UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1998
                          Commission File Number 1-7461

                       ACCEPTANCE INSURANCE COMPANIES INC.
             (Exact Name of Registrant As Specified in Its Charter)

                               DELAWARE 31-0742926
                (State or Other Jurisdiction of (I.R.S. Employer
               Incorporation or Organization) Identification No.)

                       222 S. 15th Street, Suite 600 North
                              Omaha, Nebraska 68102
                    (Address of Principal Executive Offices)
                                   (Zip Code)

               Registrant's Telephone Number, Including Area Code:
                                 (402) 344-8800
                                    ________

           Securities Registered Pursuant to Section 12(b) of the Act:

          Title of Each Class Name of Each Exchange on Which Registered
            Common Stock $.40 Par Value New York Stock Exchange, Inc.

        Securities Registered Pursuant to Section 12(g) of the Act: None

                  Indicate by check mark whether the registrant (1) has filed 
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant has been required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days.  Yes [X]   No [  ]

                  Indicate by check mark if disclosure of delinquent filers 
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K 
or any amendment to this Form 10-K.
[  ]

<PAGE>


                  The aggregate market value of the Registrant's voting stock 
held by non-affiliates (7,489,174 shares) on March 22, 1999 was $115,146,050.

                  The number of shares of each class of the Registrant's common
stock outstanding on March 22, 1999 was:

       Class of Common Stock                       No. of Shares Outstanding
      Common Stock, $.40 Par Value                              14,243,088

                        DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of the Proxy Statement for the Registrant's 1999 
Annual Meeting of Shareholders are incorporated by reference into Part III.


<PAGE>


                           GLOSSARY OF INSURANCE TERMS


                  Admitted Insurer:  An insurance company licensed by a state 
regulatory authority to transact insurance business in that state.  An admitted
insurer is subject to the rules and regulations of each state in which it is 
licensed governing virtually all aspects of its insurance operations and 
financial condition.  A non-admitted insurer, also known as an excess and
surplus lines insurer, is not licensed to transact insurance business in a 
given state but may be permitted to write certain business in that state in
accordance with the provisions of excess and surplus lines insurance laws which
generally involve less rate, form and operational regulation.

                  Buy-up Coverage:  Multi-Peril Crop Insurance policy providing
coverage in excess of that provided by CAT Coverage.  Buy-up Coverage is
offered only through private insurers.

                  Case Reserve:  The estimated liability for loss established 
by a claims examiner for a reported claim.

                  CAT Coverage ("CAT"):  The minimum available level of 
Multi-Peril Crop Insurance, providing coverage for 50% of a farmer's historical
yield for eligible crops at 60% of the price per unit for such crop set by
the FCIC.  This coverage is offered through private insurers and, in some 
states, USDA field offices.

                  Combined Ratio:  The sum of the expense ratio and the loss
ratio determined in accordance with GAAP or SAP.

                  Crop Revenue Coverage ("CRC"):  An extension of the MPCI
program that provides a producer of crops with varying levels of insurance 
protection against loss of revenues caused by changes in crop prices, low
yields, or a combination of the two.

                  Crop Year:  For MPCI, a crop year commences on July 1 and
ends on June 30.  For crop hail insurance, the crop year is the calendar year.

                  Direct Written Premiums:  Total premiums collected in respect
of policies issued by an insurer during a given period without any reduction
for premiums ceded to reinsurers.

                  Excess and Surplus Lines Insurance:  The business of insuring
risks for which insurance is generally unavailable from admitted insurers in 
whole or in part.  Such business is placed by the broker or agent with 
nonadmitted insurers in accordance with the excess and surplus lines provisions
of state insurance laws.

                  Excess of Loss Reinsurance:  A form of reinsurance in which 
the reinsurer, subject to a specified limit, agrees to indemnify the ceding
company for the amount of each loss, on a defined class of business, that 
exceeds a specified retention.

                  Expense Ratio:  Under statutory accounting, the ratio of 
underwriting expenses to net premiums written.  Under GAAP accounting, the
ratio of underwriting expenses to net premiums earned.

                  Federal Crop Insurance Corporation ("FCIC"):  A wholly-owned
federal government corporation within the Farm Service Agency.

                  Generally Accepted Accounting Principles ("GAAP"): 
Accounting practices as set forth in opinions and pronouncements of the
Financial Accounting Standards Board and Accounting Principles Board and
American Institute of Certified Public Accountants Accounting Reasearch 
Bulletins and which are applicable in the circumstances as of the date in 
question.



<PAGE>  


                  Gross Written Premiums:  Direct written premiums plus
premiums collected in respect of policies assumed, in whole or in part, from 
other insurance carriers.

                  Incurred But Not Reported ("IBNR") Reserves:  The liability 
for future payments on losses which have already occurred but have not yet been
reported to the insurer.  IBNR reserves include LAE related to such losses and
may also provide for future adverse loss development on reported claims.

                  Insurance Regulatory Information System ("IRIS"):  A system 
of ratio analysis developed by the NAIC primarily intended to assist state
insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies.

                  Loss Adjustment Expenses ("LAE"):  Expenses incurred in the
settlement of claims, including outside adjustment expenses, legal fees and 
internal administrative costs associated with the claims adjustment process,
but not including general overhead expenses.

                  Loss Ratio:  The ratio of losses and LAE incurred to premiums
 earned.

                  Loss Reserves:  Liabilities established by insurers to
reflect the estimated ultimate cost of claim payments as of a given date.

                  MPCI Imputed Premium:  For purposes of the profit/loss 
sharing arrangement with the federal government, the amount of premiums 
credited to the Company for all CAT Coverages it sells, as such amount is
determined by formula.

                  MPCI Premium:  For purposes of the profit/loss sharing
arrangement with the federal government, the amount of premiums credited to the
Company for all Buy-up and Crop Revenue Coverages paid by farmers, plus
the amount of any related federal premium subsidies.

                  MPCI Retention:  The aggregate amount of MPCI Premium and, in
respect of CAT coverages imputed MPCI premium on which the Company retains risk
after allocating farms to the three federal reinsurance pools.

                  Multi-Peril Crop Insurance ("MPCI"):  A federally-regulated
subsidized crop insurance program that insures a producer of crops with varying
levels of protection against loss of yield from substantially all natural
perils to growing crops.

                  NAIC:  The National Association of Insurance Commissioners.

                  Net Premiums Earned:  The portion of net premiums written
applicable to the expired period of policies and, accordingly, recognized as
income during a given period.

                  Net Premiums Written:  Total premiums for insurance written 
(less any return premiums) during a given period, reduced by premiums ceded in
respect to liability reinsured by other carriers.

                  Policyholders' or Statutory Surplus:  As determined under SAP
(hereinafter defined), the excess of total admitted assets over total
liabilities.

                  Price Election:  The maximum per unit commodity price by crop
to be used in computing MPCI Premiums (other than for Crop Revenue Coverage),
which is set each year by the FCIC.

                  Quota Share Reinsurance:  A form of reinsurance whereby the 
reinsurer agrees to indemnify the cedent for a stated percentage of each loss,
subject to a specified limit the cedent pays, on a defined class of business.

                  Reinsurance:  The practice whereby a company called the
"reinsurer" assumes, for a share of the


<PAGE>


premium, all or part of a risk originally undertaken by another insurer called
the "ceding" company or "cedent." Reinsurance may be effected by "treaty" 
reinsurance, where a standing agreement between the ceding and reinsuring
companies automatically covers all risks of a defined category, amount and 
type, or by "facultative" reinsurance where reinsurance is negotiated and
accepted on a risk-by-risk basis.

                  Retention:  The amount of liability, premiums or losses 
which an insurance company keeps for its own account after application of
reinsurance.

                  Risk-Based Capital ("RBC"):  Capital requirements for 
property and casualty insurance companies adopted by the NAIC to assess
minimum capital requirements and to raise the level of protection that 
statutory surplus provides for policyholder obligations.

                  Risk Management Agency ("RMA"):  A division of the  United 
States Department of Agriculture ("USDA") which, along with the Federal Crop 
Insurance Corporation ("FCIC") administers and provides reinsurance for the 
federally-regulated MPCI and CRC programs.

                  Stop Loss Reinsurance:  A form of reinsurance, similar to
Excess of Loss Reinsurance, whereby the primary insurer caps its loss on a
particular risk by purchasing reinsurance in excess of such cap.

                  Statutory Accounting Principles ("SAP"):  Accounting
practices which consist of recording transactions and preparing financial 
statements in accordance with the rules and procedures prescribed or permitted
by state regulatory authorities.  Statutory accounting emphasizes solvency
rather than matching revenues and expenses during an accounting period.



<PAGE>


                                     PART I

Item 1.  Business.

Company Strategy

                  Acceptance Insurance Companies Inc. (the "Company") 
underwrites and sells specialty property and casualty insurance coverages that
serve niche markets or programs and crop insurance coverages. The Company
selects niche markets or programs for which the Company believes that its
expertise affords it a competitive advantage and which integrate into a 
diversified-risk portfolio of coverages.  Within the crop insurance industry, 
the Company is the third largest writer of crop insurance products in the 
United States. The Company, through diversifying the risks insured, seeks to
avoid concentration in particular risks so that, during years when particular 
lines of business are experiencing adverse operating results, overall operating
results will remain within targeted returns to shareholders.  The Company's 
goal is to achieve underwriting results better than the industry average, while
managing its investment portfolio to maximize after-tax yield and at the same
time emphasize stability and capital preservation and maintaining adequate 
liquidity to meet all cash needs.

                  The Company believes that its success in niche markets and 
programs requires that it be opportunistic.  The Company believes its position
as both an admitted (licensed) and non-admitted (excess and surplus lines) 
carrier provides the versatility to respond when different market conditions
and opportunities are presented. At the same time, the Company manages loss 
exposure by diversifying its portfolio of coverages and maintaining reinsurance
programs with the goal of reducing volatility as well as mitigating 
catastrophic or large loss exposure.

                  During the last three years, the Company has experienced 
declining net revenues in its property and casualty businesses due to an 
extremely competitive pricing environment while its crop insurance business has
continued to expand. The Company, however, continues to regularly explore new
opportunities where it has or can acquire experienced underwriters and other 
managers with a long and profitable operating history in a particular line of
business.

Organization

                  The Company underwrites its insurance products through six
wholly-owned insurance company subsidiaries; Acceptance Insurance Company 
("Acceptance Insurance"), Acceptance Indemnity Insurance Company ("Acceptance 
Indemnity"), Acceptance Casualty Insurance Company ("Acceptance Casualty"), 
American Growers Insurance Company ("American Growers"), Redland Insurance
Company ("Redland"), and Phoenix Indemnity Insurance Company ("Phoenix 
Indemnity") (collectively referred to herein as the "Insurance Companies").

                  Collectively, the Insurance Companies are admitted in 48 
states and the District of Columbia, and operate on a non-admitted basis in 46
states, the District of Columbia, Puerto Rico and the Virgin Islands.  Two of
the Insurance Companies have received their Certificate of Authority 
("T" listing) from the U.S. Department of Treasury.  Each of the Insurance 
Companies is rated A- (Excellent) by A.M. Best.  A.M. Best bases its ratings 
upon factors that concern policyholders and agents, and not upon factors 
concerning investor protection.

                  The Company's insurance agency and insurance service 
subsidiaries principally write and service insurance coverages placed with one
of the Insurance Companies.

                  The Company was incorporated in Ohio as National Fast Food 
Corp. in 1968, reincorporated in Delaware in 1969 and renamed Acceptance
Insurance Companies Inc. in 1992.

Business Segments

                  The Company has organized its insurance underwriting and
marketing business by product line into two segments, Property and Casualty 
Insurance and Crop Insurance.                                    

<PAGE>


 
         Property and Casualty Insurance

                  Property and Casualty Insurance includes the following 
         principal lines:

                         Property and casualty coverages on both an admitted 
         and non-admitted basis including general liability, specialty auto,
         garage excess liability, liquor liability, property and commercial 
         multi-peril coverages for small and medium businesses which have 
         unique exposures, do not satisfy the underwriting criteria of standard
         carriers, or are not serviced well by standard carriers due to size or
         location. 
         
                           Worker's compensation, professional liability, and 
         speciality coverages, including coverages for transportation risks,  
         standard property and casualty coverages for the rural market,
         temporary help agencies, greyhound race tracks, condominiums, auto 
         dealers, and fine arts which are marketed through agencies 
         concentrating in a particular program or type of coverage. 

                           During 1998, the Company discontinued several
         product lines including coverages for certain specialty automobile 
         lines, aviation, and complex general liability risks. Additionally,
         Phoenix Indemnity, which writes non-standard private passenger 
         automobile business, is being held for sale.

         Crop Insurance

                  The principal lines of the Company's Crop insurance segment
are MPCI and named peril insurance.  MPCI is a federally-subsidized farm price 
support program designed to encourage farmers to share, through premium
payments, in the federal government's price support programs.  MPCI provides
farmers with yield coverage for crop damage from substantially all natural
perils.  CRC is an extension of the MPCI program which provides farmers with
protection from revenue loss caused by changes in crop prices and low yields. 
As used herein, the term MPCI includes CRC, unless the context indicates 
otherwise.  For the year ended December 31, 1998, the Company had a market
share of approximately 15% of MPCI business written in the United States.

                  The largest named peril crop insurance product offered by the
Company is crop hail insurance which insures growing crops against damage 
resulting from hail storms. The Company also sells a small volume of insurance
against damage to specific crops from other named perils. In addition, the 
Company sells supplemental revenue products which enhance the coverages 
available to the farmer under the federal CRC program. None of these products 
involve federal reinsurance or price subsidy participation.

 
                  The following table reflects the amount of net written 
premium for these two insurance segments for the periods set forth below.
<TABLE>
<CAPTION>

                                                                         Years Ended December 31,            
                                                            1998                 1997                1996 
                                                                           (in thousands)
 <S>                                                     <C>                  <C>                  <C>              
Property and Casualty Insurance..........................$248,479             $275,075             $300,300
Crop Insurance(1)..........................................61,013               59,989               66,649
                                                         ---------            ---------            ---------
   Total.................................................$309,492             $335,064             $366,949
                                                         =========            =========            ========= 

<FN>
---------------
(1)      For a discussion of the accounting treatment of MPCI premiums, see
         "Management's Discussion and Analysis of Financial Condition and 
         Results of Operations - General."
</FN>
</TABLE>                                       
                                        


<PAGE>


Marketing

                   The Company markets its property and casualty insurance 
products through a network of independent general agents who process and accept
applications for insurance coverages from retail agents who sell insurance to
insurance buyers.  The Company also markets a portion of its property and 
casualty insurance products and its crop insurance products through a network
of retail agents which specialize in the lines of insurance marketed by them.
The Company compensates its agents through commissions based on a percentage of
premiums produced.  The Company also offers most of its agents a contingent
commission based on volume and profitability and other programs designed to
encourage agents to enhance the placement of profitable business with the 
Company.

Combined Ratios

                     The statutory combined ratio, which reflects underwriting 
results before taking into account investment income, is a traditional measure
of the underwriting performance of a property and casualty insurer.  A combined
ratio of less than 100% indicates underwriting profitability whereas a combined
ratio in excess of 100% indicates unprofitable underwriting.  The following 
table reflects the loss ratios, expense ratios and combined ratios of the
Company and the property and casualty insurance industry, computed in 
accordance with SAP, for the periods shown.

<TABLE>
<CAPTION> 
                                                                         Years Ended December 31,          
                                                             1998                1997               1996 

<S>                                                          <C>                 <C>                <C>                 
The Company
  Loss Ratio............................................      72.3%(1)           63.7%              69.8%
  Expense Ratio.............................................. 38.9               34.0               26.6
                                                             ---------          -------            ------
  Combined Ratio............................................ 111.2%              97.7%              96.4%
                                                             =========          =======            ======
Industry Average(2)
  Loss Ratio................................................. 76.2%              72.8%              78.4%
  Expense Ratio.............................................. 28.8               28.8               27.4
                                                             ---------          -------            ------
  Combined Ratio.............................................105.0%             101.6%             105.8%
                                                             =========          =======            ======    

<FN>

---------------
(1)      The $24.2 million reserve strengthening taken by the Company in 1998,
         for 1997 and prior years, accounts for 7.4% of the loss ratio for 
         1998. See  "Loss and Loss Adjustment Expense Reserves."

(2)      Source: Best's Aggregates & Averages - Property Casualty 
         (1998 Edition).  Ratios for 1998 are unpublished but have been
         provided to the Company by A.M. Best.
</FN>
</TABLE>

Underwriting

                 The Company organizes its underwriting staff by product line,
enabling underwriters to focus on the unique risks associated with the
specialty coverages written by the Company.  The Company seeks to ensure that 
each specialty product or program fits into the Company's goals through a
strategic planning process whereby  managers evaluate the historical and
expected levels of underwriting profitability of the coverages written.  The 
Company then allocates its capital among product lines where it believes the 
best underwriting opportunities exist.

                Each underwriter is required to comply with risk parameters, 
retention limits and rates and forms prescribed by the Company.  All
underwriting operations of the Company are subject to special periodic audit 
by the Company's home office personnel and the reinsurers which accept a 
portion of these risks.

                                        

<PAGE>               



                  Generally, the Company grants general agents the authority to
sell and bind insurance coverages in accordance with detailed procedures and
limitations established by the Company.  The Company promptly reviews coverages
bound by agents, decides whether the insurance is written in accordance with 
such procedures and limitations, and, subject to state law limits and policy 
terms, may cancel coverages that are not in compliance.

                  The Company grants limited binding authority to certain 
independent agents in certain lines of business, and provides that all other 
agents submit all applications to the Company's underwriting staff in order for
such coverages to be bound.

Claims

                  The Company's claims department administers all claims and 
directs all legal and adjustment aspects of the claims handling process.  To 
assist in settling claims the Company regularly uses independent adjusters,
attorneys and investigators as well as third party administrators for some 
specialty lines.  The Company's claims department is organized into three 
parts, each supervised by a senior claims vice president.  The Crop Claims 
Department manages all claims arising out of the Company's crop insurance
operations through its home office staff and a system of regional claims 
offices which supervise specially trained independent adjusters. The Litigation
Department, which is broken down by geographic area, handles larger litigation 
claims files and other complex and serious claims.  The Claims Department,
which also is broken down by geographic area, handles the other claims files 
and supervises the claims handlers.  The Company emphasizes the use
of internal staff rather than independent adjusters, improving claims 
processing systems and rapid response mechanisms.  These systems have
significantly reduced the number of claims handled by each claims examiner.
The Company believes this structure will continue to reduce loss adjustment
expense, shorten the life of open claim files and permit the Company to
estimate more rapidly and consistently future claim liabilities.

Loss and Loss Adjustment Expense Reserves

                  In the property and casualty insurance industry, it is not
unusual for significant periods of time, ranging up to several years, to elapse
between the occurrence of an insured loss, the report of the loss to the 
insurer and the insurer's payment of that loss.  The liability for losses and
loss adjustment expenses is determined by management based on historical 
patterns and expectations of claims reported and paid, losses which have
occurred but which are not yet reported, trends in claim experience, 
information available on an industry-wide basis, changes in the Company's claim
handling procedures and premium rates.  The Company's lines of specialty 
insurance business are considered less predictable than standard insurance 
coverages.  The effects of inflation are implicitly reflected in these loss
reserves through the industry data utilized in establishing such reserves.  The
Company does not discount its reserves to estimated present value for financial
reporting purposes.

