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COVER PAGE

I.       NOTICE OF HEARING ON PROPOSED SETTLEMENT

II.       OVERVIEW OF THE ACTION

III.       REASONS FOR SETTLEMENT

IV.       TERMS OF SETTLEMENT AGREEMENT

V.       DISTRIBUTION OF THE SETTLEMENT FUND

VI.       RIGHT TO APPEAR AT THE SETTLEMENT HEARING

VII.       DISMISSAL AND RELEASES

VIII.       CONDITIONS FOR SETTLEMENT

IX.       THE RIGHT TO OBJECT

X.       EXAMINATION OF PAPERS

XI.       WHAT YOU NEED TO DO TO BE ELIGIBLE FOR A CASH DISTRIBUTION

CLAIM FORM

      This Notice has been sent to you pursuant to an Order of the Court of Common Pleas of Cuyahoga County, Ohio (the "Court"). The purpose of this Notice is to inform you of (1) the proposed settlement of this action (the "Action") on the terms described herein (Sections IV and V); (2) the hearing to be held by the Court to consider the fairness, reasonableness, and adequacy of the settlement (Section I); (3) your right to object to the Settlement (Section IX); (4) the eligibility requirements for a cash distribution from the Settlement (Section XI).

      PLEASE CAREFULLY READ SECTION XI. OF THIS NOTICE TO DETERMINE WHAT YOU NEED TO DO TO PRESERVE ANY RIGHT YOU MAY HAVE TO RECEIVE A CASH DISTIBUTION FROM THIS SETTLEMENT.

      This Notice is not an expression of any opinion by the Court about the merits of any of the claims or defenses asserted by any party in this Action or the fairness or adequacy of the proposed settlement.

      For further information regarding this settlement, you may contact the following counsel for Plaintiff and the Class:

I.       NOTICE OF HEARING ON PROPOSED SETTLEMENT

      Pursuant to the Court Order preliminarily approving the Settlement, a settlement hearing will be held on September 17, 2004 at 1:30 p.m., at Courtroom 21-B of the Cuyahoga County Court of Common Pleas, 1200 Ontario Street, Cleveland, Ohio 44113-1678 (the "Settlement Hearing"). The purpose of the Settlement Hearing will be to determine: (1) whether the terms of the settlement should be approved as fair, reasonable and adequate; and (2) whether the Action should be dismissed with prejudice to COLONIAL INSURANCE COMPANY (hereinafter "Colonial"), a company in rehabilitation, NANCY J. HOLZ, MARK J. FORRESTER, RALPH D. KOVANDA and CATHLEEN DELANEY (collectively, the "Defendants"), and THE CINCINNATI INSURANCE COMPANY (hereinafter "Cincinnati"). The Court may adjourn or continue the Settlement Hearing without further notice to the Class (as defined below).

II.       OVERVIEW OF THE ACTION

      On July 10, 2000, Plaintiff Mary E. Nunneker filed a Class Action Complaint in the Court, Case No. CV412736 ("Nunneker I"), on behalf of herself and all others who purchased convalescent care insurance policies (the "Policies") from Colonial that Plaintiff contends were defectively designed by Colonial. On November 29, 2001, Plaintiff filed a second class action in the Court, Case No. CV1454848 ("Nunneker II"). Nunneker II was identical in all respects to Nunneker I, except that it asserted class claims not against Colonial, but against certain officers and directors of Colonial; namely, Nancy J. Holz, Mark J. Forrester, Ralph D. Kovanda and Cathleen Delaney. Nunneker I and Nunneker II, which were consolidated by the Court for all purposes on February 1, 2002, are hereinafter collectively referred to as the "Class Action."

