899Other assets
    
    
    2,627,319
    
    
    
    2,724,312Total assets
    
    
    53,257,970
    
    
    
    56,284,455Liabilities and Shareholders EquityBank line of credit
    
    
    2,500,000
    
    
    
    Trust preferred debt issued to affiliates
    
    
    15,465,000
    
    
    
    15,465,000Other liabilities
    
    
    632,589
    
    
    
    2,362,533Shareholders equity
    
    
    34,660,381
    
    
    
    38,456,922Total liabilities and shareholders equity
    
    $
    53,257,970
    
    
    $
    56,284,455
 74




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##### Table of Contents



Years ended December 31,2008
    
    
    2007Other income
    
    $
    63,783
    
    
    $
    104,340Net realized gain on sale of affiliate
    
    
    
    
    
    
    62,500Interest expense
    
    
    (1,232,243
    )
    
    
    (1,472,459
    )SEC investigation expenses
    
    
    (3,289,462
    )
    
    
    (2,504,122
    )Other expenses
    
    
    (631,451
    )
    
    
    (686,209
    )Loss before tax benefit and equity in earnings of subsidiaries
    
    
    (5,089,373
    )
    
    
    (4,495,950
    )Federal income tax benefit
    
    
    1,749,655
    
    
    
    1,237,520Loss before equity in earnings of subsidiaries
    
    
    (3,339,718
    )
    
    
    (3,258,430
    )Equity in distributed and undistributed earnings of subsidiaries
    
    
    4,701,021
    
    
    
    6,262,139Net income
    
    $
    1,361,303
    
    
    $
    3,003,709
 75




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##### Table of Contents



Years ended December 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    1,361,303
    
    
    $
    3,003,709Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Equity in distributed and undistributed net earnings of subsidiaries
    
    
    (4,701,021
    )
    
    
    (6,262,139
    )Net realized gain on sale of affiliate
    
    
    
    
    
    
    (62,500
    )Net realized gain from sale of property
    
    
    
    
    
    
    (53,182
    )Depreciation and amortization
    
    
    106,396
    
    
    
    108,411Deferred federal income tax benefit
    
    
    (171,478
    )
    
    
    (325,097
    )Change in assets and liabilities:Loans to affiliates
    
    
    (56,371
    )
    
    
    (71,719
    )Accounts receivable/payable from/to subsidiaries
    
    
    45,208
    
    
    
    2,560,091Other assets
    
    
    689,501
    
    
    
    218,380SEC investigation expense payable
    
    
    (1,598,497
    )
    
    
    2,011,500Other liabilities
    
    
    (131,447
    )
    
    
    (485,430
    )Net cash (used in) provided by operating activities
    
    
    (4,456,406
    )
    
    
    642,024Cash flows from investing activities:Proceeds from sale of affiliate, net
    
    
    
    
    
    
    62,500Proceeds from collection of note receivable
    
    
    300,000
    
    
    
    Sale of land, property and leasehold improvements
    
    
    
    
    
    
    359,386Purchase of land, property and leasehold improvements
    
    
    (76,040
    )
    
    
    (92,964
    )Net cash provided by investing activities
    
    
    223,960
    
    
    
    328,922Cash flows from financing activities:Proceeds from bank line of credit
    
    
    2,500,000
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    334,375Acquisition of treasury shares
    
    
    
    
    
    
    (731,900
    )Dividends from subsidiaries
    
    
    3,380,005
    
    
    
    936,026Net cash provided by financing activities
    
    
    5,880,005
    
    
    
    538,501Net increase in cash
    
    
    1,647,559
    
    
    
    1,509,447Cash at beginning of year
    
    
    1,613,854
    
    
    
    104,407Cash at end of year
    
    $
    3,261,413
    
    
    $
    1,613,854Supplemental disclosures of cash flow information:Cash paid (received) during the year for:Interest
    
    $
    1,246,866
    
    
    $
    1,474,097Federal income taxes
    
    $
    (1,588,177
    )
    
    $
    (627,182
    )
 76




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##### Table of Contents



Signatures
  Bancinsurance CorporationDated: February 27, 2009
    
    By
    
    /s/ John S. SokolJohn S. SokolChairman, Chief Executive Officerand President(Principal Executive Officer)
  Dated: February 27, 2009
    
    /s/ John S. SokolJohn S. SokolChairman, Chief Executive Officerand President(Principal Executive Officer)Dated: February 27, 2009
    
    /s/ Douglas G. Borror
    
    Dated: February 27, 2009
    
    /s/ Kenton R. BowenDouglas G. Borror
    
    
    