                  In examining reserve adequacy, historical data is reviewed,
and, as additional experience and other data become available and are reviewed,
estimates of reserves are revised, resulting in increases or decreases to
reserves for insured events of prior years.  In 1998, 1997 and 1996 the Company
made additional provisions through a charge to earnings of $24.2 million, $6.9
million, and $9.5 million, respectively, for its reestimated liability for
losses and loss adjustment expenses for prior accident years. During 1998, the
Company has discontinued several product lines due to the continuation of 
unexpected development and pricing that is no longer acceptable to the Company.
These lines of business included coverages for certain specialty automobile 
lines, aviation, and complex general liability risks. As a result of these 
current developments, management modified the assumptions used in reserving 
1997 and prior years for these lines which created most of the unfavorable 
development during 1998. 


                  The liability established represents management's best 
estimate and is based on sources of currently available evidence including an 
analysis prepared by an independent actuary engaged by the Company.  Even with 
such extensive analyses, the Company believes that its ultimate liability may
from time to time vary from such estimates.

                  The Company annually obtains an independent review of its 
loss reserving process and reserve estimates by a independent professional 
actuary as part of the annual audit of its financial statements.






                       
<PAGE>               



                  The following table presents an analysis of the Company's
reserves, reconciling beginning and ending reserve balances for the periods
indicated:

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,        
                                                                    1998             1997              1996 
                                                                                (in thousands)
<S>                                                              <C>              <C>               <C>            
Net loss and loss adjustment
  expense reserves at beginning
  of year........................................................$263,106         $246,752          $201,356
                                                                 ---------        ---------         ---------   
Provisions for net losses and
  loss adjustment expenses for
  claims occurring in the current
  year........................................................... 212,894          206,597           233,727

Increase in net reserves for
  claims occurring in prior years...............................   24,167            6,858             9,530
                                                                 ---------        ---------         ---------       
                                                                  237,061          213,455           243,257
                                                                 ---------        ---------         ---------               
Net losses and loss adjustment
  expenses paid for claims
  occurring during:
  The current year...........................................    (100,968)        (110,372)         (102,565)
  Prior years...............................................     (113,224)         (86,729)          (95,296)
                                                                 ---------        ---------         ---------
                                                                 (214,192)        (197,101)         (197,861)
                                                                 ---------        ---------         ---------     
Net loss and loss adjustment
  expense reserves at end of year................................ 285,975          263,106           246,752

Reinsurance recoverable on unpaid
  losses and loss adjustment
  expenses....................................................... 238,769          165,547           185,421
                                                                 ---------        ---------        ----------   
Gross loss and loss adjustment
  expense reserves...............................................$524,744         $428,653          $432,173
                                                                 =========        =========        ==========    
</TABLE>  

                  The following table presents the development of balance sheet
net loss reserves from calendar years 1988 through 1998.  The top line of the
table shows the loss reserves at the balance sheet date for each of the
indicated years.  These amounts are the estimates of losses and loss adjustment
expenses for claims arising in all prior years that are unpaid at the balance 
sheet date, including losses that had been incurred but not yet reported to the
Company. The middle section of the table shows the cumulative amount paid,
expressed as a percentage of the initial reserve amount, with respect to 
previously recorded reserves as of the end of each succeeding year.  The lower
section of the table shows the reestimated amount, expressed as a percentage of
the initial reserve amount, of the previously recorded reserves based on
experience as of the end of each succeeding year.  The estimate changes as more
information becomes known about the frequency and severity of claims for 
individual years.  The "Net cumulative redundancy (deficiency)" caption
represents the aggregate percentage increase (decrease) in the initial reserves
estimated.  It should be noted that the table presents the "run off" of balance
sheet reserves, rather than accident or policy year loss development.  The
Company computes the cumulative redundancy (deficiency) annually on a calendar
year basis.

                  The establishment of reserves is an inherently uncertain 
process.  The Company underwrites both property and casualty coverages in a 
number of specialty areas of business which may involve greater risks than
standard property and casualty lines.  These risk components may make more 
difficult the task of estimating reserves for losses, and cause the Company's
underwriting results to fluctuate.  Further, conditions and trends that have 
effected the development of loss reserves in the past may not necessarily occur
in the future.  Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this information.

                  The Company adopted Statement of Financial Accounting 
Standards No. 113 ("SFAS #113"), "Accounting and Reporting for Reinsurance of 
Short-Duration and Long-Duration Contracts," effective January 1, 1993.  The
application of SFAS #113 resulted in the reclassification of amounts ceded to 
reinsurers, which amounts were previously reported as a reduction in unearned
premium and unpaid losses and loss adjustment expenses, to assets on the 
consolidated balance sheet.  The table below includes a reconciliation of net 
loss and loss adjustment expense reserves to amounts presented on the 
consolidated balance sheet after reclassifications related to the adoption of
SFAS #113.  The gross cumulative deficiency is presented for 1992 through 1997,
the only years on the table for which the Company has restated amounts in
accordance with SFAS #113.

<PAGE>
                                      
<TABLE>
<CAPTION>
                                                                      Years Ended December 31                                 

                               1988     1989     1990     1991     1992     1993     1994     1995     1996      1997     1998 
<S>                         <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>       <C>        
Net reserves for unpaid
  losses and loss
  adjustment expenses       $34,092  $43,380  $58,439  $66,132  $77,627 $115,714 $141,514 $201,356 $246,752 $263,106  $285,975
Cumulative amount of net
  liability paid through:
    One year later             30.5%    30.0%    40.6%    45.7%    36.1%    49.1%    51.0%    47.3%    44.7%    43.0%    
    Two years later            52.1%    59.5%    70.8%    72.3%    73.6%    80.5%    86.1%    75.2%    71.8%
    Three years later          68.7%    76.1%    88.5%    96.6%    94.5%   100.9%   104.5%    93.1%
    Four years later           77.0%    84.5%   101.2%   108.1%   109.0%   108.8%   115.5%
    Five years later           81.5%    89.2%   107.5%   115.1%   114.9%   113.6%
    Six years later            85.3%    93.4%   109.7%   118.2%   118.2%
    Seven years later          89.8%    94.5%   111.4%   119.5%
    Eight years later          90.3%    95.5%   111.8%
    Nine years later           90.4%    95.6%
    Ten years later            90.4%
Net reserves reestimated as of:
    One year later             97.9%    99.1%   100.3%   103.5%   103.3%   104.4%   115.8%   104.7%   102.8%    109.2%
    Two years later            92.3%    95.2%   102.3%   109.9%   109.7%   114.5%   115.7%   106.6%   112.0%
    Three years later          87.3%    91.4%   107.4%   116.9%   117.9%   113.1%   120.5%   114.2%
    Four years later           84.9%    92.5%   110.7%   120.1%   117.7%   116.1%   125.9%
    Five years later           85.3%    94.0%   112.7%   119.9%   119.8%   118.2%
    Six years later            86.6%    95.9%   112.0%   120.5%   121.5%
    Seven years later          91.0%    95.4%   112.5%   121.9%
    Eight years later          90.7%    96.0%   113.4%
    Nine years later           90.8%    96.7%
    Ten years later            90.8%
Net cumulative redundancy
   (deficiency)                 9.2%     3.3%   -13.4%   -21.9%   -21.5%   -18.2%   -25.9%   -14.2%   -12.0%     -9.2%

Gross reserves for unpaid loss and
  loss adjustment expenses                                      $127,666 $211,600 $221,325 $369,244 $432,173  $428,653 $524,744
Reinsurance recoverable on unpaid
  loss and loss adjustment expenses                               50,039   95,886   79,811  167,888  185,421   165,547  238,769
                                                                -------- -------- -------- -------- --------  -------- --------  
Net reserves for unpaid loss and
  loss adjustment expenses                                      $ 77,627 $115,714 $141,514 $201,356 $246,752  $263,106 $285,975
                                                                ======== ======== ======== ======== ========  ======== ========  
Reestimated gross reserves for unpaid
  loss and loss adjustment expenses                               112.0%   118.6%   131.6%   110.3%   109.2%    114.2%
Reestimated reinsurance recoverable
  on unpaid loss and loss adjustment
  expenses                                                         97.1%   119.1%   141.8%   105.7%   105.6%    122.1%

Reestimated net reserves for unpaid
  loss and loss adjustment expenses                               121.5%   118.2%   125.9%   114.2%   112.0%    109.2%
                                                                ========  ======= ========  =======  =======  ========   
Gross cumulative redundancy (deficiency)                          -12.0%   -18.6%   -31.6%   -10.3%    -9.2%    -14.2%
                                                                ========  ======= ========  =======  =======  ======== 
</TABLE>
                                        
<PAGE>

Reinsurance

                  A significant component of the Company's business strategy 
involves the structuring of reinsurance to reduce volatility in its business 
segments as well as to avoid large or catastrophic loss exposure.  Reinsurance
involves an insurance company transferring, or ceding, all or a portion of its
exposure on insurance to a reinsurer. The reinsurer assumes the ceded exposure
in return for a portion of the premium received by the insurance company.
Reinsurance does not discharge the insurer from its obligations to its insured.
If the reinsurer fails to meet its obligations, the ceding insurer remains
liable to pay the insured loss, but the reinsurer is liable to the ceding 
insurer to the extent of the reinsured portion of any loss.

                  The Company limits its exposure under individual policies by
purchasing excess of loss and quota share reinsurance, as well as maintaining
catastrophe reinsurance to protect against catastrophic occurrences where
claims can arise under several policies from a single event, such as a 
hurricane, earthquake, wind storm, riot, tornado or other extraordinary event.

                  The Company generally retains the first $500,000 of risk
under its property and casualty lines of business, ceding the next $1,500,000
(on a per risk basis) on property  and $5,500,000 (on an occurrence basis) on
casualty, respectively to reinsurers. To the extent that individual policies 
exceed reinsurance treaty limits, the Company purchases reinsurance on a
facultative (specific policy) basis.

                  The Company maintains catastrophe reinsurance for its 
casualty lines which provides coverage for $14 million in excess of $6 million
of aggregate risk per occurrence, and for its property lines, which provides
coverage of 95% of $117.5 million in excess  of a $2.5 million retention per 
occurrence.  The Company reviews the concentrations of property values in its
property lines of business continually and models possible losses for
catastrophic events through computer simulations of different levels of storm 
activity, adjusting the required limit of liability or the concentrations of
property coverage as deemed appropriate.

                  In its workers' compensation line, the Company buys excess of
loss protection on a statutory basis in excess of a $600,000 per occurrence 
retention.

                  The Company reinsures its MPCI business with various federal
reinsurance pools administered by the RMA.  The Company's profit or loss from 
its MPCI business is determined after the crop season ends on the basis of a
profit sharing formula established by law and the RMA.  The Company's net 
exposure on MPCI business is further reduced by excess of loss reinsurance 
purchased from private carriers.  This excess of loss reinsurance generally 
provides coverage for 95% of losses in excess of a $3,000,000 deductible after 
the Company's loss ratio reaches specified limits for each line of business,
ranging from 72% to 77% on crop hail and named peril business and 100% on MPCI
business.  Additionally 80% of the Company's crop hail business is reinsured
through quota share agreements.

                  At December 31, 1998, 90% of the Company's outstanding 
reinsurance recoverables were from domestic reinsurance companies or the
federal government, 93% of which was from reinsurance companies rated A-
(excellent) or better by A.M. Best or from the federal government.  The
balance was primarily placed with major international reinsurers.

Investments

                  The Company's investment policy is to maximize the after-tax 
yield of the portfolio while emphasizing the stability and preservation of the
Company's capital base.  Further, the portfolio is invested in types of
securities and in an aggregate duration which reflect the nature of the
Company's liabilities and expected liquidity needs.  The Company manages its
portfolio internally.  The Company's fixed maturity securities are classified
as available-for-sale and carried at estimated fair value.  The investment
portfolio at December 31, 1998 and 1997, consisted of the following:

                                        
                                                                         
<PAGE>

<TABLE>
<CAPTION>
                                                                      December 31, 1998     December 31, 1997

                                                                   Amortized  Estimated  Amortized   Estimated
                                                                     Cost    Fair Value    Cost     Fair Value
Type of Investment                                                                 (in thousands)
<S>                                                                  <C>        <C>       <C>        <C>           
Fixed maturity securities
  U.S. Treasury and government securities............................$77,671    $78,785   $104,039   $104,534
  States, municipalities and political
    subdivisions.................................................... 161,017    167,202    129,378    133,860
  Other debt securities.............................................. 56,786     53,193     40,131     39,598
  Mortgage-backed securities......................................... 38,475     37,927     48,056     44,807
                                                                     -------    -------   --------   --------    
       Total fixed maturity securities.............................. 333,949    337,107    321,604    322,799
 
  Common stocks...................................................... 39,438     44,371     23,574     30,847
  Preferred stocks................................................... 27,246     27,316     51,185     53,309
  Commercial mortgages................................................ 9,549      9,549     10,248     10,248
  Real estate.......................................................   3,300      3,300      3,329      3,329
  Short-term investments(1).........................................  67,754     67,754     32,185     32,185
                                                                    --------   --------   --------   --------
       Total........................................................$481,236   $489,397   $442,125   $452,717
                                                                    ========   ========   ========   ========   
<FN>
---------------
(1)      Due to the short-term nature of crop insurance, the Company must maintain short-term investments to fund
         amounts due to pay losses.  Historically, these short-term funds are highest in the fall corresponding to the
         cash flow in the agricultural industry.
</FN>
</TABLE>

         The following table sets forth, as of December 31, 1998, the
composition of the Company's fixed maturity securities portfolio by time to
maturity:

<TABLE>
<CAPTION>
                                                                        Estimated
     Maturity                                                           Fair Value         Percent
                                                                    (in thousands, except percentages)
<S>                                                                        <C>             <C>                                    
1 year or less.............................................................$ 10,180         3.0%
More than 1 year through 5 years............................................ 70,479        20.9%
More than 5 years through 10 years.........................................  59,625        17.7%
More than 10 years......................................................... 158,896        47.1%
Mortgage-backed securities.................................................. 37,927        11.3%
                                                                           --------       ------
     Total.................................................................$337,107       100.0%
                                                                           ========       ======

</TABLE>
                                        

<PAGE>

                  The Company's investment results for the periods indicated 
are set forth below:

<TABLE>
<CAPTION>
                                                                            Years Ended December 31, 
                                                                                 1998        1997         1996
                                                                             (in thousands, except percentages)
<S>                                                                            <C>        <C>         <C>          
Net investment income..........................................................$ 28,320   $ 28,016    $ 26,491
Average investment
  portfolio(1)................................................................. 497,649    453,876     402,404
Pre-tax return on average
  investment portfolio.........................................................     5.7%       6.2%        6.6%
Net realized gains.............................................................$  6,825    $ 7,321    $  5,216
Change in unrealized gain (loss) on available-for-sale securities .............$ (1,580)   $ 8,361    $ (1,495)
 
<FN>
---------------
(1)      Represents the average of the beginning and ending investment portfolio (excluding real estate) computed on
         a quarterly basis.
</FN>
</TABLE>


Regulation

                  As a general rule, an insurance company must be licensed to
transact insurance business in each jurisdiction in which it operates, and
almost all significant operations of a licensed insurer are subject to
regulatory scrutiny.  Licensed insurance companies are generally known as
"admitted" insurers.  Most states provide a limited exemption from licensing
for insurers issuing insurance coverages that generally are not available from
admitted insurers.  Their coverages are referred to as "surplus lines"
insurance and these insurers as "surplus lines" or "non-admitted" companies.

                  The Company's admitted insurance business is subject to
comprehensive, detailed regulation throughout the United States, under statutes
which delegate regulatory, supervisory and administrative powers to state
insurance commissioners.  The primary purpose of such regulations and
supervision is the protection of policyholders and claimants rather than
stockholders or other investors.  Depending on whether the insurance company is
domiciled in the state and whether it is an admitted or non-admitted insurer,
such authority may extend to such things as (i) periodic reporting of the
insurer's financial condition; (ii) periodic financial examination;
(iii) approval of rates and policy forms; (iv) loss reserve adequacy; 
(v) insurer solvency; (vi) the licensing of insurers and their agents; (vii)
restrictions on the payment of dividends and other distributions; 
(viii) approval of changes in control; and (ix) the type and amount of 
permitted investments.

                  The Company also is subject to laws governing insurance
holding companies in Nebraska, Iowa, Arizona and Texas, where the Insurance
Companies are domiciled.  These laws, among other things, require the
Company to file periodic information with state regulatory authorities 
including information concerning its capital structure, ownership, financial
condition and general business operations; regulate certain transactions 
between the Company, its affiliates and the Insurance Companies, including the
amount of dividends and other distributions and the terms of surplus notes; and
restrict the ability of any one person to acquire certain levels of the
Company's voting securities (generally 10%) without prior regulatory approval.

                  Except for interest on surplus notes issued by the Insurance
Companies and payments on the American Agrisurance ("Am Ag") profit sharing,
the Company is dependent for funds to pay its operating and other expenses
upon dividends and other distributions from the Insurance Companies, the 
payment of which are subject to review and authorization by state insurance 
regulatory authorities.  Under Nebraska law, no domestic insurer may make a 
dividend or distribution which, together with dividends or distributions paid 
during the preceding twelve months, exceeds the greater of (i) 10% of such 
insurer's policyholders' surplus as of the preceding December 31 or (ii) such
insurer's statutory net income (excluding realized capital gains) for the 
preceding calendar year, until either it has been approved, or a thirty-day 
waiting period shall have passed during which it has not been disapproved by 
the Nebraska Insurance Director.  Iowa and Texas have similar laws governing 
the payment of dividends or distributions of insurance companies domiciled in 
their state.  In any case, the maximum amount of dividends the Insurance 
Companies may pay to Acceptance is limited to its earned surplus, also known as
unassigned funds.  Under Arizona law, payment of dividends or distributions by
a domestic insurer is limited to the lesser of (i) 10% of such insurer's
policyholders' surplus as of the preceding December 31 or (ii) such insurer's
net investment income for the preceding calendar year.  The tiered structure of
the Company's insurance subsidiaries effectively imposes two levels of dividend
restriction on the payment to the ultimate parent of dividends from Acceptance
Indemnity, Phoenix Indemnity, American Growers and Acceptance Casualty.  During
1999, the statutory limitation on dividends from the Insurance Companies to 
Acceptance without further insurance department approval is approximately 
$15.9 million.

<PAGE>
                  Other regulatory and business considerations may further 
limit the ability of the Insurance Companies to pay dividends.  For example,
the impact of dividends on surplus could effect an insurers' competitive
position, the amount of premiums that it can write and its ability to pay 
future dividends.  Further, the insurance laws and regulations of Nebraska, 
Iowa, Arizona and Texas require that the statutory surplus of an insurance 
company domiciled therein, following any dividend or distribution by such
company, be reasonable in relation to its outstanding liabilities and adequate
for its financial needs.