      The Class Action alleges that Colonial intentionally, recklessly and/or negligently underpriced its convalescent care policies in order to facilitate their sale at a lower initial premium rate. Plaintiff alleges that in so doing Colonial misrepresented in its policies that premium increases "may" occur when it knew or should have known that significant premium rate increases were nearly certain to occur because it had improperly underpriced the convalescent care policies it sold to Plaintiff and the Class by understating its anticipated claim loss and reserves, by poorly underwriting the policies and by ignoring the fact that Colonial would likely close the block of business for the policies within a short period of time. Plaintiff alleges that Colonial knew that as a result of these actions the block of business would become comprised of aging persons with deteriorating conditions of health and would inevitably cause significant premium increases because more claims would be made. Plaintiff contends in the Class Action that all of these factors if properly considered and disclosed at the time of sale would have caused Colonial to have significantly higher initial premiums for its convalescent care policies, which would have made them much less marketable. Plaintiff alleges that Colonial instead improperly underpriced its convalescent care policies to induce Plaintiff and the Class to purchase them, falsely stated in their policies that premium increases would not be made because of changes in age or health and thereafter proceeded to increase the annual premium more than 445% since 1986 alone because the claims made increased substantially because insureds aged and began having more health problems.

      Based upon these allegations, the Class Action set forth claims for fraud, breach of contract, negligence and unjust enrichment. Plaintiff sought to recover for herself and all members of the Class monies paid for improperly increased premiums, interest, punitive damages, injunctive relief to prevent future premium increases and such other relief as more fully set forth in the Class Action Complaints.

      Colonial and its Officers and Directors fully denied each and every claim asserted by Plaintiffs and the Class and filed an answer and affirmative defenses to each and every claim. Colonial asserts that it has paid all claims filed in accordance with the terms of its Policies.

      By Orders dated December 3, 2001 and March 13, 2002, the Court certified the following class (the "Class"):

Those individuals who purchased, at any time, Colonial convalescent care policies and with policy form numbers CC-40-7/85, CC-50-7/85, CC-60-7/85, CC-381-40, CC-381-50, CC-381-60, 88 CC, 88-CC II, 88 CC III, 90-CC, 90-CC I, 92-NH, 95 ANH, 95 ANH I, 97 ANH or 99 ANH and who either paid one or more premiums that were increased from their initial premium rates or discontinued their policy (except in cases of death of the insured) following the mailing of a premium notice reflecting an increase in premium from their initial premium. Excluded from the Class are all current or former officers, directors, employees, and agents of Colonial, its affiliates, and/or subsidiaries. Also excluded from the Class are any policies that are registered securities and those persons who opted out of the Class by May 30, 2002 pursuant to the prior Notice of Class Action directed by the Court.

      If you are one of these persons who is not excluded, you are a member of the certified Class in this action. The Court also approved the law firms of Specter Specter Evans & Manogue, P.C., The Brualdi Law Firm, and Gene Mesh & Associates as Counsel for Plaintiff and the Class ("Class Counsel").

      The Cincinnati Insurance Company ("Cincinnati") issued to Colonial its Financial Institutions Blue Chip Policy No. BCP 873 65 07 (the "D&O Policy"), which was effective for the period from December 7, 1999 to December 7, 2000, and renewed for the period from December 7, 2000 to December 7, 2001. Upon being served with the complaints in Nunneker I and Nunneker II, Defendants notified Cincinnati and sought coverage under the D&O Policy. Cincinnati fully denied coverage for Nunneker I and Nunneker II, raised other potential coverage issues and defenses, and reserved all of its rights and defenses under the D&O Policy and available at law.

      On April 17, 2002, Defendants filed a third party complaint (the "Third Party Complaint") in the Class Action in an effort to obtain a declaration that (1) the D&O Policy provides coverage for the actions or inaction set forth in the Class Action, (2) Cincinnati has a duty to insure and defend the Defendants in connection with the Class Action, and (3) Cincinnati's failure to acknowledge coverage and defend the Class Action is wrongful, knowing, intentional and reckless, and violates Cincinnati's good faith duty. On May 24, 2002, Cincinnati moved to dismiss the Third Party Complaint, which the Court denied by Order dated December 5, 2002. On January 16, 2003, Cincinnati moved for summary judgment on all claims asserted against it in the Third Party Complaint and that motion is still pending.