    Kenton R. BowenDirector
    
    
    
    DirectorDated: February 27, 2009
    
    /s/ Stephen P. Close
    
    Dated: February 27, 2009
    
    /s/ Daniel D. HarkinsStephen P. Close
    
    
    
    Daniel D. HarkinsDirector
    
    
    
    DirectorDated: February 27, 2009
    
    /s/ Edward N. Cohn
    
    Dated: February 27, 2009
    
    /s/ Matthew D. WalterEdward N. Cohn
    
    
    
    Matthew D. WalterDirector
    
    
    
    DirectorDated: February 27, 2009
    
    /s/ Matthew C. NolanMatthew C. NolanVice
President, Chief Financial Officer,
    
    ,Treasurer and Secretary(Principal Financial Officerand Principal Accounting Officer)
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##### Table of Contents



INDEX OF EXHIBITS
  Exhibit No.
    
    Description3(a)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reference
is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file
number 0-8738), which is incorporated herein by reference).3(b)
    
    Certificate of Amendment to the Amended and Restated Articles of Incorporation of
Bancinsurance Corporation dated March 10, 1993 (reference is made to Exhibit 3(b) of Form
10-K for the fiscal year ended December 31, 2001 (file number 0-8738), which is
incorporated herein by reference).3(c)
    
    Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reflecting
amendments through March 10, 1993) (for SEC reporting purposes only) (reference is made to
Exhibit 3(c) of Form 10-K for the fiscal year ended December 31, 2001 (file number 0-8738),
which is incorporated herein by reference).3(d)
    
    Amended and Restated Code of Regulations of Bancinsurance Corporation (reference is
made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number
0-8738), which is incorporated herein by reference).4(a)
    
    Indenture dated as of December 4, 2002 by and between Bancinsurance Corporation and
State Street Bank and Trust Company of Connecticut, National Association (reference is made
to Exhibit 4(g) of Form 10-K for the fiscal year ended December 31, 2002 (file number
0-8738), which is incorporated herein by reference).4(b)
    
    Amended and Restated Declaration of Trust dated as of December 4, 2002 by and among
Bancinsurance Corporation, State Street Bank and Trust Company of Connecticut, National
Association, John Sokol, Si Sokol and Sally Cress (reference is made to Exhibit 4(h) of
Form 10-K for the fiscal year ended December 31, 2002 (file number 0-8738), which is
incorporated herein by reference).4(c)
    
    Guarantee Agreement dated as of December 4, 2002 by and between Bancinsurance
Corporation and State Street Bank and Trust Company of Connecticut, National Association
(reference is made to Exhibit 4(i) of Form 10-K for the fiscal year ended December 31, 2002
(file number 0-8738), which is incorporated herein by reference).4(d)
    
    Indenture dated as of September 30, 2003 by and between Bancinsurance Corporation and
JPMorgan Chase Bank (reference is made to Exhibit 4(b) of Form 10-Q for the fiscal quarter
ended September 30, 2003 (file number 0-8738), which is incorporated herein by reference).4(e)
    
    Amended and Restated Declaration of Trust dated as of September 30, 2003 by and among
Bancinsurance Corporation, JPMorgan Chase Bank, Chase Manhattan Bank USA, National
Association, John Sokol, Si Sokol and Sally Cress (reference is made to Exhibit 4(c) of
Form 10-Q for the fiscal quarter ended September 30, 2003 (file number 0-8738), which is
incorporated herein by reference).4(f)
    
    Guarantee Agreement dated as of September 30, 2003 by and between Bancinsurance
Corporation and JPMorgan Chase Bank (reference is made to Exhibit 4(d) of Form 10-Q for the
fiscal quarter ended September 30, 2003 (file number 0-8738), which is incorporated herein
by reference).4(g)
    
    Amended and Restated Credit Agreement effective as of June 15, 2006 by and between
Bancinsurance Corporation and Fifth Third Bank of Columbus, Ohio (reference is made to
Exhibit 4.1 of Current Report on Form 8-K filed
June 16, 2006 (file number 0-8738), which is incorporated herein by reference).4(h)
    
    Eleventh Amendment and Restatement of Note effective as of June 15, 2006 by and between
Bancinsurance Corporation and Fifth Third Bank of Columbus, Ohio (reference is made to
Exhibit 4.2 of Form 8-K filed June 16, 2006 (file number 0-8738), which is incorporated
herein by reference).4(i)
    