                  While the non-insurance company subsidiaries are not subject
directly to the dividend and other distribution limitations, insurance holding 
company regulations govern the amount which a subsidiary within the holding 
company system may charge any of the Insurance Companies for services 
(e.g., agents' commissions).

                  The Company's MPCI program is federally-regulated and 
supported by the federal government by means of premium subsidies to farmers
and expense reimbursement and federal reinsurance pools for private insurers.
Consequently, the MPCI program is subject to oversight by the legislative and
executive branches of the federal government, including the RMA.  The MPCI 
program regulations prescribe premiums which may be charged and generally
require compliance with federal guidelines with respect to underwriting, rating
and claims administration. The Company is required to perform continuous
internal audit procedures and is subject to audit by several federal
government agencies.

                  During the past several years, various regulatory and 
legislative bodies have adopted or proposed new laws or regulations to deal 
with the cyclical nature of the insurance industry, catastrophic events and 
insurance capacity and pricing.  These regulations include (i) the creation of
"market assistance plans" under which insurers are induced to provide certain 
coverages, (ii) restrictions on the ability of insurers to cancel certain 
policies in mid-term, (iii) advance notice requirements or limitations imposed
for certain policy non-renewals and (iv) limitations upon or decreases in rates
permitted to be charged.

                  The NAIC has approved and recommended that states adopt and 
implement several regulatory initiatives designed to be used by regulators as
an early warning tool to identify deteriorating or weakly capitalized
insurance companies and to decrease the risk of insolvency of insurance 
companies.  These initiatives include the implementation of the Risk Based 
Capital ("RBC") standards for determining adequate levels of capital and 
surplus to support four areas of risk facing property and casualty insurers:
(a) asset risk (default on fixed income assets and market decline), (b) credit
risk (losses from unrecoverable reinsurance and inability to collect agents' 
balances and other receivables),(c) underwriting risk (premium pricing and 
reserve estimates), and (d) off-balance sheet/growth risk (excessive premium
growth and unreported liabilities).  At December 31, 1998 the Insurance
Companies met the RBC requirements as promulgated by the domiciliary states
of the Insurance Companies and the NAIC.

                  The NAIC has developed its Insurance Regulatory Information 
System ("IRIS") to assist state insurance departments in identifying 
significant changes in the operations of an insurance company, such as changes
in its product mix, large reinsurance transactions, increases or decreases in 
premiums received and certain other changes in operations.  Such changes may 
not result from any problems with an insurance company but may merely indicate
changes in certain ratios outside ranges defined as normal by the NAIC.  When
an insurance company has four or more ratios falling outside "normal ranges,"
state regulators may investigate to determine the reasons for the variance
and whether corrective action is warranted.  At December 31, 1998, none of the
six Insurance Companies had more than three ratios falling outside
"normal ranges."

                  The eligibility of the Insurance Companies to write insurance
on a surplus lines basis is dependent on their compliance with certain
financial standards, including the maintenance of a requisite level of capital 
and surplus and the establishment of certain statutory deposits.  State surplus
lines laws typically: (i) require the insurance producer placing the business
to show that he or she was unable to place the coverage with admitted insurers;
(ii) establish minimum financial requirements for surplus lines insurers 
operating in the state; and (iii) require the insurance producer to obtain a
special surplus lines license.  In recent years, many jurisdictions have
increased the minimum financial standards applicable to surplus lines 
eligibility.

                  The Insurance Companies also may be required under the 
solvency or guaranty laws of most states in which they are licensed to pay
assessments (up to certain prescribed limits) to fund policyholder losses or
liabilities of insolvent or rehabilitated insurance companies.  These 
assessments may be deferred or forgiven under most guaranty laws if they would
threaten an insurer's financial strength and, in certain instances, may be 
offset against future premium taxes.  Some state laws and regulations further
require participation by the Insurance Companies in pools or funds to provide 
types of insurance coverages which they would not ordinarily accept.

<PAGE>
Uncertainties Affecting the Insurance Business

                  The property and casualty insurance business is highly
competitive, with over 3,000 insurance companies in the United States, many of
which have substantially greater financial and other resources, and may offer
a broader variety of coverages than those offered by the Company.  Beginning in
the latter half of the 1980s, there has been severe price competition in the 
insurance industry which has resulted in a reduction in the volume of premiums
written by the Company in some of its lines of businesses, because of its
unwillingness to reduce prices to meet competition.  In the crop insurance 
business, the Company competes with other crop insurance companies primarily on
the basis of service and commissions to agents.

                  The specialty property and casualty coverages underwritten by
the Company may involve greater risks than more standard property and casualty
lines.  These risks may include a lack of predictability, and in some 
instances, the absence of a long-term, reliable historical data base upon which
to estimate future losses.

                  Pricing in the property and casualty insurance industry is 
cyclical in nature, fluctuating from periods of intense price competition,
which led to record underwriting losses during the early 1980's, to periods of
increased market opportunity as some carriers withdrew from certain market 
segments.  Despite increased price competition in recent years, the Company has
maintained consistent earned premium income during such periods, principally
through geographic expansion, acquisitions and implementation of new insurance
programs.

                  The Company's results also may be influenced by factors 
influencing the insurance industry generally and which are largely beyond the
Company's control.  Such factors include (a) weather-related catastrophes; (b)
taxation and regulatory reform at both the federal and state level; (c) changes
in industry standards regarding rating and policy forms; (d) significant
changes in judicial attitudes towards liability claims; (e) the cyclical nature
of pricing in the industry; and (f) changes in the rate of inflation, interest
rates and general economic conditions.  The Company's crop insurance results 
are particularly subject to wide fluctuations because of weather factors 
influencing crop harvests.  Crop insurance results are not generally known 
until the last half of the year.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."

                  The insurance business is highly regulated and supervised in
the states in which the Insurance Companies conduct business.  The crop
insurance lines are subject to significant additional federal regulation.  The
regulations relating to the property and casualty and crop insurance business 
at both the state and federal level are frequently modified and such
modifications may impact future insurance operations.  See "Regulation."
                             
                  Adverse loss experience for 1997 and prior years resulted in 
a strengthening of loss reserves for the year ended December 31, 1998, in the
amount of $24.2 million.  The establishment of appropriate loss reserves is
an inherently uncertain process, and, it has been necessary, and over time may
continue to be necessary, to revise estimated loss reserve liabilities.  See
"Loss and Loss Adjustment Reserves," for a further discussion of factors which
may, in the future, influence loss reserve estimates.

                  Property and casualty insurance is a capital intensive
business and the Company is obliged to maintain minimum levels of surplus in
the Insurance Companies in order to continue writing insurance at current
levels or to increase its writings, and also to meet various operating ratio 
standards established by state insurance regulatory authorities and by 
insurance rating bureaus.  Without additional capital, the Company could be
required to curtail growth or even to reduce its volume of premium writings in
order to satisfy state regulations or to maintain its current A- (excellent)
rating from A.M. Best.  The Company's long-term history is one of continuing
premium growth, and it may be expected to require additional capital from time
to time, through additional offerings of its securities, increase in its debt 
or otherwise.  The Company continually reviews the surplus needs of the
Insurance Companies, and may, from time-to-time, need to seek additional 
funding.

<PAGE>

Employees

                  At March 22, 1999 the Company and its subsidiaries employed 
    17 salaried executives and 1,025 other personnel.  Acceptance believes that
    relations with its employees are good.

Item 2.  Properties.

                  The following table sets forth certain information regarding 
the principal properties of the Company.
<TABLE>
<CAPTION>
                                                General                                            Leased/
Location                                        Character          Size                            Owned(1)
<S>                                             <C>                <C>                             <C>                           
Omaha, NE.......................................Office              58,000 sq. ft.                 Leased
Council Bluffs, IA..............................Office             142,000 sq. ft.                 Leased
Council Bluffs, IA..............................Office              33,000 sq. ft.                 Owned
Whitsett, NC....................................Office               7,000 sq. ft.                 Leased
Phoenix, AZ.....................................Office              33,000 sq. ft.                 Leased
Scottsdale, AZ..................................Office              27,000 sq. ft.                 Leased
Itasca, IL......................................Office               4,000 sq. ft.                 Leased
Overland Park, KS...............................Office               3,000 sq. ft.                 Leased
<FN>
---------------
(1)      The range of expiration dates for these leases is November 30, 2001(Omaha), December 31, 2001 with five 
         year option (Council Bluffs), December 31, 2000 (Whitsett), February 21, 2000 (Phoenix), December 31,
         2001 (Scottsdale), August 31, 2001 (Itasca), and December 31, 2001 (Overland Park).
</FN>
</TABLE>
Item 3.  Legal Proceedings.

                  There are no material legal proceedings pending involving the
Company or any of its subsidiaries which require reporting pursuant to this 
Item.

Item 4.  Submission of Matters to a Vote of Security Holders.

                  No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1998.


                                    
<PAGE>                                                   


                                    PART II.

Item 5.  Market for Registrant's Equity and Related Stockholder Matters.

                  The Common Stock is listed and traded on the New York Stock
Exchange ("NYSE").  The following table sets forth the high and low sales 
prices per share of Common Stock as reported on the NYSE Composite Tape for the
fiscal quarters indicated.
<TABLE>
<CAPTION>
                                                                            High                   Low
<S>                                                                          <C>                    <C>            
Year Ended December 31, 1997
  First Quarter............................................................. 22 7/8                 18 5/8
  Second Quarter............................................................ 22 3/4                 18
  Third Quarter............................................................. 26 3/4                 21 1/4
  Fourth Quarter............................................................ 28 5/8                 22 3/8

Year Ended December 31, 1998
  First Quarter............................................................. 25 3/8                 22 5/8
  Second Quarter............................................................ 25 1/4                 21 1/2
  Third Quarter............................................................. 24 11/16               17 7/16
  Fourth Quarter............................................................ 20 13/16               17 1/16
</TABLE>


As of March 22, 1999, there were approximately 1,600 holders of record of
the Common Stock.

                  The Company has not paid cash dividends to its shareholders 
during the periods indicated above and does not anticipate that it will pay
cash dividends in the foreseeable future.  The Company's credit agreement with
its lenders ("Credit Agreement") prohibits the payment of cash dividends to 
shareholders.  See "Regulation" for a description of restrictions on payment of
 dividends to the Company from the Insurance Companies; and see "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations - Liquidity and Capital Resources" for a description of the
Company's Credit Agreement.

Item 6.  Selected Consolidated Financial Data.

                  The following table sets forth certain selected consolidated 
financial data and should be read in conjunction with, and is qualified in its
entirety by, the Consolidated Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" appearing elsewhere herein.  This selected consolidated financial
data has been derived from the audited Consolidated Financial Statements
of the Company and its subsidiaries.


                                       
                                                                         
<PAGE>

<TABLE>
<CAPTION>

                                                                                Years Ended December 31,                        
                                                         1998(1)         1997(1)         1996(1)         1995(1)         1994(1)
                                                                (in thousands, except per share data and ratios)
<S>                                                     <C>            <C>             <C>             <C>            <C>         
Income Statement Data:
  Insurance Revenues:
    Gross premiums written..............................$700,960       $665,810        $651,060        $537,349       $447,483
                                                        ========       ========        ========        ========       ========   
    Net premiums written................................$309,492       $335,064        $366,949        $286,183       $229,176
                                                        ========       ========        ========        ========       ========    
    Net premiums earned.................................$328,044       $335,215        $348,653        $271,584       $202,659
    Net investment income...............................  27,641         27,426          25,677          19,851         12,864
    Net realized capital gains..........................   6,825          7,321           5,206           2,531            554
    Agency income.....................................        --             --           1,035           2,863          3,629
                                                        --------       --------        --------        --------       --------    
      Insurance revenues................................ 362,510        369,962         380,571         296,829        219,706
  Non-insurance revenues................................     679            590             824             976            412
                                                        --------       --------        --------        --------       --------     
  Total revenues........................................ 363,189        370,552         381,395         297,805        220,118

  Insurance expenses:
    Losses and loss adjustment
      expenses.......................................... 237,061        213,455         243,257         212,337        142,951
    Underwriting and other expenses..................... 104,736         97,109          95,803          72,602         52,627
    Agency expenses......................................     --              --          1,024           2,596          3,180
                                                        --------       --------        --------        --------       --------
      Insurance expenses................................ 341,797        310,564         340,084         287,535        198,758
  Non-insurance expenses................................   3,502          2,063           2,015           2,165          1,684
                                                        --------       --------        --------        --------       --------    
  Total expenses........................................ 345,299        312,627         342,099         289,700        200,442
                                                        --------       --------        --------        --------       --------    
  Operating profit ....................................   17,890         57,925          39,296           8,105         19,676

  Other expense:
    Interest expense...................................   (8,994)        (6,569)         (4,896)         (2,591)        (1,693)
    Other expense, net................................      (816)           (51)           (910)           (171)          (271)
                                                        ---------      ---------        --------       ---------       -------- 
    Income before income taxes
      and minority interests.............................  8,080         51,305          33,490           5,343         17,712

  Provision (benefit) for income
    taxes(2).............................................  2,544         15,992           3,210           1,188         (3,443)
  Minority interests in net income
    of consolidated subsidiaries.........................    --             --              --              --              80
                                                         ---------     ---------       --------         --------      ---------
  Net income  .......................................... $ 5,536       $ 35,313        $ 30,280         $ 4,155       $ 21,075
                                                         =========     =========       ========         ========      ========= 
  Net income
    per share:
    - Basic..............................................$   .37       $   2.34        $   2.03         $   .28       $   2.04
    - Diluted............................................    .37           2.30            1.99             .28           1.86

GAAP Ratios:
  Loss ratio...........................................    72.3%          63.7%           69.7%           78.2%          70.5%
  Expense ratio........................................    31.9%          28.9%           27.5%           26.7%          26.0%
                                                         --------      ---------       --------          ------        -------      
  Combined loss and expense ratio.....................    104.2%          92.6%           97.2%          104.9%          96.5%
                                                         ========      =========       ========          ======        =======    
</TABLE>


       
<PAGE>                                                                         
<TABLE>
<CAPTION>
                                                                                    December 31,                                  
                                                            1998            1997            1996            1995            1994

<S>                                                    <C>             <C>             <C>             <C>             <C>        
Balance Sheet Data:
  Investments...........................................$489,397       $452,717        $405,926        $368,001        $264,743
  Total assets........................................ 1,092,943        979,453         884,380         781,034         543,087
  Loss and loss adjustment
    expense reserves.................................... 524,744        428,653         432,173         369,244         221,325
  Unearned premiums..................................... 162,037        157,134         140,217         124,122          97,170
  Borrowings and term debt...........................     15,000         --              69,000          69,000          29,000
  Company-obligated mandatorily
    redeemable Preferred Securities
    of AICI Capital Trust, holding
    solely Junior Subordinated
    Debentures of the Company...........................  94,875         94,875             --              --              --
  Stockholders' equity.................................. 236,154        253,670         207,820         177,787         159,754

Other Data:
  Statutory Surplus of Insurance
    Companies(3)........................................ 236,041        238,520         191,455         169,628         126,272
<FN>
__________________

(1)      For a discussion of the accounting treatment of the Company's MPCI business,  see "Management's Discussion and Analysis
         of Financial Condition and Results of Operations -- General."

(2)      Results for 1994  reflect the utilization of tax loss carryforwards and other temporary differences resulting from prior
         non-insurance operations.

(3)      Statutory data has been derived from the separate financial statements of the Insurance Companies prepared in accordance 
         with SAP.
</FN>
</TABLE>
<PAGE>
                                       




Item 7.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations


                  The following discussion and analysis of financial condition
and results of operations of the Company and its consolidated subsidiaries 
should be read in conjunction with the Company's Consolidated Financial
Statements and the notes thereto included elsewhere herein.

General
 
                  During 1998, the Company continued to focus on improving
operating margins in its property and casualty business by emphasizing 
profitable lines, reunderwriting marginal lines and eliminating unprofitable 
lines. This process led to a restructuring of the Company's property and
casualty business in the fourth quarter of 1998 including the elimination of
$151.0 million in gross written premiums from unprofitable lines of business,
reinsurance agreements transferring run-off of the eliminated lines of
business, and the strengthening of the Company's loss and loss adjustment 
expense reserves, principally on the eliminated lines of business.

                  During the past five years, the Company's other major
segment, crop insurance, has met or exceeded the Company's operating margin 
expectations, and this trend continued during 1998. The Company is currently
the third largest writer of MPCI business in the United States.

                  MPCI is a government-sponsored program with accounting 
treatment which differs from more traditional property and casualty insurance
lines.  For income statement purposes, gross premiums written consist of the
aggregate amount of MPCI premiums paid by farmers, and does not include any 
related federal premium subsidies or expense reimbursement.  The Company's
profit or loss from its MPCI business is determined after the crop season
ends on the basis of a profit sharing formula established by law and the RMA. 
For income statement purposes, any such profit share earned by the Company, net
of the cost of third party reinsurance, is shown as net premiums written,
which equals net premiums earned for MPCI business; whereas, any share of 
losses payable by the Company is charged to losses and loss adjustment 
expenses.  Due to various factors, including timing and severity of losses from
storms and other natural perils and crop production cycles, the profit or loss
on MPCI premiums is primarily recognized in the second half of the calendar
year.  The Company relies on loss information from the field to determine 
(utilizing a formula established by the RMA) the level of losses that should be
considered in estimating the profit or loss during this period.  Based upon
available loss information, the Company records an estimate of the profit
or loss during the third quarter and then re-evaluates the estimate using 
additional loss information available at year-end to determine any remaining 
portion to be recorded in the fourth quarter.  All expense reimbursements
received are credited to underwriting expenses.

                  Certain characteristics of the Company's crop business may
affect comparisons, including: (i) the seasonal nature of the business whereby 
profits or losses are generally recognized predominately in the second half
of the year; (ii) the nature of crop business whereby losses are known within a
short time period; and (iii) the limited amount of investment income associated
with crop business.  In addition, cash flows from such business differ from
cash flows from certain more traditional lines.  See "Liquidity and Capital
Resources" below.  The seasonal and short term nature of the Company's crop
business, as well as the impact on such business of weather and other natural
perils, may produce more volatility in the Company's operating results on a 
quarter to quarter or year to year basis than has historically been the case. 

Forward-Looking Information

                  Except for the historical information contained in this 
Annual Report on Form 10-K, matters discussed herein may constitute 
forward-looking information, within the meaning of the Private Securities 
Litigation Reform Act of 1995.  Such forward-looking information reflects the
Company's current best estimates regarding future operations, but, since these 
are only estimates, actual results may differ materially from such estimates.