      Plaintiff's counsel conducted significant discovery, including obtaining thousands of documents, deposing key Colonial officers, and reviewing and analyzing information provided by Colonial. The parties retained experts and exchanged expert reports. Plaintiff's counsel deposed each of Defendants' proffered experts and moved in limine to exclude their testimony at trial. Plaintiff also filed other limine motions for trial. A trial on all claims in the Class Action was set to proceed in February 2003.

      On January 16, 2003, the Court of Common Pleas of Franklin County, Ohio, (the "Rehabilitation Court") Case No. 03 CVC 01 00597 ("Rehabilitation Action") through an Agreed Order Appointing Rehabilitator placed Colonial into rehabilitation because Colonial "was in such condition that its further transaction of business would be financially hazardous to its policyholders, creditors, or the public" and appointed the Ohio Superintendent of Insurance as the Rehabilitator of Colonial (the "Rehabilitator"). As a result of the Rehabilitation Court placing Colonial in rehabilitation, the Court in the Class Action issued an Order on February 5, 2003 canceling the trial and setting a case management conference for June 2, 2003, and, thereafter, on March 4, 2003, issued an Order staying the case pending the outcome of Colonial's financial issues.

      Thereafter, by Order of the Court, the parties participated in a mediation with the Court-appointed Mediator on December 11, 2003, and have engaged in extensive, arms length negotiations regarding the settlement of the claims alleged in the Class Action.

      Thereafter, the parties agreed to settle the Class Action on the terms set forth herein.

III.       REASONS FOR SETTLEMENT

      Plaintiff and her counsel believe that the claims asserted in the Class Action have merit and that the evidence developed to date in the Class Action supports the claims asserted. However, based upon analysis of the facts and the law applicable to the claims alleged in the Class Action, the burdens and expense of litigation, including the risks and uncertainties associated with protracted trials and appeals, the risks and uncertainties of the ramifications of recovering from a mutual protective association in the event Plaintiff were to prevail, the risks and uncertainties of recovering against any actuarial services provided, the risks and uncertainties of recovering from an insolvent entity even in the event Plaintiff were to prevail, the fact that the total amount of monthly payments currently being paid by Colonial exceeds the amount of interest being earned, the risk and uncertainty of prevailing on Defendants' Third Party Complaint, and the certainty and cost-efficiencies provided by the payments set forth in the Settlement Agreement, Plaintiff and her counsel have concluded that the Settlement Agreement provides substantial benefits to the proposed Class and is fair, reasonable, and in the best interest of the Class.

      Likewise, Defendants and Cincinnati have concluded that entering into the Settlement Agreement is desirable to avoid the time, risk, and expense of continued litigation of the claims alleged in the Class Action.

IV.       TERMS OF SETTLEMENT AGREEMENT

      Subject to final approval of the Court, the parties have agreed to the following terms of the Settlement.

      1.       The sum of $365,000.00 shall be paid.

      2.       Colonial (or the Rehabilitator, where appropriate) will be responsible for settlement notice, administration and related activities and Class Counsel will be responsible for all other aspects of the settlement and will be available to answer any questions that Colonial or others may have about the settlement or the settlement process. Colonial will be responsible for the entire cost of certain activities identified in Exhibit 2 to the Settlement Agreement while for settlement notice, administration and related activities not identified in Exhibit 2 to the Settlement Agreement, Colonial will be responsible for the cost of all such activities, except Class Counsel's attorneys' fees, to the extent the total costs of the activities listed in Exhibit 2 to the Settlement Agreement plus the additional settlement activities not identified in Exhibit 2 to the Settlement Agreement do not exceed $20,000.00, and the Class shall be responsible for the cost of all settlement activities not listed in Exhibit 2 to the Settlement Agreement that exceed the $20,000.00 total cost. In no event shall the Class be responsible for the cost of any settlement activity listed in Exhibit 2 to the Settlement Agreement.

      3.       Colonial's officers and directors who are named Defendants in the referenced actions have provided verified confirmations to Class Counsel that they do not have assets in their name that exceed $500,000.00 as to one individual, $300,000.00 as to two other individuals and $200,000.00 as to the last individual.