    First Addendum to Eleventh Amendment and Restatement of Note effective as of September
27, 2007 by and between Bancinsurance Corporation and Fifth Third Bank (reference is made
to Exhibit 10.1 of Current Report on Form 10-Q filed November 13, 2007 (File No. 0-8738),
which is incorporated herein by reference).10(a)
    
    Amended Tax Allocation Agreement by and between Bancinsurance Corporation and Ohio
Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year
ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference).10(b)#
    
    Bancinsurance Corporation 1994 Stock Option Plan (reference is made to Exhibit 10(f) of
Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is
incorporated herein by reference).10(c)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and John S.
Sokol (reference is made to Exhibit 99.2 of Current Report on Form 8-K filed April 15, 2005
(file number 0-8738), which is incorporated herein by reference).
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##### Table of Contents



Exhibit No.
    
    Description10(d)#
    
    Undertaking Agreement dated April 14, 2005 between Bancinsurance Corporation and Sally J.
Cress (reference is made to Exhibit 99.3 of Current Report on Form 8-K filed April 15, 2005
(file number 0-8738), which is incorporated herein by reference).10(e)#
    
    First Amendment to Undertaking Agreement dated October 17, 2005 between Bancinsurance
Corporation and Sally J. Cress (reference is made to Exhibit 99.1 of Current Report on Form
8-K filed October 21, 2005 (file number 0-8738), which is incorporated herein by
reference).10(f)#
    
    Bancinsurance Corporation 2002 Stock Incentive Plan Form of Award Agreement (reference is
made to Exhibit 10.1 of Current Report on Form 8-K filed June 6, 2006 (file number 0-8738),
which is incorporated herein by reference).10(g)#
    
    Form of Restricted Stock Award Agreement (reference is made to Exhibit 10.1 of Current
Report on Form 8-K filed June 4, 2007 (File No. 0-8738), which is incorporated herein by
reference).10(h)#
    
    Form of Undertaking Agreement dated November 12, 2007 by and between Bancinsurance
Corporation and John S. Sokol, Matthew C. Nolan and Stephen J. Toth (reference is made to
Exhibit 10.2 of Current Report on Form 10-Q filed November 13, 2007 (File No. 0-8738),
which is incorporated herein by reference).10(i)#
    
    Split Dollar Insurance Agreement, dated June 20, 1994, between Bancinsurance Corporation
and Fifth Third Bank of Columbus, as Trustee of the Si and Barbara K. Sokol Irrevocable
Trust dated May 6, 1994 (reference is made to Exhibit 10(p) of Form 10-K for the fiscal
year ended December 31, 2007 (file number 0-8738), which is incorporated herein by
reference).10(j)#
    
    Split Dollar Insurance Agreement Collateral Assignment, dated June 21, 1994, by and
between Bancinsurance Corporation and Fifth Third Bank of Columbus, Trustee of the Si and
Barbara K. Sokol Irrevocable Trust dated May 6, 1994 (reference is made to Exhibit 10(q) of
Form 10-K for the fiscal year ended December 31, 2007 (file number 0-8738), which is
incorporated herein by reference).10(k)#
    
    Summary of Bancinsurance Corporation 2008 Fiscal Year Executive Officer Bonus Plan
(reference is made to Exhibit 10.1 of Current Report on Form 8-K filed March 7, 2008 (file
number 0-8738), which is incorporated herein by reference).10(l)
    
    Commercial Lease Agreement between Ohio Indemnity Company and 250 East Broad Street
Properties, LLC, dated August 11, 2008 (reference is made to Exhibit 10.1 of Current Report
on Form 8-K filed on August 20, 2008 (file number 0-08738), which is incorporated herein by
reference).10(m)#
    
    Amended and Restated Bancinsurance Corporation 2002 Stock Incentive Plan effective as of
January 1, 2009 (reference is made to Exhibit 10.1 of Current Report on Form 10-Q filed
October 31, 2008 (file number 0-8738), which is incorporated herein by reference).10(n)#
    
    First Amendment to Bancinsurance Corporation 1994 Stock Option Plan effective as of
January 1, 2009 (reference is made to Exhibit 10.2 of Current Report on Form 10-Q filed
October 31, 2008 (file number 0-8738), which is incorporated herein by reference).21*
    
    Subsidiaries of the Registrant as of December 31, 2008.23(a)*
    
    Consent of Daszkal Bolton LLP.31.1*
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2*
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1*
    
    Certification of Principal Executive Officer and Principal Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed with this Annual Report on Form 10-K.#
    
    Constitutes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K. 79