                  A variety of events, most of which are outside the Company's
control, cannot be accurately predicted and may materially impact estimates of
future operations.  Important among such factors are weather conditions, 
natural disasters, changes in state and federal regulations, price competition
impacting premium levels, changes in tax laws, financial market performance, 
changes in court decisions effecting coverages and general economic conditions.
<PAGE>

                  The Company's results are significantly impacted by its crop
business, particularly its MPCI line. Results from the crop lines are not
generally known until the third and fourth quarters of the year, after crops 
are harvested.  Crop results are particularly dependent on events beyond the
Company's control, notably weather conditions during the crop growing seasons
in the states where the Company writes a substantial amount of its crop
insurance, and, with the introduction of the Company's new Crop Revenue
Coverage, the market price of grains on various commodity exchanges.
Additionally, federal regulations governing aspects of crop insurance are
frequently modified, and any such changes may impact crop insurance results.

                  Forward-looking information set forth herein does not take 
into account any impact from any adverse weather conditions during the 1999 
crop season, or the various other factors noted above which may affect crop and
non-crop operation results.

Results of Operations
Year Ended December 31, 1998
Compared to Year Ended December 31, 1997

                 The Companys net income decreased 84.3% from $35.3 million in
the year ended December 31, 1997 to $5.5 million in the year ended December 31,
1998.  The Companys operating income decreased 69.1% from $57.9 million in the 
year ended December 31, 1997 to $17.9 million in the year ended December 31,
1998.  These deteriorating results occurred due to a decline in the Company's
net premiums earned, an increase in the Company's incurred losses and loss
adjustment expenses, an increase in the Company's underwriting and general and
administrative expenses, an increase in the Company's interest expenses, and a
decrease in the Company's net realized capital gains.  These negative results
were primarily a result of the failure of the Company's property and casualty 
operations to achieve underwriting profitability, whereas the Company's crop 
insurance operations were able to meet or exceed profitability expectations for
the fifth consecutive year.

               During 1998, as in 1997, the Company's goal in its property and 
casualty segment was to improve underwriting results through an emphasis on 
profitable lines, modification of marginal lines, and a discontinuation of 
unprofitable lines.  By the fourth quarter of 1998, it became clear that this
process was not meeting the Company's goals for underwriting profitability, and
therefore, the Company undertook substantial restructuring of its property and
casualty operations in order to focus on profitable lines of speciality
business generated by its general agents and program managers.  This
restructuring eliminated approximately $151.0 million in annual gross written 
premiums from lines of business the Company believed had developed into
commodity insurance products no longer meeting the criteria of its core 
specialty business.  As part of the property and casualty operations
restructuring, the Company entered into discussions for sale of some 
discontinued business, most notably the non-standard automobile business, and
entered into reinsurance agreements transferring the runoff of the remaining 
discontinued lines to reinsurers. The Company also strengthened its loss and 
loss adjustment reserves primarily due to continued unexpected development,
principally on the discontinued lines of business. As part of the restructuring
plan, the Company recorded an after tax charge in the fourth quarter of 1998 of
approximately $23.3 million, and the Company expects an after tax charge of
approximately $.9 million to be recorded in the first quarter of 1999.  Before
the charges associated with the restructuring, the Company's net income for
1998 was $28.8 million.  In addition to the non-standard automobile business, 
the Company discontinued several product lines including coverages for certain
specialty automobile lines, aviation, and complex general liability risks.
The remaining property and casualty lines of business have historically
achieved underwriting loss and expense ratios below  100%, and with the 
reinsurance of discontinued lines and the strengthening of reserves for the 
discontinued business, the Company believes that it has enhanced the ability of
its property and casualty operations to return to profitability in 1999.

                                                      
               The Company's crop segment was a significant contributor to the
underwriting earnings of the Company in both 1997 and 1998.  During 1997, this
segment contributed $36.9 million to the Company's underwriting earnings as 
compared to $30.0 million during 1998.  During 1997, the Company earned a
profit share of 31.5% on its MPCI retained premium pool of approximately 
$155.5 million or $49.0 million.  In addition, the Company recorded in the
first quarter of 1998 additional profit share of 2.5% or $4.0 million for the 
1997 year.  This compares with an earned profit sharing of 25.0% on $196.5 
million retained premium pool generating $49.1 million in 1998.

               For the second year in a row, the Company experienced a decline 
in net insurance premiums earned from $335.2 million in 1997 to $328.0 million 
in 1998.  While the Company's gross written premiums increased 5.3% from
$665.8 million in 1997 to $701.0 million in 1998, an increase in the premiums
which the Company ceded to reinsurers resulted in a decrease in net premiums 
written and net premiums earned.  Due to the competitive environment in the
property and casualty business, new programs which the Company initiated in
1998 were heavily reinsured in order to diminish the impact on the Company's 
results until such time as these new programs confirmed their expected level of
profitability, and lines of business which were profitable but performing below
the Company's return on equity expectations, were more heavily reinsured in 
order to take advantage of favorable reinsurance terms available in the market.
These factors offset growth in profitable lines of business during 1998, as 
competitive pressures in the property and casualty industry minimized growth
in these lines of business.

<PAGE>
                                                       
               The Company's losses and loss adjustment expenses incurred
increased from $213.5 million during 1997 to $237.1 million in 1998.  This
increase in losses and loss adjustment expenses was principally attributable to
the $24.2 million strengthening in loss reserves for prior periods. Excluding 
the strengthening of loss reserves for prior periods, losses and loss 
adjustment expenses incurred decreased .3%, and the ratio of the Company's 
losses and loss adjustment expenses to net premiums earned increased from 63.7%
in 1997 to 64.9%, excluding reserve strengthening for prior periods, in 1998.
Including the reserve adjustment for prior periods, the Company's ratio of 
losses and loss adjustment expenses to net premiums earned in 1998 was 72.3%.
In the Company's property and casualty operations, results from operations 
which will continue after the restructuring were considerably better than
those of the operations discontinued in the restructuring.  Those operations
being discontinued experienced a ratio of loss and loss adjustment expense to
net premiums earned of 112.0% during 1998 whereas those operations which 
continue after the restructuring experienced a ratio of losses and loss
adjustment expenses to net premiums earned of 65.6% during 1998.

               Underwriting expenses increased from $97.1 million during 1997 
to $104.7 million during 1998, thus increasing the ratio of underwriting
expenses to net premiums earned from 29.0% in 1997 to 31.9% in 1998.  
Underwriting expense in the Company's crop insurance operations increased from 
1997 expenses of $9.0 million to underwriting expenses in 1998 of $14.8
million.  This increase of $5.7 million resulted from a decrease in the expense
reimbursement from the federal government in the Company's MPCI crop insurance
program of $5.2 million, an increase in commissions paid to agents on MPCI 
policies purchased at the catastrophic level of $3.3 million as the market
changed its commission practices on this type of policy from a flat fee to a
percentage of imputed premiums, and, offsetting these increase in expenses, a
decrease in the crop insurance segment's operating expenses of $2.8 million 
resulting from improvements in operating efficiencies.  The Company's 
underwriting expenses in its property and casualty segment increased more
modestly from $88.1 million or 32.0% of net premiums earned in 1997 to $90.0
million or 33.7% of net premiums earned in 1998.  This increase in underwriting
expenses in the property and casualty segment occurred principally from a
shifting emphasis on casualty lines of business under which the Company pays a 
lower rate of commission to property lines of business in which the Company's
acquisition expenses are greater, but where its historical loss ratios are
lower.  In the Company's property and casualty segment, the Company has sought
to reduce overall operating expenses as part of its restructuring process, and
therefore, believes that the ratio of underwriting expenses to net premiums 
earned will return to the level experienced in 1997 during 1999.  In the 
Company's crop insurance operations, the federal government has again in 1999
reduced the expense reimbursement under the Company's MPCI crop insurance 
programs.  The Company does not believe that the competitive marketplace for
crop insurance will allow it to reduce commissions or other operating expenses
commensurate with the reduction in federal reimbursement, and therefore, the
Company expects underwriting expenses in its crop segment to again increase 
during 1999.

               The Company's charges for general and administrative expenses
increased from $2.1 million in 1997 to $3.5 million during 1998.  The principal
component of this increase was a $1.1 million charge recorded in 1998 related 
to the valuation of its non-standard automobile subsidiary that is being held
for sale. 

               The Company's net investment income remained approximately the
same during 1997 as its was in 1998, increasing from $28.0 million during 1997
to $28.3 million during 1998.  This slight increase in net investment income
was positively impacted by an increase in the average outstanding size of the 
Company's investment portfolio from $453.9 million during the twelve months 
ended December 31, 1997 to $497.7 million during the twelve months ended
December 31, 1998.  However, the before tax investment yield of the Company's
investments declined from 6.2% during 1997 to 5.7% during 1998.  This decrease
in investment yield was a result of an overall lower interest rate environment
during 1998 as compared to 1997 as well as an increase in the amount of 
municipal tax advantaged securities and common stock in the Company's 
investment portfolio during 1998 as compared to 1997.  In addition, the 
Company's net realized capital gains decreased from $7.3 million during the
twelve months ended December 31, 1997 to $6.8 million during the twelve months
ended December 31, 1998.
<PAGE>
               The Company's net income was also negatively impacted by an
increase in the Company's interest expense of 36.9% from $6.6 million during 
the year ended December 31, 1997 to $9.0 million during the year ended December
31, 1998.  The increase in interest expense was a result of both an increase 
in the Company's average outstanding borrowings from $81.6 million during the 
twelve months ended December 31, 1997 to $100.0 million for the twelve months
ended December 31, 1998, and an increase in the average interest rate from 8.1%
during 1997 to 9.0% during 1998.  The increased borrowings were used to add
statutory surplus to the insurance Company's subsidiaries as well as to 
repurchase shares of the Company's stock under the Company's Stock Repurchase
Program approved by the Board of Directors in May, 1998. During the remainder 
of 1998, the Company repurchased one million shares of the Company's stock at a
cost of approximately $22.1 million.  The Company funded these repurchases
using available cash and $15 million of borrowings under its Revolving Credit
Facility.  The Company expects to pay off its outstanding bank borrowings
during the second quarter of 1999 from available cash, but may consider 
repurchasing additional shares of the Company's stock again in 1999 if excess
cash flows are developed.  The increase in the Company's average interest rate
resulted from the issuance of $94.875 million in trust preferred securities and
the retirement of the Company's outstanding bank debt during the third quarter
of 1997 (See Liquidity and Capital Resources).

Results of Operations
Year ended December 31, 1997
Compared to Year Ended December 31, 1996

                  The Company's net income increased 16.6% from $30.3 million
in the year ended December 31, 1996 to $35.3 million in the year ended
December 31, 1997.  The Company's operating income increased 47.4% from
$39.3 million in the year ended December 31, 1996 to $57.9 million in the year
ended December 31, 1997.  These improved results occurred despite a decrease in
the Company's insurance premiums earned and the differential between the growth
in net income and operating income occurred as the Company's tax rate returned
to normal levels in 1997 after the Company's 1996 taxes were positively
affected by the decrease in the valuation allowance relating to the unrealized 
loss from the Company's investment in Major Realty.  The improved results were
attributed primarily to improved loss and expense ratios in the Company's 
Property and Casualty segment, excellent crop results resulting from an above 
average profit sharing earned in the Company's MPCI program, and increased
investment income and realized gains from the Company's investment portfolio.
These positive factors were partially offset by an increase in the expense
ratio of the Crop segment, increased interest expense, and an increase in the
Company's effective tax rate.

                  After several years of growth in net insurance premiums
earned, the Company experienced a decline in net insurance premiums earned 
from $348.7 million in 1996 to $335.2 million in 1997, a decline of
approximately 3.9%.  During 1997, the Company's goal in its Property and
Casualty segment was to improve underwriting results through an emphasis on
profitable lines, a restructuring of marginal lines, and a discontinuation of 
unprofitable lines. During this process, growth in profitable lines of business
was offset by declining volumes in the discontinued lines resulting in only a 
 .8% increase in direct premiums written and a 2.3% increase in gross premiums
written.  In lines of business in which the Company was seeking to improve 
marginal results, the Company ceded additional amounts to reinsurers in order
to reduce the impact of these lines as well as to help improve the net results
of the Company. Due to the competitive environment in the Property and Casualty
business, new programs which the Company initiated in 1997 were also heavily
reinsured in order to diminish the impact on the Company's results until such
time as these new programs confirmed their expected level of profitability.  
Accordingly, the Company increased its cessions to reinsurers by approximately
$46.6 million from $284.1 million in 1996 to $330.7 million during 1997,
resulting in a 8.7% decline in net premiums written during 1997 as compared to
1996.

                  In the Company's Crop segment, the Company's premium levels 
were also relatively flat as direct written premiums decreased from 
$198.6 million in 1996 to $196.5 million in 1997 and gross premiums increased
slightly from $242.9 million in 1996 to $248.0 million in 1997.  These 
relatively level written premiums resulted as increases in the Company's policy
count under the Company's largest program, the MPCI crop insurance program,
were offset by reductions in commodity prices upon which the Company's premiums
are based.

                  Underwriting results in the Company's Property and Casualty
segment improved during 1997 as compared to 1996. This segment experienced a 
$12.3 million underwriting loss and a combined ratio of 104.5% in the twelve
months ended December 31, 1997 as compared to a $31.9 million underwriting loss
and a combined ratio of 111.3% for the twelve months ended December 31, 1996.
<PAGE>
                  The Property and Casualty segment's improved underwriting
results were due to a decrease in both the segment's accident year and calendar
year loss and loss adjustment expense ratios from 1996 to 1997. The segment's
loss and loss adjustment expense ratios fell from 74.6% and 78.0% on an
accident and calendar year basis respectively during 1996 to 69.9% and 72.5% 
on an accident year calendar year basis respectively during 1997. The
improvement in the loss and loss adjustment expense ratio resulted from a
change in mix of business, emphasizing more profitable lines, restructuring
reinsurance to improve the Company's net results and the cancellation of 
programs and agents with unprofitable loss and loss adjustment expense ratios.

                  Additionally, the Property and Casualty segment's expense 
ratio decrease from 33.4% during 1996 to 32.0% during 1997. During 1996, many
of the new programs within the segment were in a start-up phase in which
fixed expenses were not offset by adequate earned premiums. During 1997, growth
in earned premiums in these programs allowed fixed costs to move into a more
normal relationship as a percentage of earned premiums.

                  During 1997, non-automobile lines of business continued to 
outperform the automobile lines of business within the Company's Property and
Casualty segment.  For the year 1997, automobile lines recorded a 112.9% 
combined ratio while non-automobile lines recorded 99.9% combined ratio.  The 
Company continues to effect significant underwriting changes within its 
automobile lines in order to bring them closer to the Company's desired
goal of a combined ratio of 100.0% or less.

                  The Company's Crop segment was a significant contributor to
the underwriting earnings of the Company in both 1996 and 1997.  During 1996, 
the segment contributed $41.5 million to the Company's underwriting
earnings as compared to $36.9 million during 1997.  During 1997, the Company 
earned a profit share of 31.5% on its MPCI retained premium pool of 
approximately $155.5 million or $49.0 million.  This compares with an earned
profit share of 23.5% on a $161.4 million retained premium pool generating 
$37.9 million in 1996.

                  During the first quarter of 1996, the Company's operating
income benefited from a $2.8 million profit in the Company's Crop segment.  The
principal component of this $2.8 million was the recording of an additional
$3.8 million in profit sharing under the Company's MPCI program.  The Company's
estimate of its profit sharing under the MPCI program at December 31, 1995 was
affected by a volatile crop growing season during which many of the rules 
pertaining to preventive planting payments were changed and a combination of 
unusual weather conditions manifested themselves in an unusually late harvest.
As claims were closed during the first quarter of 1996 and the final preventive
planting rules applied to these losses, the Company was able to earn additional
profit sharing. The 1996 growing year did not experience this same degree of
volatility, and the harvest was not delayed by unusual weather conditions. 
Consequently, the MPCI profit sharing income recorded at December 31, 1996 more
accurately estimated actual results than had the profit sharing recorded at  
December 31, 1995.  During the first quarter of 1997, the Company experienced 
operating income of approximately $900,000 from the operations of its Crop 
segment.  The Company believes that the crop results for the first quarter of
1997 were more typical of a normal year than those experienced in the first
quarter of 1996.

                  The improved profit sharing income in 1997 was offset by an
increase in the Company's net operating expenses under the MPCI program.  This
increase in net expenses was due to a decrease in expense reimbursement from 
the federal government under the MPCI program from 31.0% for both MPCI and Crop
Revenue Coverage (CRC) policies in 1996 to 29.0% and 25.0% respectively for
MPCI and CRC policies in 1997.  This resulted in an approximate $7.2 million
decrease in expense reimbursement from 1996 to 1997.  The Company was unable to
pass along any of this expense reduction to its producing agents due to the 
competitive environment for MPCI business during 1997.

                  The Company's net income for 1997 also benefited from an 
increase in net investment income and net realized capital gains.  The 
Company's net investment income increased 5.8% during the twelve months ended
December 31, 1997 as compared to the twelve month period ended December 31,
1996 while the Company's net realized capital gains increased 40.4% in 1997 as
compared to 1996.  The increase in the Company's net investment income resulted
from an increase in the average size of the Company's portfolio from $402.4
million during the year ended December 31, 1996 to $453.9 million during the 
year ended December 31, 1997, an increase of 12.8%.  This increase in the size
of the portfolio was offset by a decrease in the annualized investment yield of
the portfolio from 6.6% during 1996 to 6.2% during 1997.  This decrease in 
annual investment yield was due to an increase in the average amount of tax
advantaged securities within the Company's portfolio and a lower interest rate
environment during 1997.
<PAGE>
                  The Company's interest expense increased 34.2% from $4.9
million during 1996 to $6.6 million during 1997.  This increase in interest 
expense resulted from both an increase in the Company's average borrowings
and the average interest rate paid by the Company.  During 1997, the Company's 
average borrowings were $81.6 million and the average interest rate was 8.1% as
compared to average borrowings in 1996 of $69 million and an average interest 
rate of 7.1%.  The increased borrowings during 1997 were used to add statutory 
surplus to the Company's insurance company subsidiaries.  The increase in the 
Company's average interest rate paid resulted from the issuance of $94.875 
million in Trust Preferred Securities and the retirement of the Company's 
outstanding bank debt during the third quarter of 1997 (see discussion under 
Liquidity and Capital Resources).

                  The Company's 1996 taxes were positively effected by the
decrease in the valuation allowance related to the unrealized loss from the 
Company's investment in Major Realty.  In October 1995, Major Realty announced
that its Board of Directors had determined that it was in the best interest of
the stockholders to seek a merger partner, otherwise seek a transaction for 
the sale of the company.  At December 31, 1996, the Company believed that the
realization of the capital loss associated with such a transaction was more 
likely than not due to sufficient carryforwards of capital gains as well as the
likelihood of future capital gains.  No such benefit was realized in 1997, and
therefore, the Company's effective tax rate increased to a more normal level of
31.2% as compared to an effective tax rate of 9.6% in 1996.


Liquidity and Capital Resources

                  The Company has included a discussion of the liquidity and
capital resources requirement of the Company and the insurance subsidiaries.
 