      4.       On November 7, 2003, the Rehabilitator filed a plan of Rehabilitation with the Franklin County Court of Common Pleas. The Rehabilitator agreed to make and has made the following clarifications to the Rehabilitation Plan. These clarifications resulted from discussions with the Class Counsel.

      a.       In the event that all claims are ultimately paid by Colonial, as contemplated under the Plan, and additional assets remain to be distributed to Colonial's policyholders ("surplus assets"), the convalescent care policyholders who have current policies as of the date of approval of the Plan and any terminated convalescent care policyholders who file a claim in the Class Action will have the right to intervene in Colonial's rehabilitation to seek a portion of the surplus assets. See "Plan of Rehabilitation," page 7.

      b.       The Rehabilitator states that he would prefer to avoid an assessment of Colonial's policyholders. Thus, the Rehabilitator's proposed Rehabilitation Plan attempts to meet all of Colonial's obligations without any assessment of Colonial's policyholders. See "Plan of Rehabilitation," pages 4-7.

      c.       If the Rehabilitator is able to obtain a new provider for Colonial's Medicare Supplement policies, to the extent that there is profit from the sale of the Medicare Supplement business to a new provider, that profit will be included with Colonial's current assets to be used for the benefit of all remaining policyholders. See "Plan of Rehabilitation," pages 5-7.

      d.       Through this Addendum, those Directors and Officers of Colonial, who have been named as Defendants in the Nunneker case, will not be released from liability; however, the personal assets of those Directors and Officers will not be pursued to satisfy any judgment that the class action Plaintiffs might obtain. See "Plan of Rehabilitation," page 6.

These changes are reflected in the Addendum To Plan of Rehabilitation, annexed to the Settlement Agreement as Exhibit 4, which Addendum has been submitted by the Rehabilitator in the Rehabilitation Action. Part V of the Settlement Agreement releases the Directors and Officers of Colonial from liability.

      5.       The Rehabilitator agrees that the filing on July 10, 2000 and subsequent prosecution of the Class Action regarding Colonial's convalescent care policies contributed to the Department putting Colonial under supervision on November 29, 2000, barring Colonial from selling policies beginning in May 2001 and placing Colonial into rehabilitation in January 2003. The Department's actions have significantly protected Colonial's convalescent care policyholders and will help ensure that their policies will not be cancelled.

      6.       Class Counsel may retain a qualified expert to value the contributions described in paragraphs 4 and 5 of this Section of the Settlement Agreement and to provide said valuation to the Court.

V.       DISTRIBUTION OF THE SETTLEMENT FUND

      1.       As reflected in paragraph 1 of Section IV. of this Class Notice, the total amount of cash contributions to this Settlement is $365,000.00 (hereinafter "Settlement Fund").

      2.       All parties to this Settlement Agreement agree that they shall not oppose Class Counsel petitioning the Court to recover a reasonable attorneys' fee not to exceed $165,000, plus reimbursement of their expenses in this litigation. Said attorneys' fee and expenses shall be deducted from the Settlement Fund on the Effective Date.

      3.       Any costs, if any, required to be paid by the Class under this Settlement Agreement shall be fully and finally determined not later than 60 days prior to the date set for distribution of the portion the Settlement Fund to be distributed to Class Members. Said costs shall be deducted from the Settlement Fund prior to any distribution to the Class.

      4.       The parties shall establish a date for distribution of the portion of the Settlement Fund to be distributed to the Class Members that is not later than 180 days after the Effective Date.

      5.       The portion of the Settlement Fund to be distributed to Class Members shall be that portion of the Settlement Fund that remains after the payment from the Settlement Fund of the fees, expenses and costs set forth in paragraphs 2 and 3 of this Section ("Settlement Fund Distribution").

      6.       All Class Members whose Policy was no longer in-force as of the Effective Date and who timely submit a claim in accordance with the procedures established by the Court shall be eligible to receive a Settlement Fund Distribution. Class Members whose Policies are in-force as of the Effective Date or who did not timely submit a claim in accordance with the procedures established by the Court shall not be eligible to receive any portion of the Settlement Fund Distribution, but shall continue to be eligible to receive any other relief to the extent provided by the Settlement Agreement.

