Exhibit 10.3

Description of Non-Employee Director Compensation

      Pursuant to the Company’s pre-existing policies, non-employee directors
receive $25,000 per year for serving on the Company’s Board (their “Annual
Retainer”). Committee Chairmen receive an additional $5,000 per year.
Non-employee directors receive $2,000 for each regular director meeting attended
and $1,000 for each special meeting or committee meeting attended. On May 25,
2004, the Company adopted the Affirmative Insurance Holdings, Inc. 2004 Stock
Incentive Plan (the “Stock Incentive Plan”). Under the Stock Incentive Plan,
each non-employee director will receive annually, on January 31, an option to
purchase 5,000 shares of the Company’s common stock at a price equal to the
closing price on the last day of trading in January of that year with a vesting
period of one year from the date of grant.

      On February 22, 2005, the Compensation Committee recommended and on
February 23, 2005, the Board approved, that in addition to the forgoing, the
non-employee directors would receive an annual grant of 1,000 shares of
restricted stock and that members of the audit committee would receive an annual
grant of an additional 500 shares of restricted stock. This restricted stock
will vest on the first anniversary of the grant date, provided however, that the
non-employee director must fulfill his or her term for which the restricted
shares were granted in order for the restrictions to be lifted.