The Company - Parent Only

                  As an insurance holding company, the Company's assets consist
primarily of the capital stock of its subsidiaries, surplus notes issued by two
of its insurance company subsidiaries and investments held at the holding
company level.  The Company's primary sources of liquidity are receipts from
interest payments on the surplus notes, payments from the profit sharing
agreement with American Agrisurance, the Company's wholly owned subsidiary
which operates as the general agent for the Company's crop insurance programs,
tax sharing payments from its subsidiaries, investment income from, and
proceeds from the sale of, holding company investments, and dividends and other
distributions from subsidiaries of the Company.  The Company's liquidity needs
are primarily to service debt, pay operating expenses and taxes, make 
investments in subsidiaries, and repurchase shares of the Company's stock.

                  The Company currently holds three surplus notes, each in the 
amount of $20 million, issued by two of its insurance company subsidiaries, 
bearing interest at the rate of 9% per annum payable semi-annually and 
quarterly.  Although repayment of all or part of the principal of these surplus
notes requires prior insurance department approval, no prior approval of 
interest payment is currently required.

                  Under the American Agrisurance profit sharing agreement,
 American Agrisurance receives up to 50% of the crop insurance profit after
expenses and a margin retained by the Insurance Companies based upon a formula 
established by the Company and approved by the Nebraska Department of
Insurance.  If the calculated profit share is negative, such negative amounts
are carried forward and offset future profit sharing payments.  For the year
ended December 31, 1998 and 1997, American Agrisurance recorded $13.2 million
and $12.4 million, net of tax, related to the profit sharing agreement. These
amounts were distributed in the form of a dividend to the Company.

                  Dividends from the insurance subsidiaries of the Company are 
regulated by the regulatory authorities of the states in which each subsidiary
is domiciled.  The laws of such states generally restrict dividends from 
insurance companies to parent companies to certain statutorily approved limits.
In 1999, the statutory limitation on dividends from insurance company 
subsidiaries to the parent without further insurance departmental approval is
approximately $15.9 million.

                  The Company is currently a party to a tax sharing agreement
with its subsidiaries, under which such subsidiaries pay the Company amounts in
general equal to the federal income tax that would be payable by such 
subsidiaries on a stand-alone basis.
<PAGE>
                  In August 1997, AICI Capital Trust, a Delaware business trust
organized by the Company (the "Issuer Trust") issued 3.795 million shares or
$94.875 million aggregate liquidation amount of its 9% Preferred Securities
(liquidation amount $25 per Preferred Security).  The Company owns all of the
common securities (the "Common Securities") of the issue trust.  The Preferred
Securities represent preferred undivided beneficial interests in the Issuer 
Trust's assets.  The assets of the Issuer Trust consist solely of the Company's
9% Junior Subordinated Debentures due 2027 which were issued in August of 1997
in an amount equal to the Preferred Securities and the Common Securities.  The
Company primarily used the net proceeds in the amount of $90.9 million from the
sale of the Junior Subordinated Debentures to pay down the $90.0 million of
borrowings under its Revolving Credit Facility. Distributions on the Preferred
Securities and Junior Subordinated Debentures are cumulative, accrue from the
date of issuance and are payable quarterly in arrears.  The Junior Subordinated
Debentures are subordinate and junior in right of payment to all senior
indebtedness of the Company and are subject to certain events of default and 
redemptive provisions, all described in the Junior Debenture Indenture.  At
December 31, 1998, the Company had Preferred Securities of $94.875 million
outstanding at a weighted annual interest cost of 9.1%.

                  In June 1997, the Company amended its borrowing arrangements
with its bank lenders providing a five-year revolving credit facility (the 
"Revolving Credit Facility"), with a final maturity of 2002, in amounts not
to exceed $100 million.  In August 1997, the Company used the net proceeds from
the issuance of Junior Subordinated Debentures to repay the Company's 
outstanding indebtedness of $90 million under the Revolving Credit Facility. 
As a result of the Junior Subordinated Debentures, the Revolving Credit
Facility was reduced from $100 million to $65 million.  The Company selects its
interest rate as either the prime rate or LIBOR plus a margin which varies
depending on the Company's funded debt to equity ratio.  Interest is payable 
quarterly.  At December 31, 1998, the Company had $15 million outstanding 
under this arrangement.  Borrowings and interest cost averaged $5.2 million
and 6.5% during 1998.  The Revolving Credit Facility contains covenants which  
do not permit the payment of dividends by the Company, requires the Company to
maintain certain operating and debt service coverage ratios, required 
maintenance of specified levels of surplus and requires the Company to meet
certain tests established by the regulatory authorities.

                  At its May 29, 1998 meeting, the Company's Board of Directors
approved a stock repurchase plan providing for the repurchase of up to one 
million shares of the Company's stock. As of December 31, 1998, the Company has
repurchased one million shares at an average cost of $22.07 per share. The 
Company funded these repurchases using available cash and $15.0 million of 
borrowings under its Revolving Credit Facility.

                  As of December 31, 1998, the Company held cash, invested
assets excluding investments in subsidiaries, and dividends receivable of
 $19.1 million.

Insurance Companies

                  The principal liquidity needs of the Insurance Companies are 
to fund losses and loss adjustment expense payments and to pay underwriting 
expenses, including commissions and other expenses.  The available sources to
fund these requirements are net premiums received and, to a lesser extent, cash
flows from the Company's investment activities, which together have been 
adequate to meet such requirements on a timely basis.  The Company
monitors the cash flows of the Insurance Companies and attempts to maintain
sufficient cash to meet current operating expenses, and to structure its 
investment portfolio at a duration which approximates the estimated cash 
requirements for the payments of loss and loss adjustment expenses.

                  Cash flows from the Company's MPCI and crop hail businesses
differ in certain respects from cash flows associated with more traditional 
property and casualty lines.  MPCI premiums are not received from farmers
until the covered crops are harvested, and when received are promptly remitted
by the Company in full to the government.  Covered losses are paid by the
Company during the growing season as incurred, with such expenditures 
reimbursed by the government within three business days.  Policy acquisition 
and administration expenses are paid by the Company as incurred during the
year.  The Company periodically throughout the year receives a payment in
reimbursement of its policy acquisition and administration expenses.

                  The Company's profit or loss from its MPCI business is 
determined after the crop season ends on the basis of a profit sharing formula 
established by law and the RMA.  Commencing with the 1997 year, the Company
receives a profit share in cash, with 60% of the amount in excess of 17.5% of
its MPCI Retention (as defined in the profit sharing agreement) in any year 
carried forward to future years, or it must pay its share of losses.  Prior to
the 1997 year, the amount carried forward to future years was any amount in
excess of 15% of its MPCI retention.  The Company recognized $49.1 million in 
profit sharing earned on the MPCI business during 1998, and in addition, 
recognized $4.5 million during 1998 in profit sharing earned on 1997 MPCI 
business. The Company received $51.5 million in payments under the MPCI 
program in March of 1999.

                  In the crop hail insurance business, premiums are generally 
not received until after the harvest, while losses and other expenses are paid
throughout the year.
<PAGE>

                                   


Changes in Financial Condition

                  The NAIC has established a Risk Based Capital ("RBC") formula
for property and casualty insurance companies.  The RBC initiative is designed 
to enhance the current regulatory framework for the evaluation of the capital
adequacy of a property and casualty insurer.  The formula requires an insurer
to compute the amount of capital necessary to support four areas of risk facing
property and casualty insurers: (a) asset risk (default on fixed income assets 
and market decline), (b) credit risk (losses from unrecoverable reinsurance and
inability to collect agents' balances and other receivables), (c) underwriting
risk (premium pricing and reserve estimates), and (d) off balance sheet/growth
risk (excessive premium growth and unreported liabilities).  The Insurance 
Companies have reviewed and applied the RBC formula for the 1998 year and have
exceeded these requirements.

                  The Company's stockholders' equity decreased by approximately
$17.5 million from December 31, 1997 to December 31, 1998.  The principal 
components of this change were the repurchase of one million shares of the 
Company's stock at an aggregate cost of $22.1 million, net income of $5.5 
million for the year ended 1998, and a decrease in the value of the Company's 
investment portfolio causing the unrealized gain (loss) on available-for-sale 
securities net of tax to decrease from a gain of $6.9 million to a gain of 
$5.3 million.

Consolidated Cash Flows

                  Cash flows from operations for the year ended December 31, 
1998 were $34.0 million as compared to cash flows from operating activities of 
$10.1 million during 1997.  The increase in positive cash flows is primarily
the  result of the profit sharing payments received from the federal government
under the Company's MPCI crop insurance program. During 1997, this component of
operating cash flows was $25.5 million while in 1998, it was $57.0 million.

                  Cash flows from the Company's MPCI and crop hail business are
different in certain respects from cash flows associated with more traditional
property and casualty lines (see Liquidity and Capital Resources, Insurance
Companies).

Inflation

                  The Company does not believe that inflation has had a
material impact on its financial condition or results of operations.

Quantitative and Qualitative Disclosure about Market Risk

                  The Company's balance sheet includes a significant amount of
assets and liabilities whose fair value are subject to market risk. Market risk
is the risk of loss arising from adverse changes in market interest rates or
prices. The Company currently has interest rate risk as it relates to its fixed
maturity securities and mortgage loans and equity price risk as it relates to 
its marketable equity securities. In addition, the Company is also subject to
interest rate risk at the time of refinancing as it relates to its mandatorily 
redeemable Preferred Securities. The Company's bank debt is short-term in 
nature as the Company generally secures rates for periods ranging from one to 
six months and therefore approximates fair value. The Company's market risk
sensitive instruments are entered into for purposes other than trading.

                  At December 31, 1998, the Company had $346.6 million of fixed
maturity securities and mortgage loans and $71.7 million of marketable equity
securities that were subject to market risk. The Company's investment strategy 
is to manage the duration of the portfolio relative to the duration of the 
liabilities while managing interest rate risk. In addition, the Company has the
ability to hold its maturity investments until maturity and therefore would not
expect to recognize a material adverse impact on income or cash flows.

                  The Company's Preferred Securities of $94.875 million at
December 31, 1998, mature in August 2027 and are redeemable at the Company's
option in August 2002. The Company will continue to monitor the interest
rate environment and evaluate refinancing opportunities as the redemption and
maturity date approaches.

                  The Company uses two models to analyze the sensitivity of its
market risk assets and liabilities. For its fixed maturity securities, 
mortgage loans and mandatorily redeemable Preferred Securities, the Company 
uses duration modeling to calculate changes in fair value. For its marketable
equity securities, the Company uses a hypothetical 20% decrease in the fair 
value of these securities. Actual results may differ from the hypothetical 
results assumed in this disclosure due to possible actions taken by management
to mitigate adverse changes in fair value and because fair values of 
securities may be affected by credit concerns of the issuer, prepayment
speeds, liquidity of the security and other general market conditions. The 
sensitivity analysis duration model used by the Company produces a loss in fair
value of $19.0 million on its fixed maturity securities and mortgage loans and
a gain in fair value of $8.7 million on its mandatorily redeemable Preferred
Securities, based on a 100 basis point increase in interest rates. The 
hypothetical 20% decrease in fair value of the Company's marketable equity 
securities produces a loss in fair value of $14.3 million.
<PAGE>
Year 2000

                  The Year 2000 issue is the result of computer programs and
microcontrollers which recognize only two digits rather than four to identify 
the year. Any computer program or microcontroller that has a date sensitive 
function may recognize a date of  '00" as the year 1900 rather than the year 
2000. If not corrected, this could cause computers and other devices dependent
upon microcontrollers to fail or perform miscalculations.

                  The Company previously identified its information technology
("IT") systems requiring modification to be Year 2000 compliant. The Company
developed and continues to implement a corrective plan utilizing both internal
and external resources to make necessary modifications to, and to test, the 
Company's IT systems for Year 2000 compliance. The Company has addressed the
Year 2000 issue with respect to the majority of the Company's IT systems and 
believes that they are Year 2000 compliant and management expects the remaining
Company IT systems to be Year 2000 compliant by September 1, 1999.

                  Additionally, the Company is reviewing its Non-IT systems 
which rely on microprocessors, such as copiers, fax machines, telephone 
equipment and mail room equipment, to determine whether they require 
modification to be Year 2000 compliant. The Company currently also is 
communicating with the lessors and other providers of its Non-IT systems in
regards to their Year 2000 compliance status.

                  The Company relies on various third parties in the normal
course of its operations and has identified certain third parties with which it
has material relationships. These include insurance producers, reinsurers,
government agencies, banks and providers of telecommunication and utility. The
Company currently is communicating with these material third parties to 
determine if they are Year 2000 compliant.

                  One of the more significant third parties is the Risk
Management Agency ("RMA") which, along with the Federal Crop Insurance 
Corporation ("FCIC"), administers the federal crop insurance program. The RMA
calculates and settles the Company's MPCI profit share and expense
reimbursement. The RMA has publicly stated that all RMA and FCIC systems will
be Year 2000 compliant as of the filing date of this 10-K.

                  The Company has conducted a comprehensive review of potential
claims related to Year 2000 issues which might be submitted in conjunction with
policies of insurance it currently underwrites. Although the Company has 
concluded Year 2000 exposures are not covered under its existing insurance
policies, the Company is acting to eliminate, reduce or mitigate potential
claims for coverage of Year 2000 exposures through the use of exclusionary
language, new underwriting procedures and pricing practices, withdrawal from
certain classes of business, and establishment of a specialized unit within its
claims department to respond to such claims.

                  The Company has expensed costs of approximately $2.9 million
relating to the year 2000 issue since inception of the project, including $1.5 
million during the twelve months ended December 31, 1998. The Company         
anticipates an additional $.3 to $.8 million of expenses to complete the
project.

                  Although the Company plans to have addressed the Year 2000 
issues prior to being affected by such issues, it currently is assessing the 
need to develop contingency plans, particularly with respect to certain third 
parties with whom it has material relationships. The Company anticipates this
assessment will be complete, and contingency plans with respect to certain
third parties will be in the development stage, by September 1999.

                  Particularly because of the potentially wide-scale disruption
of general infrastructure and business systems, and despite the Company's
activities in regards to the Year 2000 issue, there can be no assurance that
computer and microcontroller failures related to the Year 2000 will not
interfere with the Company's normal business operations, result in unintended
and unexpected claims under policies of insurance written by the Company, or
otherwise have a material adverse affect upon the Company's business, financial
condition and results of operations.
<PAGE>
Recent Statement of Financial Accounting Standards

                  In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including 
certain derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not expect the adoption of SFAS
No. 133 to have a material impact to the Company's consolidated financial
statements.


Item 7A.  Quantitative and Qualitative Disclosure about Market Risk.

                  Information relating to this item is set forth under the
caption "Quantitative and Qualitative Disclosure About Market Risk" in Item 7, 
Management's Discussion and Analysis of Financial Condition and Results of 
Operation. Such information is incorporated herein.

Item 8.  Financial Statements and Supplementary Data.

                  See Item 14 hereof and the Consolidated Financial Statements
attached hereto.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

                  There have been no disagreements with the Registrant's 
independent accountants of the nature calling for disclosure under Item 9. 


                                    PART III.

Item 10.  Directors and Executive Officers of the Registrant.

                  The information required by Item 10 with respect to the 
Registrant's executive officers and directors will be set forth in the 
Company's 1999 Proxy Statement included as Exhibit 99.6 hereto and is
incorporated herein by reference.

Item 11.  Executive Compensation

                  The information required by Item 11 will be set forth in the
Company's 1999 Proxy Statement which will be filed within 120 days of the 
Company's year end and is incorporated herein by reference.

<PAGE>
                                       
Item 12.  Security Ownership of Certain Beneficial Owners and Management.

                  The information required by Item 12 will be set forth in the
Company's 1999 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

                  The information required by Item B will be set forth in the
Company's 1999 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.



                                    PART IV.

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

                  (a) The following documents are filed as a part of this 
Report:

                           1.  Financial Statements.  The Company's audited 
         Consolidated Financial Statements for the years ended December 31, 
         1998 and 1997 consisting of the following:

                                    Independent Auditors' Report
                                    Consolidated Balance Sheets
                                    Consolidated Statements of Operations
                                    Consolidated Statements of Cash Flows
                                    Consolidated Statements of Stockholders'
                                      Equity
                                    Notes to Consolidated Financial Statements

                           2.  Financial Statement Schedules

                                    Schedule II.  Condensed Financial 
                                      Information of Registrant
                                    Schedule V.  Valuation Accounts

                           3.  The Exhibits filed herewith are set forth in the
 Exhibit Index attached hereto.

                  (b) No Current Reports on Form 8-K have been filed during the
last fiscal quarter of the period covered by this Report.



      

<PAGE>         

                          INDEX TO FINANCIAL STATEMENTS


 
 

Audited Consolidated Financial Statements for the
  Years Ended December 31, 1998 and December 31,
  1997:
                                                                              
  Independent Auditors' Report
  Consolidated Balance Sheets
  Consolidated Statements of Operations
  Consolidated Statement of Stockholders' Equity
  Consolidated Statements of Cash Flows
  Notes to Consolidated Financial Statements



<PAGE>
                                                  










INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
of Acceptance Insurance Companies Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Acceptance 
Insurance Companies Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and 
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management. 
Our responsibility is to express an opinion on these financial statements 
based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial 
statement presentation.  We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Acceptance Insurance Companies 
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting 
principles.