      7.       All Class Members eligible to receive a Settlement Fund Distribution shall receive an equal amount from the Settlement Fund Distribution with their share determined as follows:

PLEASE CAREFULLY READ SECTION XI. OF THIS NOTICE TO DETERMINE WHAT YOU NEED TO DO TO PRESERVE YOUR RIGHT TO RECEIVE A CASH DISTIBUTION FROM THIS SETTLEMENT.

VI.       RIGHT TO APPEAR AT THE SETTLEMENT HEARING

      If you are a member of the Class, you have the right, but are not required, to appear at the settlement hearing. If you choose, you may enter an appearance individually or through your own counsel at your own expense.

VII.       DISMISSAL AND RELEASES

      As of the Effective Date, Plaintiff, on behalf of herself, on behalf of each Class Member, and on behalf of all current or former agents, representatives, employees, attorneys, successors, heirs, executors, assigns, and insurers of Plaintiff or the Class (the "Plaintiff Parties") hereby release and forever discharge the Defendants, the Rehabilitator and their current or former agents, representatives, employees, attorneys, successors, heirs, executors, assigns, actuaries and insurers (the "Defendant Parties") from any and all actions, causes of action, suits, claims for sums of money, contracts, controversies, agreements, costs, attorneys' fees, expenses, damages, settlements, judgments and demands whatsoever in law or in equity, known or unknown, now existing or hereafter arising, whether contractual, extra-contractual, in tort or otherwise, which the Plaintiff Parties have or may have in the future against the Defendant Parties arising out of, under, or in connection with the Class Action and/or claims against the D&O Policy arising out of, under or in connection with the Class Action.

      As of the Effective Date, the Defendant Parties hereby release and forever discharge the Plaintiff Parties from any and all actions, causes of action, suits, claims for sums of money, contracts, controversies, agreements, costs, attorneys' fees, expenses, damages, settlements, judgments and demands whatsoever in law or in equity, known or unknown, now existing or hereafter arising, whether contractual, extra-contractual, in tort or otherwise, which the Defendant Parties have or may have in the future against the Plaintiff Parties arising out of, under, or in connection with the Class Action and/or claims against the D&O Policy arising out of, under or in connection with the Class Action.

      As of the Effective Date, the Plaintiff Parties hereby release and forever discharge Cincinnati and its current or former agents, representatives, employees, attorneys, successors, heirs, executors, assigns, and insurers (the "Cincinnati Parties") from any and all actions, causes of action, suits, claims for sums of money, contracts, controversies, agreements, costs, attorneys' fees, expenses, damages, settlements, judgments and demands whatsoever in law or in equity, known or unknown, now existing or hereafter arising, whether contractual, extra-contractual, in tort or otherwise, which the Plaintiff Parties have or may have in the future against the Cincinnati Parties arising out of, under, or in connection with the Class Action and/or claims against the D&O Policy arising out of, under or in connection with the Class Action.

      As of the Effective Date, the Defendant Parties hereby release and forever discharge the Cincinnati Parties from any and all actions, causes of action, suits, claims for sums of money, contracts, controversies, agreements, costs, attorneys' fees, expenses, damages, settlements, judgments and demands whatsoever in law or in equity, known or unknown, now existing or hereafter arising, whether contractual, extra-contractual, in tort or otherwise, which the Defendant Parties have or may have in the future against the Cincinnati Parties arising out of, under, or in connection with the Class Action and/or the D&O Policy, including but not limited to any action, proceeding or claim arising from the Cincinnati Parties' investigation, evaluation, handling or settlement of the Class Action or alleging any "bad faith" or breach of any promise, oral or written, or breach of any duty grounded in law or in contract relating thereto.