/s/ DELOITTE & TOUCHE LLP


Omaha, Nebraska
March 5, 1999


<PAGE>

                                                 
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)
DECEMBER 31, 1998 AND 1997
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS                                                                           1998                 1997
<S>                                                                         <C>                  <C> 
Investments:
  Fixed maturities available-for-sale (Note 2)                              $     337,107        $     322,799
  Marketable equity securities available-for-sale (Note 2)                         71,687               84,156
  Mortgage loans and other investments                                              9,549               10,248
  Real estate                                                                       3,300                3,329
  Short-term investments, at cost, which approximates market                       67,754               32,185
                                                                            --------------        -------------  
                                                                                  489,397              452,717
Cash                                                                                6,897                8,048
Investment in Major Realty Corporation (Note 4)                                       -                  9,183
Receivables, net (Note 5)                                                         185,951              180,793
Reinsurance recoverable on unpaid losses and loss adjustment expenses             238,769              165,547
Prepaid reinsurance premiums                                                       76,663               53,208
Property and equipment, net of accumulated depreciation of $12,328
  and $10,105                                                                      16,425               15,588
Deferred policy acquisition costs                                                  25,433               30,328
Excess of cost over acquired net assets                                            33,363               35,567
Deferred income tax (Note 6)                                                        6,901               15,842
Other assets                                                                       13,144               12,632
                                                                            --------------       --------------
                                                                            $   1,092,943        $     979,453
                                                                            ==============       ==============   
                                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY

Losses and loss adjustment expenses (Note 7)                                $     524,744        $     428,653
Unearned premiums                                                                 162,037              157,134
Amounts payable to reinsurers                                                      35,840               17,955
Accounts payable and accrued liabilities                                           24,293               27,166
Bank borrowings (Note 8)                                                           15,000                    -
Company-obligated mandatorily redeemable Preferred Securities of 
AICI Capital Trust, holding solely Junior Subordinated Debentures of the 
Company (Note 9)                                                                   94,875               94,875
                                                                            --------------        --------------
           Total liabilities                                                      856,789              725,783
                                                                            --------------        --------------  

Commitments and contingencies (Notes 10 and 11)

Stockholders' equity:
  Preferred stock, no par value,  5,000,000 shares authorized,  none                       
  issued                                                                               -                    -
  Common stock, $.40 par value, 40,000,000 shares authorized;
    15,466,860 and 15,421,247 shares issued                                         6,187                6,168
  Capital in excess of par value                                                  198,657              198,080
  Accumulated other comprehensive income, net of tax                                5,305                6,885
  Retained earnings                                                                52,281               46,745
                                                                            --------------       --------------   
                                                                                  262,430              257,878
  Less:
    Treasury stock, at cost, 1,209,520 and 209,519 shares (Note 12)               (26,047)              (3,979)
    Contingent stock, 20,396 and 20,396 shares                                       (229)                (229)
                                                                            --------------       --------------   
           Total stockholders' equity                                             236,154              253,670
                                                                            --------------       --------------   
                                                                            $   1,092,943        $     979,453
                                                                            ==============       ==============   
<FN>

The accompanying notes are an integral part of the consolidated financial 
statements.
</FN>
</TABLE>

<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   1998                 1997                 1996
<S>                                                                            <C>                  <C>               <C>
Revenues:
  Insurance premiums earned (Note 7)                                           $  328,044           $  335,215        $    348,653
  Insurance agency commissions                                                        -                    -                 1,035
  Net investment income (Note 2)                                                   28,320               28,016              26,491
  Net realized capital gains                                                        6,825                7,321               5,216
                                                                               -----------          -----------       -------------
                                                                                  363,189              370,552             381,395
                                                                               -----------          -----------       -------------
Costs and expenses:                                                                                             
  Cost of revenues:                                                                                             
    Insurance losses and loss adjustment expenses (Note 7)                        237,061              213,455             243,257
    Insurance agency costs                                                           -                    -                  1,024
    Insurance underwriting expenses                                               104,736               97,109              95,803
  General and administrative expenses                                               3,502                2,063               2,015
                                                                               -----------          -----------       -------------
                                                                                  345,299              312,627             342,099
                                                                               -----------          -----------       -------------
           Operating profit                                                        17,890               57,925              39,296
                                                                               -----------          -----------       -------------
Other income (expense):                                                                                         
  Interest expense                                                                 (8,994)              (6,569)             (4,896)
  Loss on investee (Note 4)                                                          (704)                (209)              1,052)
  Other, net                                                                         (112)                 158                 142
                                                                               -----------          -----------        ----------- 
                                                                                   (9,810)              (6,620)             (5,806)
                                                                               -----------          -----------        ------------
   
           Income before income taxes                                               8,080               51,305              33,490
                                                                                                                
Income tax expense (benefit) (Note 6):                                                                          
  Current                                                                          (7,248)              15,164              14,173
  Deferred                                                                          9,792                  828              10,963)
                                                                               -----------          -----------        ------------
                                                                                    2,544               15,992               3,210
                                                                               -----------          -----------        ------------
           Net income                                                          $    5,536           $   35,313           $  30,280
                                                                               ===========          ===========        ============
Net income per share:
  Basic                                                                        $     0.37           $     2.34           $    2.03
                                                                               ===========          ===========        ============
  Diluted                                                                      $     0.37           $     2.30           $    1.99
                                                                               ===========          ===========        ============ 

<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>

<PAGE>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                         Accumulated
                                                           Other           Retained
                                           Capital in    Comprehensive     Earnings                                       Total
                             Common        Excess of    Income/(Loss),   (Accumulated     Treasury      Contingent    Stockholders'
                              Stock        Par Value      Net of Tax       Deficit)        Stock           Stock          Equity
<S>                        <C>            <C>              <C>          <C>            <C>             <C>             <C>   
Balance at January         $    6,057     $  194,823       $      19    $  (18,848)    $   (1,564)     $   (2,700)     $  177,787
1, 1996

  Net income                       -              -               -         30,280              -              -           30,280
  Change in unrealized 
  gain (loss)on 
  available-for-sale
  securities, net of 
  income taxes of $806
 (Note 18)                         -              -           (1,495)          -                -              -           (1,495)
   Total comprehensive                                                                                                  -----------
      income                                                                                                               28,785
  Issuance of common                                                                                                    -----------
  stock under employee              
  benefit plans                    46          1,267               -           -                -              -            1,313
  Purchase of 
  treasury stock                   -              -                -           -              (65)             -              (65)
                           -----------    -----------      -----------  -----------    -----------     -----------     ------------
Balance  at  December                                                                                               
31, 1996                        6,103        196,090          (1,476)       11,432         (1,629)         (2,700)        207,820

  Net income                       -              -               -         35,313              -              -           35,313
  Change in unrealized
  gain (loss)on 
  available-for-sale
  securities, net of 
  income taxes of                                                                                              
  $(4,502) (Note 18)               -              -            8,361           -                -              -            8,361
    Total comprehensive                                                                                                ------------
       income                                                                                                              43,674
  Contingent share                                                                                                     ------------
  settlement related               
  to Redland
  acquisition                      -             -               -             -           (1,611)          2,471             860
  Issuance of common                                                                                               
  stock under employee              
  benefit plans                    65          1,990             -             -                -              -            2,055
  Purchase of 
  treasury stock                   -             -               -             -             (739)             -             (739)
                           -----------    -----------      -----------  -----------    -----------     -----------    -------------
Balance at December                                                                                               
31, 1997                        6,168        198,080           6,885        46,745         (3,979)           (229)        253,670

  Net income                       -             -               -           5,536              -              -            5,536
  Change in unrealized
  gain (loss) on 
  available-for-sale
  securities, net of 
  income taxes  of  $851                                                                                              
  (Note 18)                        -             -            (1,580)          -                -              -           (1,580)
    Total comprehensive                                                                                               -------------
      income                                                                                                                3,956
  Issuance of common                                                                                                  -------------
  stock under employee              
  benefit plans                    19            577             -             -                -              -              596
  Purchase of                                                                              
  treasury stock                   -             -               -             -          (22,068)             -          (22,068)
                            -----------   -----------     ------------  -----------    -----------     -----------    -------------
    Balance  at  December   
31, 1998                   $    6,187     $  198,657      $    5,305    $   52,281     $  (26,047)      $    (229)     $  236,154
                           ============   ===========     ============  ===========    ===========     ===========    =============

<FN>
The accompanying notes are an integral part of the consolidated financial 
statements.
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-----------------------------------------------------------------------------------------------------------------------

                                                                               1998             1997            1996
<S>                                                                        <C>              <C>             <C>                    
Cash flows from operating activities:
  Net income                                                               $    5,536       $   35,313      $   30,280
  Adjustments to reconcile net income to net cash provided by (used                                    
  for) operating activities:                                                                               
      Depreciation and amortization                                             5,554            4,523           4,282             
      Deferred tax expense (benefit)                                            9,792              828         (10,963)
      Loss on investee                                                            704              209           1,052
      Policy acquisition costs incurred                                       (85,106)         (84,000)        (94,140)
      Amortization of policy acquisition costs                                 90,001           83,109          89,288
      Gain on sale of investments                                              (6,825)          (7,321)         (5,216)
      Increase  (decrease) in cash attributable to changes in assets              
      and liabilities:
        Receivables                                                            (5,158)         (47,430)        (27,117)
        Net losses and loss adjustment expenses                                22,869           16,354          45,396
        Net unearned premiums                                                 (18,552)            (151)         18,296
        Amounts payable to reinsurers                                          17,885            7,798          (8,004)
        Accounts payable and accrued liabilities                               (2,873)           2,153           2,293
      Other, net                                                                  131           (1,236)         (2,516)
                                                                          ------------      -----------     -----------           
           Net cash from operating activities                                  33,958           10,149          42,931
                                                                          ------------      -----------     -----------   
                                                                                                        
Cash flows from investing activities:                                                                   
  Proceeds from sales of investments available-for-sale                       163,064          206,075         145,819
  Proceeds from maturities of investments                                       5,924           28,191          29,207
  Proceeds from maturities of investments available-for-sale                  113,157          102,470          21,498
  Proceeds from sale of Major Realty Corporation                                8,479                -               -
  Purchases of investments                                                     (5,330)         (20,693)        (28,230)
  Purchases of investments available-for-sale                                (273,338)        (343,089)       (249,540)
  Other, net                                                                   (4,936)          (9,629)         (6,046)
                                                                          ------------      -----------       ---------           
           Net cash from investing activities                                   7,020          (36,675)        (87,292)
                                                                          ------------      -----------     -----------           
Cash flows from financing activities:                                                                   
  Proceeds from bank borrowings                                                15,000           21,000               -
  Repayments of bank borrowings                                                   -            (90,000)              -
  Proceeds from issuance of Company-obligated mandatorily redeemable
    Preferred Securities, net of $3,976 in related expenses                       -             90,899               -
  Proceeds from issuance of common stock                                          596            2,055           1,313
  Purchase of treasury stock                                                  (22,068)            (739)            (65)
                                                                          ------------      -----------     ----------- 
           Net cash from financing activities                                  (6,472)          23,215           1,248
                                                                          ------------      -----------     -----------           
Net increase (decrease) in cash and short-term investments                     34,506           (3,311)        (43,113)
                                                                                                        
Cash and short-term investments at beginning of year                           38,316           41,627          84,740
                                                                           -----------      -----------     ----------            
Cash and short-term investments at end of year                             $   72,822       $   38,316      $   41,627
                                                                           ===========      ===========     ==========       
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>


<PAGE>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Columnar Amounts in Thousands Except Per Share Data)
------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Description of Operations - Acceptance Insurance Companies Inc. 
      (the "Company") is primarily engaged in the specialty property and
      casualty insurance business through its wholly-owned subsidiaries, 
      Acceptance Insurance Holdings Inc. ("Acceptance") and The Redland Group,
      Inc. ("Redland").

      The Company concentrates on writing specialty coverages not generally
      emphasized by standard insurance carriers.  These specialty coverages
      primarily include specialty automobile lines, surplus lines liability and
      substandard property coverages, complex general liability risks, workers'
      compensation, and crop insurance.  Insurance is marketed through both
      general and independent agents.  The Company writes business as both an 
      admitted (licensed) and non-admitted (excess and surplus lines) carrier 
      in most of the United States.

      Principles of Consolidation - The Company's consolidated financial
      statements include the accounts of its majority-owned subsidiaries.  All
      significant intercompany transactions have been eliminated.

      Insurance Accounting - Generally, premiums are recognized as income 
      ratably over the terms of the related policies.  The crop hail premiums
      are recorded utilizing historical loss activity to match premiums earned
      with estimated loss exposure.  Insurance costs are associated with 
      premiums earned, resulting in the recognition of profits over the term of
      the policies.  This association is accomplished through amortization of
      deferred policy acquisition costs and provisions for unearned premiums
      and loss reserves.

      The Company writes multi-peril crop insurance ("MPCI") and crop revenue 
      coverage ("CRC") pursuant to terms established by the Federal Risk
      Management Agency ("RMA").  As used herein, the term MPCI includes CRC.  
      The Company issues and administers policies, for which it receives 
      administrative fees, and the Company participates in a profit sharing 
      arrangement in which it receives from the government a portion of the 
      aggregate profit, or pays a portion of the aggregate loss, with respect 
      to the business it writes.  The Company's share of the profit or loss on
      the MPCI business it writes is determined under a formula established by
      the RMA.  The Company records an estimate of its share of the profit or
      loss based upon available loss information.  Commencing with the 1997
      year, the Company receives a profit share in cash, with 60% of the amount
      in excess of 17.5% of its MPCI Retention (as defined in the profit 
      sharing agreement) in any year carried forward to future years, or it
      must pay its share of losses.  Prior to the 1997 year, the amount carried
      forward to future years was any amount in excess of 15% of its MPCI 
      retention.  The Company recognizes as income in the current year these
      amounts which are carried forward as a receivable.  The amounts carried 
      forward as a receivable are received in future years in cash or as a
      reduction of losses due the RMA.  MPCI premiums received during the year 
      which correspond to next year's crop season are deferred until the next
      year.  Insurance underwriting expenses are presented net of 
      administrative fees received from the RMA for reimbursement of costs 
      incurred by the Company.


<PAGE>

      The liability for unearned premiums represents the portion of premiums
      written which relates to future periods and is calculated generally using
      the pro rata method.  The Company also provides a liability for policy
      claims based on its review of individual claim cases and the estimated
      ultimate settlement amounts.  This liability also includes estimates of
      claims incurred but not reported based on Company and industry paid and
      reported claim and settlement expense experience. Differences which arise
      between the ultimate liability for claims incurred and the liability
      established will be reflected in the statement of operations of future
      periods as additional claim information becomes available.

      Certain costs of acquiring new insurance business, principally 
      commissions, premium taxes, and other underwriting expenses, have been 
      deferred.  Such costs are being amortized as related premiums are earned.
      Anticipated investment income is considered in evaluating recoverability
      of deferred acquisition costs.

      Statements of Cash Flows - The Company aggregates cash and short-term 
      investments with maturity dates of three months or less from the date of
      purchase for purposes of reporting cash flows.  As of December 31, 1998 
      and 1997, approximately $1,829,000 and $1,917,000 of short-term 
      investments had maturity dates at acquisition of greater than 
      three months.

      Investments - Investments in fixed maturities include bonds, notes and
      redemptive preferred stocks and investments in marketable equity 
      securities include common and nonredemptive preferred stocks.  All 
      investments in fixed maturities and marketable equity securities have 
      been classified as available-for-sale.  Available-for-sale securities are
      stated at fair value with the unrealized gains and losses reported as a
      separate component of stockholders' equity, net of tax.  Realized 
      investment gains and losses on sales of securities are determined on the
      specific identification method.

      Mortgage loans are carried at the lower of their unpaid principal balance
      or if impaired, fair value.  Real estate is stated at the lower of cost 
      or estimated net realizable value and is non-income producing.

      Property and Equipment - Property and equipment are stated at cost, net 
      of accumulated depreciation.  Depreciation is recognized principally 
      using the straight-line method over a period of five to ten years.  The
      Company capitalizes and amortizes direct costs incurred with the 
      development of internal use software.

      Excess of Cost Over Acquired Net Assets - The excess of cost over equity
      in acquired net assets is being amortized principally using the 
      straight-line method over periods not exceeding 40 years. Accumulated
      amortization approximated $8,036,000 and $6,933,000 at December 31, 1998
      and 1997, respectively.

      Impairment of Long-Lived Assets - Measurement of the impairment of 
      long-lived assets is evaluated periodically based primarily on
      management's estimate of future earnings.  During 1998, the Company 
      recorded a $1,100,000 impairment in general and administrative expenses
      related to a consolidated subsidiary that is being held for sale.  The 
      consolidated subsidiary held for sale has total assets of aproximately 
      $58 million at December 31, 1998 and insurance premiums earned of 
      approximately $43 million for the year ended December 31, 1998.

      Use of Estimates - The preparation of financial statements in conformity 
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and 
      liabilities and 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 may differ from
      those estimates.

     <PAGE>


      Estimates made by management include the liability for losses and loss 
      adjustment expenses and recoverability of deferred policy acquisition 
      costs.  The Company underwrites property and casualty coverages in a
      number of specialty areas of business which may involve greater risks 
      than standard property and casualty lines, including the risks associated
      with the absence of long-term, reliable historical claims experience.  
      These risk components may make more difficult the task of estimating 
      reserves for losses, and cause the Company's underwriting results to
      fluctuate.  Due to the inherent uncertainty of estimating reserves, it
      has been necessary, and may over time continue to be necessary, to revise
      estimated liabilities, as reflected in the Company's loss and loss
      adjustment expense reserves.  Additionally, conditions and trends that 
      have affected the development of loss reserves in the past may not 
      necessarily occur in the future.

      Recent Statements of Financial Accounting Standards -  In June 1998, the
      Financial Accounting Standards Board (FASB) issued Statement of Financial
      Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative
      Instruments and Hedging Activities, which establishes accounting and
      reporting standards for derivative instruments, including certain 
      derivative instruments embedded in other contracts, and for hedging
      activities.  SFAS No. 133 is effective for all fiscal quarters of fiscal 
      years beginning after June 15, 1999.  Management does not expect the
      adoption of SFAS No. 133 to have a material impact to the Company's 
      consolidated financial statements. 

      Reclassifications - Certain prior period amounts have been reclassified 
      to conform with current year presentation.

2.    INVESTMENTS

      A summary of net investment income earned on the investment portfolio for
      the years ended December 31 is as follows:


     <TABLE>
<CAPTION>

                                                              1998             1997             1996
<S>                                                       <C>              <C>            <C>  
Interest on fixed maturities                              $   19,991       $   18,075       $   15,189
Interest on short-term investments                             7,256            8,329            9,652
Other                                                          1,871            2,334            2,242
                                                          -----------      -----------      -----------     
                                                              29,118           28,738           27,083
Investment expenses                                             (798)            (722)            (592)
                                                          -----------      -----------      -----------                           
Net investment income                                     $   28,320       $   28,016       $   26,491
                                                          ===========      ===========      ===========     
<FN>    

      The amortized cost and related estimated fair values of investments in 
      the accompanying balance sheets are as follows:
</FN>
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                              Gross            Gross          Estimated
                                                            Amortized       Unrealized       Unrealized         Fair
                                                              Cost            Gains            Losses           Value
<S>                                                      <C>               <C>                <C>            <C>                  
December 31, 1998:
  Fixed maturities available-for-sale:
    U.S. Treasury and government securities               $   77,671       $    1,228         $    114        $ 78,785
    States, municipalities and political
      subdivisions                                           161,017            6,278               93         167,202
    Mortgage-backed securities                                38,475               42              590          37,927
    Other debt securities                                     56,786            1,795            5,388          53,193
                                                          -----------      -----------        ---------      ----------   
                                                          $  333,949       $    9,343         $  6,185       $ 337,107
                                                          ===========      ===========        =========      ==========    
  Marketable equity securities - preferred stock          $   27,246       $      494         $    424       $  27,316
                                                          ===========      ===========        =========      ==========   
  Marketable equity securities - common stock             $   39,438       $    9,718         $  4,785       $  44,371
                                                          ===========      ===========        =========      ==========    
December 31, 1997:
  Fixed maturities available-for-sale:
    U.S. Treasury and government securities               $  104,039       $      536         $     41       $ 104,534
    States, municipalities and political
      subdivisions                                           129,378            4,520               38         133,860
    Mortgage-backed securities                                48,056              132            3,381          44,807
    Other debt securities                                     40,131              792            1,325          39,598
                                                          -----------      -----------        ---------      ----------        
                                                          $  321,604       $    5,980         $  4,785       $ 322,799
                                                          ===========      ===========        =========      ========== 
  Marketable equity securities - preferred stock          $   51,185       $    2,291         $    167       $  53,309
                                                          ===========      ===========        =========      ==========   
  Marketable equity securities - common stock             $   23,574       $    8,439         $  1,166       $  30,847
                                                          ===========      ===========        =========      ==========    
<FN>

      The amortized cost and related estimated fair values of the fixed 
      maturity securities as of December 31, 1998 are shown below by stated
      maturity dates.  Actual maturities may differ from stated maturities
      because the borrowers may have the right to call or prepay obligations
      with or without call or prepayment penalties.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                                             Amortized       Estimated
                                                               Cost          Fair Value
<S>                                                       <C>              <C>                   
Fixed maturities available-for-sale:
  Due in one year or less                                 $    9,841       $   10,180
  Due after one year through five years                       72,071           70,479
  Due after five years through ten years                      61,064           59,625
  Due after ten years                                        152,498          158,896
                                                          -----------      -----------  
                                                             295,474          299,180
  Mortgage-backed securities                                  38,475           37,927
                                                          -----------      -----------   
                                                          $  333,949       $  337,107
                                                          ===========      ===========  
</TABLE>



    <PAGE>


      The Company's collateral backed securities portfolio consists of
      mortgage-backed securities, all of which are collateralized mortgage 
      obligations ("CMOs").  The following table sets forth as of December 31, 
      1998, the categories of the Company's CMOs, which at such date had an
      average expected life of approximately four years:

<TABLE>
<CAPTION>
                                                               Par          Amortized        Estimated
                                                              Value            Cost             Fair
Type of CMO                                                    (1)             (1)             Value
<S>                                                      <C>               <C>            <C>  
Fixed coupon                                              $   12,684       $   12,644       $   12,684
Floating rate (2)                                             19,103           18,990           18,616
Inverse floating rate (2)                                      6,874            6,841            6,627
                                                          -----------      -----------      -----------     
           Total CMOs (3)                                 $   38,661       $   38,475       $   37,927
                                                          ===========      ===========      =========== 


<FN>
(1)      Par value is the face amount of the underlying mortgage collateral. 
         Any cost in excess of par value is a "premium" whereas cost lower than
         par value is a "discount".  The Company's aggregate CMO portfolio has
         been purchased at a discount.