      As of the Effective Date, the Cincinnati Parties hereby release and forever discharge the Plaintiff Parties and the Defendant Parties from any and all actions, causes of action, suits, claims for sums of money, contracts, controversies, agreements, costs, attorneys' fees, expenses, damages, settlements, judgments and demands whatsoever in law or in equity, known or unknown, now existing or hereafter arising, whether contractual, extra-contractual, in tort or otherwise, which the Cincinnati Parties have or may have in the future against the Plaintiff Parties or Defendant Parties arising out of, under, or in connection with the Class Action and/or the D&O Policy.

      Nothing in the Settlement Agreement or release shall be deemed to alter Class member's contractual rights to make a claim for benefits provided by their convalescent care policy that are now payable or will become payable in the future pursuant to the express terms of their policy. Nothing in the Settlement Agreement or Release shall be deemed to alter Class Member's contractual or statutory obligations to Colonial, whether now due or due in the future.

      Nothing in the Settlement Agreement or release shall be deemed to preclude any claim or lawsuit to enforce the terms of the Settlement Agreement.

VIII.       CONDITIONS FOR SETTLEMENT

      The Settlement is conditioned upon the occurrence of certain events. Those events include, among other things: (1) entry of the Judgment by the Court, as provided for in the Settlement Agreement ; and (2) the Judgment becoming Final. If for any reason, any one of the conditions described in the Settlement Agreement is not met, the Settlement Agreement might be terminated and, if terminated, will become null and void, and the parties to the Settlement Agreement will be restored to their respective positions as of the date settlement discussions began.

IX.       THE RIGHT TO OBJECT

      Any Class member may submit a written objection to the settlement or the requested attorneys' fee or litigation expenses. All written objections must be post marked by no later than August 13, 2004 and mailed to each of the following counsel:

      The written objection must state the objecting Class member's name, address and telephone number and contain a statement of the reasons for objection. All papers the objector intends to rely on in support of his or her objection, including any briefs, must be submitted together with the written objection. The Class member must also state in his written objection if he or she intends to appear and be heard by the Court at the Settlement Hearing. Only written objections submitted in the manner and by the time deadline specified above will be considered by the Court.

X.       EXAMINATION OF PAPERS

      This Notice is a summary and does not describe all of the details of the Settlement Agreement. For full detail of the matters discussed in this Notice, you may desire to review the Settlement Agreement filed with the Court and the other papers heretofore filed with the Court, which may be inspected during business hours, at 1200 Ontario Street, Cleveland, Ohio 44113-1678. A complete copy of the Settlement Agreement is also available at www.ssem.com.

XI.       WHAT YOU NEED TO DO TO BE ELIGIBLE FOR A CASH DISTRIBUTION

      If your Policy is terminated or otherwise no longer in-force as of the Effective Date and you have mailed a properly completed Claim Form that is post marked by August 31, 2004, you will be entitled to a cash distribution from the Settlement Fund Distribution as described in Section V. of this Notice.

      As more fully specified in the Settlement Agreement, the Effective Date is a date after the Settlement has been finally approved by the Court. Because the time to submit your Claim Form is prior to the Effective Date, you must submit your Claim Form post marked by August 31, 2004, whether or not your Policy is terminated now, so that you preserve your right to receive a cash distribution from the Settlement should your Policy be terminated as of the Effective Date.

      Class Members whose Policy is terminated as of the Effective Date and who do not submit a properly completed Claim Form post marked by August 31, 2004 or whose Policy is in-force (i.e., not terminated) as of the Effective Date will not be entitled to receive a cash distribution from the Settlement Fund Distribution, but will be eligible to receive any other relief to the extent provided by the Settlement Agreement.

Re:       Nunneker v. Colonial Insurance Company
            Case No. 412736;
            Nunneker v. Nancy J. Holz, et al.;
            Case No. 454848

You must fully complete this Claim Form by providing all of the information requested below and by mailing the completed Claim Form to the address listed below so that it is postmarked by no later than August 31, 2004 to be eligible to receive a cash distribution from the Settlement in the event your Policy is terminated as of the Effective Date. A more complete description of your rights and entitlement to benefits from this Settlement is contained in the Class Notice.

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