(2)      Floating rate CMOs provide an increased interest rate when a specified
         index interest rate increases and a lower interest rate when such 
         index rate decreases, while inverse floating rate CMOs provide a lower
         interest rate when the index increases and a higher rate when the
         index rate decreases.  Generally, the Company's floating rate and
         inverse floating rate securities are tied to the one month LIBOR.  
         The market values of the Company's floating rate and inverse floating 
         rate CMOs are significantly impacted by various factors, including the
         outlook for future interest rate changes and such securities' relative
         liquidity under current market conditions.

(3)      All of the CMO portfolio collateral is guaranteed by government
         agencies.
</FN>
</TABLE>

      Proceeds from sales of fixed maturity securities during the years ended 
      December 31, 1998, 1997 and 1996 were approximately $111,131,000, 
      $147,854,000 and $100,203,000, respectively.  Gross realized gains on
      sales of fixed maturity securities were approximately $2,073,000, 
      $1,908,000 and $1,681,000, and gross realized losses on sales of fixed
      maturity securities were approximately $197,000, $181,000 and $22,000
      during the years ended December 31, 1998, 1997 and 1996, respectively.

      As required by insurance regulatory laws, certain bonds with an amortized
      cost of approximately $25,467,000 and short-term investments of
      approximately $634,000 at December 31, 1998 were deposited in trust with
      regulatory agencies.

3.    FAIR VALUES OF FINANCIAL INSTRUMENTS

      Statement of Financial Accounting Standards No. 107, Disclosures about
      Fair Value of Financial Instruments ("SFAS 107"), requires fair value 
      disclosures for financial instruments.  Certain financial instruments,
      including insurance contracts, were excluded from SFAS 107 disclosure
      requirements due to perceived difficulties in measuring fair value.

      In determining fair value, the Company used quoted market prices when 
      available.  For instruments where quoted market prices were not 
      available, the Company used independent pricing services or appraisals by
      the Company's management.  Those services and appraisals reflected the 
      estimated present values utilizing current risk-adjusted market rates of
      similar instruments.

      Considerable judgment is necessarily required in interpreting market data
      to develop the estimates of fair value.  Accordingly, the estimates
      presented herein are not necessarily indicative of the amounts the 
      Company could realize in a current market exchange.  The use of different
      market assumptions and/or estimation methodologies may have a material 
      effect on the estimated fair value.

      The carrying values of cash and short-term investments, receivables and
      accounts payable, and accruals are deemed to be reasonable estimates of 
      their fair values due to their short-term nature.  The estimated fair 
      values of the Company's other financial instruments as of December 31,
      1998 and 1997, are as follows:

<PAGE>


<TABLE>
<CAPTION>

                                                                 Carrying Value                Estimated Fair Value
                                                              1998             1997             1998            1997
<S>                                                      <C>              <C>               <C>            <C>           
Investments in fixed maturity securities                  $  337,107       $  322,799       $  337,107      $  322,799
Investments in marketable equity
  securities                                                  71,687           84,156           71,687          84,156
Mortgage loans and other investments                           9,549           10,248            9,549          10,248
Investment in Major Realty Corporation                             -            9,183                -           9,183
Bank borrowings, term debt and other
  borrowings                                                  15,000                -           15,000               -
Company-obligated mandatorily redeemable
  Preferred Securities of AICI Capital Trust,
  holding solely Junior Subordinated
  Debentures of the Company                                   94,875           94,875           94,401          96,545
</TABLE>


4.    INVESTMENT IN MAJOR REALTY CORPORATION

      At December 31, 1997, the Company held an approximate 33% equity 
      investment in Major Realty Corporation, a publicly traded real estate
      company engaged in the ownership and development of its undeveloped land
      in Orlando, Florida.  In addition, the Company also had a note with Major
      Realty, that was convertible into Major Realty stock at the option of the
      Company at the prevailing market price conversion, with an outstanding
      balance at December 31, 1997 of $5.6 million.

      During May 1998, the Company closed on a transaction whereby the 
      Company's investment in Major Realty was converted to cash and the
      remaining balance of the note plus accrued interest was paid.  This 
      transaction resulted in the Company recording a net loss from investee of
      approximately $.7 million and a net tax benefit of approximately 
      $.7 million.

<PAGE>



5.    RECEIVABLES

      The major components of receivables at December 31 are summarized as
      follows:

<TABLE>
<CAPTION>
                                                              1998             1997
<S>                                                       <C>              <C>                            
Insurance premiums and agents' balances due               $   68,494       $   80,113
Amounts recoverable from reinsurers                           24,922           19,519
Profit sharing gain due from the RMA                          71,452           71,227
Accrued interest                                               5,146            5,108
Installment notes receivable                                   3,975            5,183
Federal income tax receivable                                 16,880            4,533
Other                                                            287               95
Less allowance for doubtful accounts                          (5,205)          (4,985)
                                                          -----------      -----------  
                                                          $  185,951       $  180,793
                                                          ===========      ===========
</TABLE>  


6.    INCOME TAXES

      The Company recognizes a net deferred tax asset or liability for all
      temporary differences and a related valuation allowance when realization 
      of the asset is uncertain.  The valuation allowance at December 31, 1998 
      and 1997 relates to capital loss items.  The net deferred tax as of
      December 31, is as follows:

<TABLE>
<CAPTION>

                                                              1998            1997
<S>                                                       <C>             <C>  
Unpaid losses and loss adjustment expenses                $   12,512      $   12,311
Unearned premiums                                              5,976           7,275
Allowances for doubtful accounts                               1,822           1,745
Other                                                          2,344           2,618
Major Realty basis difference                                     -            8,391
                                                          -----------     ----------- 
           Deferred tax asset                                 22,654          32,340
                                                          -----------     ----------- 
Deferred policy acquisition costs                             (8,902)        (10,615)
Unrealized gain on marketable equity securities
available-for-sale                                            (1,751)         (3,289)
Unrealized gain on fixed maturities available-for-sale        (1,105)           (418)
Unrealized gain on consolidated subsidiary held for sale      (1,869)             -
Other                                                         (2,051)         (1,064)
                                                          -----------     -----------   
           Deferred tax liability                            (15,678)        (15,386)
                                                          -----------     ----------- 
                                                               6,976          16,954
Valuation allowance                                              (75)         (1,112)
                                                          -----------     -----------  
Net deferred tax asset                                    $    6,901      $   15,842
                                                          ===========     ===========   
</TABLE>


        
<PAGE>  



      Income taxes computed by applying statutory rates to income before income
      taxes are reconciled to the provision for income taxes set forth in the
      consolidated financial statements as follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                  1998            1997             1996
<S>                                                                           <C>             <C>              <C>  
Computed U.S. federal income taxes                                            $    2,828      $   17,986       $   11,744
Nondeductible amortization of goodwill and other
  intangibles                                                                        445             550              631
Tax-exempt interest income                                                        (2,301)         (1,951)          (1,408)
Dividends received deduction                                                        (885)         (1,203)          (1,073)
Recognition of a portion of the deferred tax asset                                (1,037)              -           (7,354)
Unrealized gain on consolidated subsidiary held for sale                           1,869               -                -
State income tax                                                                     698             289                -
Other                                                                                927             321              670
                                                                              -----------     -----------      -----------       
          Income tax expense                                                  $    2,544      $   15,992       $    3,210
                                                                              ===========     ===========      =========== 
<FN>       


      Cash payments for income taxes were approximately $5,099,000,
      $14,303,000, and $20,000,000 during the years ended December 31, 1998,
      1997, and 1996, respectively.
</FN>
</TABLE>

7.    INSURANCE PREMIUMS AND CLAIMS

      Insurance premiums written and earned by the Company's insurance 
      subsidiaries for the years ended December 31, 1998, 1997 and 1996 are as
      follows:

<TABLE>
<CAPTION>
                                                                                  1998            1997             1996
<S>                                                                           <C>             <C>              <C> 
Direct premiums written                                                       $  605,504      $  591,931       $  587,397
Assumed premiums written                                                          95,456          73,879           63,663
Ceded premiums written                                                          (391,468)       (330,746)        (284,111)
                                                                              -----------     -----------      -----------         
  Net premiums written                                                        $  309,492      $  335,064       $  366,949
                                                                              ===========     ===========      ===========        
Direct premiums earned                                                        $  606,105      $  575,938       $  571,971
Assumed premiums earned                                                           89,952          72,954           62,994
Ceded premiums earned                                                           (368,013)       (313,677)        (286,312)
                                                                              -----------     -----------      -----------        
  Net premiums earned                                                         $  328,044      $  335,215       $  348,653
                                                                              ===========     ===========      ===========  
</TABLE>


      Included in ceded premiums written and earned is $141.4 million, 
      $136.7 million, and $134.0 million of MPCI premiums ceded to the
      RMA for the years ended December 31, 1998, 1997, and 1996, respectively. 
      Included in assumed premiums written and earned in 1998, 1997, and 1996 
      is $55.0 million, $51.7 million, and $42.2 million of MPCI profit share.

     <PAGE>



      The following table presents an analysis of the Company's reserves for 
      losses and loss adjustment expenses, reconciling beginning and ending
      balances for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                  1998            1997             1996
<S>                                                                           <C>             <C>              <C>         
Net loss and loss adjustment expense reserves at
  beginning of year                                                           $ 263,106       $ 246,752        $ 201,356
Provisions for net losses and loss adjustment expenses                        ----------      ----------       ----------         
  for claims occurring in the current year                                      212,894         206,597          233,727
Increase in net reserves for claims occurring in prior years                     24,167           6,858            9,530
                                                                              ----------      ----------       ----------
                                                                                237,061         213,455          243,257
                                                                              ----------      ----------       ----------        
Net losses and loss adjustment expenses paid for claims                                                   
  occurring during:                                                                                       
    Current year                                                               (100,968)       (110,372)        (102,565)
    Prior years                                                                (113,224)        (86,729)         (95,296)
                                                                               ---------      ----------       ----------     
                                                                               (214,192)       (197,101)        (197,861)
                                                                               ---------      ----------       ----------      
Net loss and loss adjustment expense reserves at end                                                      
  of year                                                                       285,975         263,106          246,752
Reinsurance recoverable on unpaid losses and loss                                                        
  adjustment expenses                                                           238,769         165,547          185,421
                                                                              ----------     -----------      -----------         
                                                                                                          
Gross loss and loss adjustment expense reserves                               $ 524,744       $ 428,653        $ 432,173
                                                                              ==========     ===========      ===========        
</TABLE>  



      Insurance losses and loss adjustment expenses have been reduced by 
      recoveries recognized under reinsurance contracts of $424.1 million, 
      $223.3 million, and $300.8 million for the years ended December 31, 1998,
      1997, and 1996, respectively, of which approximately $213.8 million,
      $109.1 million, and $207.5 million, respectively, relate to recoveries on
      the MPCI business from the RMA.

      The liability for losses and loss adjustment expenses is determined by 
      management based on historical patterns and expectations of claims 
      reported and paid, trends in claim experience, information available on
      an industry-wide basis, as well as changes in the Company's claim
      handling procedures and premium rates.  During 1998, the Company has
      discontinued several product lines due to the continuation of unexpected
      development and pricing that is no longer acceptable to the Company.  
      These lines of business included coverages for certain specialty
      automobile lines, aviation, and complex general liability risks.  As a
      result of these current developments, management modified the assumptions
      used in reserving 1997 and prior accident years for these lines which
      created most of the unfavorable development during 1998.

      The liability for losses and loss adjustment expenses represents
      management's best estimate and is based on sources of available evidence
      including an analysis prepared by an actuary engaged by the Company.  The
      Company's lines of business are considered less predictable than standard
      insurance coverages.

8.    BANK BORROWINGS

      In June 1997, the Company amended its borrowing arrangements with its
      bank lenders providing a $100 million five-year Revolving Credit
      Facility.  In August 1997, the Company used the net proceeds from the
      issuance of Junior Subordinated Debentures to repay the Company's
      outstanding indebtedness of $90 million under the Revolving Credit 
      Facility.  As a result of the issuance of the Junior Subordinated
      Debentures, the Revolving Credit Facility was reduced from $100 million
      to $65 million (See Note 9).  The Company selects its interest rate as 
      either the prime rate or LIBOR plus a margin of .50% to 1.25%, depending 
      on the Company's debt to equity ratio.  Interest is payable quarterly. 
      At December 31, 1998, the Company had $15 million outstanding under this
      arrangement and at December 31, 1997, the Company had no outstanding 
      indebtedness (See Note 12).

      At December 31, 1998, the Revolving Credit Facility was collateralized by
      the Company's Acceptance and Redland common stock.  Borrowings and 
      interest cost averaged $5.2 million and 6.5% during 1998 and $43.1
      million and 7.0% during 1997.  The Revolving Credit Facility contains
      covenants which do not permit the payment of dividends by the Company, 
      requires the Company to maintain certain operating and debt service
      coverage ratios, requires maintenance of specified levels of surplus
      and requires the Company to meet certain tests established by regulatory
      authorities.

      Cash payments for interest related to the Revolving Credit Facility were
      approximately $.2 million, $3.3 million, and $4.7 million during the
      years ended December 31, 1998, 1997 and 1996, respectively.

9.    COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF AICI 
      CAPITAL TRUST, HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE
      COMPANY

      In August 1997, AICI Capital Trust, a Delaware business trust organized 
      by the Company (the "Issuer Trust") issued 3.795 million shares or
      $94.875 million aggregate liquidation amount of its 9% Preferred 
      Securities (liquidation amount $25 per Preferred Security).  The Company 
      owns all of the common securities (the "Common Securities") of the Issuer
      Trust.  The Preferred Securities represent preferred undivided beneficial
      interests in the Issuer Trust's assets.  The assets of the Issuer Trust 
      consist solely of the Company's 9% Junior Subordinated Debentures due in
      2027, which were issued in August 1997 in an amount equal to the total of
      the Preferred Securities and the Common Securities.  The Company 
      primarily used the net proceeds in the amount of approximately
      $90.9 million from the sale of the Junior Subordinated Debentures to pay
      down the $90.0 million of borrowings under its Revolving Credit Facility.

      Distributions on the Preferred Securities and Junior Subordinated
      Debentures are cumulative, accrue from the date of issuance and are 
      payable quarterly in arrears.  The Junior Subordinated Debentures are 
      subordinate and junior in right of payment to all senior indebtedness of 
      the Company and are subject to certain events of default and redemption 
      provisions, all as described in the Junior Debenture Indenture.  At 
      December 31, 1998 and 1997, the Company had Preferred Securities of 
      $94.875 million outstanding at a weighted average interest cost of 9.1%
      and 9.2%, respectively.

      Cash payments for interest related to the Junior Subordinated Debentures
      were approximately $8.5 million and $3.5 million during the years ended
      December 31, 1998 and 1997, respectively.

10.   CONTINGENCIES

      The Company is involved in various insurance related claims and other 
      legal actions arising from the normal conduct of business.  Management
      believes that the outcome of these proceedings will not have a material 
      adverse effect on the consolidated financial statements of the Company.

      At December 31, 1998 Acceptance Premium Finance Company, Inc., an
      affiliate, had a revolving line of credit agreement which provided for 
      borrowings up to $20,000,000 maturing in April 1999. Borrowings under
      this agreement are guaranteed by the Company.  Acceptance Premium Finance
      Company, Inc. had $17,500,000 and $12,900,000 outstanding under this line
      of credit at December 31, 1998 and 1997, respectively.



<PAGE>

11.   OPERATING LEASES

      The Company leases office space and certain furniture and equipment under
      operating leases. Future minimum obligations under these operating leases
      are as follows at December 31, 1998:

         1999                                             $  3,742
         2000                                                3,330
         2001                                                2,638
         2002                                                  151
                                                          --------  
                                                          $  9,861
                                                          ========
  
      Rental expense totaled approximately $4,418,000, $4,353,000, and 
      $3,715,000 for the years ended December 31, 1998, 1997 and 1996,
      respectively.

12.   STOCK REPURCHASE

      On June 1, 1998, the Company's Board of Directors authorized the 
      repurchase of up to one million shares of the Company's common stock. 
      Purchases were made from time to time in the open market and in private
      transactions.  During 1998, the Company repurchased one million shares of
      its common stock at an average cost of $22.07 per share.  The Company
      funded these repurchases using available cash and $15 million of
      borrowings under its Revolving Credit Facility.

13.   STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

      The Company's 1996 incentive stock option plan provides for a maximum of 
      1,500,000 options to be granted to employees and directors.  Stock 
      options issued to employees will vest in not less than five annual 
      installments.  Stock options issued to non-employee directors will vest
      at the expiration of the directors' current term.  All options expire no
      later than ten years from the date of grant and the exercise price will
      not be less than 100% of the market value at the date of grant.

      The 1992 incentive stock option plan was terminated as to future grants
      upon approval of the 1996 incentive stock option plan.  The 1992 
      incentive stock option plan provided for options granted to employees 
      which vest over 4 years from the date of the grant and options to 
      non-employee directors which vest one year  from the date of grant.  All
      options expire no later than ten years from the date of grant and the 
      exercise price is equal to the market price at the date of grant.

      Under the Company's employee stock purchase plan, the Company is 
      authorized to issue up to 500,000 shares of common stock to its
      full-time employees.  Under the terms of the plan, each year employees
      can choose to purchase up to 10% of their annual compensation.  The 
      purchases may be made during six month phases generally commencing at the
      beginning of January and July.  The purchase price of the stock is equal
      to the lower of 85% of the market price on the termination date of the 
      phase or when the subscription is paid in full, whichever occurs first; 
      or 85% of the average of the market price on the commencement date of the
      phase and the market price on the termination date of the phase or when 
      the subscription is paid in full, whichever occurs first. Under the plan,
      the Company sold 19,113, 16,744, and 12,690 shares during 1998, 1997, and
      1996, respectively.

<PAGE>

      The Company applies APB Opinion 25 and related Interpretations in 
      accounting for its plans. Accordingly, no compensation cost has been
      recognized for its stock option plans and its stock purchase plan.  Had 
      compensation cost for the Company's stock-based compensation plans been
      determined based on the fair value at the grant dates for awards under 
      those plans consistent with the method of SFAS No. 123, the Company's net
      income and net income per share would have been reduced to the pro forma 
      amounts indicated below:

<TABLE>
<CAPTION>
                                                                                  1998            1997             1996
<S>                                                                           <C>             <C>              <C>   
Net income:
  As reported                                                                 $  5,536        $ 35,313         $ 30,280
  Pro forma                                                                                               
                                                                                 4,508          33,672           28,929

Net income per share:
  Basic:
    As reported                                                               $   0.37        $   2.34         $   2.03
    Pro forma                                                                                             
                                                                                  0.30            2.24             1.94

  Diluted:
    As reported                                                               $   0.37        $   2.30         $   1.99
    Pro forma                                                                                             
                                                                                  0.30            2.19             1.91
</TABLE>

        


      The fair value of the options at the date of grant under the incentive
      stock option plans and the fair value of the employees' purchase rights
      under the employee stock purchase plan were estimated using a 
      Black-Scholes option-pricing model with the following weighted-average
      assumptions for 1998, 1997, and 1996, respectively:  risk-free interest
      rates of 5.7%, 6.7%, and 6.7%; expected volatility of 24%, 22%, and 22%;
      weighted-average expected lives of options of 7 years and an expected
      life of employees' purchase rights of one year; and no dividend yield.

      A summary of the status of the Company's stock option plans as of 
      December 31, 1998, 1997 and 1996 and changes during the years ended on 
      those dates is presented below:

<TABLE>
<CAPTION>
                                                   1998                               1997                            1996
                                  --------------------------------------------------------------------------------------------------
                                                      Weighted                         Weighted                       Weighted
                                                      Average                          Average                        Average
                                                      Exercise                         Exercise                       Exercise
                                    Options            Price           Options          Price          Options         Price
<S>                                <C>             <C>              <C>           <C>                 <C>           <C>        
Outstanding at beginning
  of year                          1,292,500        $    22.16      1,378,021     $   21.46             622,731     $  12.96
Granted                               70,500             32.62         10,500         21.00             883,000        26.45
Exercised                             26,500              8.99         77,896         10.15              87,210        11.23
Forfeited                              1,250             22.00         18,125         21.13              40,500        21.54
                                   ----------                      -----------                        ----------        
Outstanding at end of year         1,335,250        $    22.97      1,292,500     $   22.16           1,378,021     $  21.46
                                   ==========       ===========    ===========    ==========          ==========    =========     
Options exercisable at
  year end                           697,000                          466,719                           270,896
Weighted-average fair value
  per share of options
  granted during the year        $      5.92                       $     8.84                        $     4.21

</TABLE>




<PAGE>
      The following table summarizes information about stock options 
      outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                   
                                       Options Outstanding                        Options Exercisable
                               --------------------------------------------------------------------
                                                     Weighted-
                                                      Average     Weighted                      Weighted-
                                                     Remaining     Average                       Average
                                     Number         Contractual    Exercise      Number         Exercise
   Range of Exercise Prices       Outstanding           Life        Price       Exercisable       Price
   <S>                             <C>               <C>           <C>          <C>             <C>                 
        11.38 to 14.50              378,125          5.7 years     $   13.17    329,375         $   12.97
            17.13                    10,500          7.4 years         17.13     10,500             17.13
        19.69 to 21.00              183,500          7.6 years         19.77    183,500             19.77
        22.00 to 22.94              183,500          7.6 years         22.67    173,000             22.65
        26.05 to 29.95              370,625          7.6 years         27.96        625             28.50
        33.65 to 44.50              209,000          7.8 years         35.22        -                 -
                                  ---------                                     -------   
       $11.38 to 44.50            1,335,250          7.1 years     $   22.97    697,000         $   17.24
       ================           =========          =========     =========    =======         ==========                        

<FN>

      The Company has a defined contribution plan for which related expense for
      1998, 1997, and 1996 was approximately $1,486,000, $1,085,000 and
      $1,002,000, respectively.
</FN>
</TABLE>


14.   RELATED PARTY TRANSACTIONS

      The Company contracts with a related party to administer health insurance
      benefits for its employees and to place property and casualty coverage on
      behalf of the Company whereby the related party receives commissions from
      the insurance providers which totalled $327,000, $321,000 and $237,000 
      in 1998, 1997 and 1996, respectively.  In addition, the Company pays 
      commissions and fees to a related party in connection with insurance 
      written and loss control activities, which totalled $357,000, $181,000
      and $186,000 in 1998, 1997 and 1996, respectively.  This related party
      reimburses the Company for an allocable share of certain office occupancy
      expenses, $9,000, $36,000 and $174,000 in 1998, 1997 and 1996, 
      respectively.

      The Company made payments during 1998, 1997 and 1996 totalling
      approximately $380,000, $351,000 and $298,000, respectively, to a related
      party to provide investment related services.

15.   REINSURANCE

      The Company's insurance subsidiaries cede insurance to other companies
      under quota share, excess of loss and facultative treaties.  The
      insurance subsidiaries also maintain catastrophe reinsurance to protect
      against catastrophic occurrences where claims can arise under numerous
      policies due to a single event.  The reinsurance agreements are tailored
      to the various programs offered by the insurance subsidiaries.  The 
      largest amount retained in any one risk by the insurance subsidiaries 
      during 1998 was $600,000.  The methods used for recognizing income and
      expenses related to reinsurance contracts have been applied in a manner
      consistent with the recognition of income and expense on the underlying 
      direct and assumed business (See Note 1).

      Three reinsurers, who have an A.M. Best rating of A- (excellent) or
      better, accounted for approximately 34% and 30% of the reinsurance 
      recoverables and prepaid reinsurance premiums at December 31, 1998 and
      1997, respectively.  No other reinsurer, except for the RMA, accounted 
      for more than 5% of these balances.


<PAGE>


16.   DIVIDEND RESTRICTIONS AND REGULATORY MATTERS

      Dividends from the insurance subsidiaries of the Company are regulated 
      by the state regulatory authorities of the states in which each
      subsidiary is domiciled.  The laws of such states generally restrict
      dividends from insurance companies to certain statutorily approved
      limits. During 1999, dividends from insurance subsidiaries to the Company
      without further insurance department approval are limited to
      approximately $15.9 million.

      The Company's insurance subsidiaries reported to regulatory authorities 
      total statutory policyholders' surplus of approximately $236,041,000 and
      $238,520,000 at December 31, 1998 and 1997, respectively, and total 
      statutory net income of $1,068,000, $27,428,000, and $21,344,000 for
      the years ended December 31, 1998, 1997, and 1996, respectively.

17.      NET INCOME PER SHARE

      The net income per share for both basic and diluted for the years ended
      December 31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>

                                                                       1998              1997            1996
<S>                                                                <C>              <C>              <C>     
Net income                                                         $   5,536        $  35,313        $ 30,280
                                                                   ==========       ==========       ========= 
Weighted average common shares outstanding                            14,843           15,065          14,933
  Dilutive effect of contingent shares                                    20               67              75
  Dilutive effect of stock options and warrants                          176              234             177
                                                                   ----------       ----------       ---------         
Diluted weighted average common and equivalent
  shares outstanding                                                  15,039           15,366          15,185
                                                                   ==========       ==========       =========     
Basic net income per share                                         $    0.37        $    2.34        $   2.03
                                                                   ==========       ==========       =========    
Diluted net income per share                                       $    0.37        $    2.30        $   1.99
                                                                   ==========       ==========       =========      
</TABLE>


18.      OTHER COMPREHENSIVE INCOME

      Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting 
      Comprehensive Income. Other comprehensive income (loss) determined in
      accordance with SFAS No. 130 for the years ended December 31 are as
      follows:
        <TABLE>
<CAPTION>
                                                                       1998              1997            1996
<S>                                                                <C>              <C>              <C>          
Unrealized holding gains arising during the year                   $   4,394        $  20,184        $  2,915
Income tax expense                                                     1,538            7,064           1,020
                                                                   ----------       ----------       --------- 
Unrealized holding gains arising during the year, net of tax           2,856           13,120           1,895
                                                                   ----------       ----------       ---------              
Reclassification adjustment for gains realized in net income           6,825            7,321           5,216
Income tax expense                                                     2,389            2,562           1,826
                                                                   ----------       ----------       ---------    
Reclassification adjustment for gains realized in net
  income, net of tax                                                   4,436            4,759           3,390
                                                                   ----------       ----------       --------- 
Other comprehensive income (loss)                                  $  (1,580)       $   8,361        $ (1,495)
                                                                   ==========       ==========       =========    
</TABLE>



<PAGE>




19.   BUSINESS SEGMENTS

      The Company is engaged in the specialty property and casualty and the 
      crop insurance business.  The Property and Casualty Insurance segment
      consists of excess and surplus lines liability and property, substandard
      property, specialty automobile, workers' compensation, professional
      liability, and specialty coverages for transportation risks, temporary
      help agencies, condominiums, rural markets, and fine arts.  The principal
      lines of the Crop Insurance segment are MPCI and crop hail insurance.

      The accounting policies of the segments are the same as those described
      in the summary of significant accounting policies (see Note 1). 
      Management evaluates the performance of and allocates its resources to
      its operating segments based on income before income taxes.  Interest
      income and interest expense are primarily allocated to segments based 
      upon estimated investments and capital, respectively.  Under a stop loss
      reinsurance treaty, the Property and Casualty Insurance segment assumed 
      premiums of $3.5 million, $4.5 million and $4.5 million for the years
      ended December 31,1998, 1997 and 1996, respectively, from the Crop
      Insurance segment, utilizing the excess capacity of the Property and
      Casualty Insurance segment.  Depreciation and amortization totaled 
      $3.1 million, $2.2 million and $2.8 million for the Property and Casualty
      Insurance segment and $2.5 million, $2.3 million and $1.5 million for the
      Crop segment for the years ended December 31, 1998, 1997 and 1996,
      respectively.  Management does not utilize assets as a significant
      measurement tool for evaluating segments.

      Segment revenues and segment operating profit for the years ended
      December 31, are as follows:

<TABLE>
<CAPTION>
                                                                   Property and
                                                                     Casualty            Crop
                         1998                                       Insurance         Insurance          Total
<S>                                                                <C>                <C>            <C>           
Revenues                                                           $  297,439        $  65,750       $ 363,189
                                                                   ===========       ==========      ==========
Operating profit (loss)                                               (16,045)          33,935          17,890
Interest expense and other                                              6,679            3,131           9,810
                                                                   -----------       ----------      ----------
Income before income taxes                                         $  (22,724)       $  30,804       $   8,080
                                                                   ===========       ==========      ==========    
                         1997

Revenues                                                           $  306,258        $  64,294       $ 370,552
                                                                   ===========       ==========      ==========   
Operating profit                                                       17,507           40,418          57,925
Interest expense and other                                              4,537            2,083           6,620
                                                                   -----------       ----------      ----------
Income before income taxes                                         $   12,970        $  38,335       $  51,305
                                                                   ===========       ==========      ==========   
                         1996

Revenues                                                           $  311,745        $  69,650       $ 381,395
                                                                   ===========       ==========      ========== 
Operating profit (loss)                                                (4,437)          43,733          39,296
Interest expense and other                                              4,202            1,604           5,806
                                                                   -----------       ----------      ----------    
Income before income taxes                                         $   (8,639)       $  42,129        $ 33,490
                                                                   ===========       ==========      ========== 

</TABLE>
        
<PAGE>



      The Company does not have a single customer which represents 10% or more
      of its consolidated revenues.  In addition, substantially all revenue of 
      the Company's reportable segments are attributed to or located in the 
      United States.

20.      INTERIM FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                      Basic          Diluted
                                                    Under-                             Net             Net
                                                    writing            Net            Income          Income
                                                     Income           Income          (Loss)          (Loss)
Quarters Ended (1)                Revenues           (Loss)           (Loss)         Per Share       Per Share
                                                                                      (3)             (3)

                                                   (In thousands, except per share data)
<S>                              <C>             <C>               <C>              <C>            <C>                 
1998:
  December 31 (2)                $    78,159     $   (32,012)      $  (19,802)      $   (1.39)     $    (1.39)
  September 30                       124,328          17,820           14,778            1.01            1.00
  June 30                             81,938          (1,063)           4,402            0.29            0.29
  March 31                            78,764           1,502            6,158            0.40            0.40
                                 ------------    ------------      -----------      ----------     -----------  
                                 $   363,189     $   (13,753)      $    5,536       $    0.37      $     0.37
                                 ============    ============      ===========      ==========     ===========  
1997:
  December 31                    $    87,812     $     5,234       $    8,349       $    0.55      $     0.54
  September 30                       122,092          21,309           18,808            1.25            1.22
  June 30                             81,755          (1,103)           4,242            0.28            0.28
  March 31                            78,893            (789)           3,914            0.26            0.26
                                 ------------    ------------      -----------      ----------     -----------
                                 $   370,552     $    24,651       $   35,313       $    2.34      $     2.30
                                 ============    ============      ===========      ==========     ===========
<FN>        


  (1)    The Company is significantly involved in crop insurance programs,
         including the federal Multi-Peril Crop Insurance program and the crop
         hail business.  The Company's operating results from its crop program
         can vary substantially from quarter to quarter as a result of various 
         factors, including timing and severity of losses from storms and other
         natural perils and crop production cycles.  Therefore, the results for
         any quarter are not necessarily indicative of results for any future
         period.  The results of the crop program business primarily are
         recognized in the second half of the calendar year.

  (2)    Underwriting income (loss) was reduced in the quarter ended
         December 31, 1998 by the approximately $24.2 million strengthening of 
         loss and loss adjustment expense reserves.

  (3)    Quarterly net income per share numbers may not add to the annual net 
         income per share.
</FN>
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1998 AND 1997
BALANCE SHEETS (Parent Company Only)
(In Thousands)
---------------------------------------------------------------------------------------------------------------------------

ASSETS                                                                                              1998             1997
<S>                                                                                              <C>             <C> 
Cash and short-term investments                                                                  $  17,906       $     960
Receivables, net                                                                                     5,607           6,343
Intercompany receivables                                                                               248          13,159
Surplus note receivable from subsidiary                                                             60,000          60,000
Investments in subsidiaries                                                                        255,444         260,707
Other assets                                                                                         7,297           7,987
                                                                                                 ----------      ----------     
                                                                                                 $ 346,502       $ 349,156
                                                                                                 ==========      ==========     
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                                                         $     473       $     611
Bank borrowings                                                                                     15,000               -
Company-obligated mandatorily redeemable Preferred Securities of
  AICI Capital Trust, holding solely Junior Subordinated Debentures of
  the Company                                                                                       94,875          94,875
                                                                                                 ----------      ----------     
           Total liabilities                                                                       110,348          95,486

Stockholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized, none issued
  Common stock, $.40 par value, 40,000,000 shares authorized; 15,466,860
    and 15,421,247 shares issued                                                                     6,187           6,168
  Capital in excess of par value                                                                   198,657         198,080
  Accumulated other comprehensive income, net of tax                                                 5,305           6,885
  Retained earnings                                                                                 52,281          46,475
                                                                                                  ---------       ---------    
                                                                                                   262,430         257,878
  Less:
    Treasury stock, at cost, 1,209,520 and 209,519 shares                                          (26,047)         (3,979)
    Contingent stock, 20,396 and 20,396 shares                                                        (229)           (229)
                                                                                                 ----------      ----------         
           Total stockholders' equity                                                              236,154         253,670
                                                                                                 ----------      ----------   
                                                                                                 $ 346,502       $ 349,156
                                                                                                 ==========      ==========  
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
STATEMENTS OF OPERATIONS  (Parent Company Only)
(In Thousands)
-----------------------------------------------------------------------------------------------------------------------

                                                                                    1998         1997         1996
<S>                                                                               <C>         <C>          <C>                   
Revenues                                                                          $  -        $    -       $   -
                                                                                                                
                                                                                                           
Costs and expenses:                                                                                        
  General and administrative expenses                                               2,502        2,112        2,167
                                                                                  --------    ---------    ---------    
           Operating loss                                                          (2,502)      (2,112)      (2,167)
                                                                                                           
Other income (expense):                                                                                    
  Interest expense                                                                 (8,994)      (6,569)      (4,925)
  Undistributed share of net income (loss) of subsidiaries                         (3,933)      25,040       31,586
  Other                                                                            19,313       17,889        5,235
                                                                                  --------     --------    ---------              
                                                                                    6,386       36,360       31,896
                                                                                  --------     --------    ---------             
          Income before income taxes                                                3,884       34,248       29,729

Income tax benefit (expense):                                                                              
  Current                                                                           1,834          995          505
  Deferred                                                                           (182)          70           46
                                                                                  --------    ---------    ---------     
Net income                                                                        $ 5,536     $ 35,313     $ 30,280
                                                                                  ========    =========    ========= 
</TABLE>



<PAGE>


<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
STATEMENTS OF CASH FLOWS (Parent Company Only)
(In Thousands)
------------------------------------------------------------------------------------------------------------------------

                                                                                    1998         1997         1996
<S>                                                                                  <C>         <C>           <C>       
Cash flows from operating activities:
  Net income                                                                         $ 5,536     $ 35,313      $ 30,280
  Adjustments to reconcile net income from continuing                                                      
    operations to net cash used for operating activities:                                                  
      Deferred tax expense (benefit)                                                     182          (70)          (46)
      Undistributed share of net loss (income) of subsidiaries                         3,933      (25,040)      (31,586)
      Increase (decrease) in cash attributable to changes in                                               
        assets and liabilities:                                                                            
          Receivables                                                                 13,647      (14,233)       (3,049)
          Payables                                                                      (138)        (334)       (1,446)
  Other, net                                                                             508          234            75
                                                                                     --------    ---------     ---------          
           Net cash used for operating activities                                     23,668       (4,130)       (5,772)
                                                                                                           
Cash flows from investing activities:                                                                      
  Contributions to investments in subsidiaries                                          (250)     (20,000)          (50)
  Proceeds from sale of investments available-for-sale                                    -            -          3,005
                                                                                     --------     --------       -------       
           Net cash used for investing activities                                       (250)     (20,000)        2,955
                                                                                                           
Cash flows from financing activities:                                                                      
  Proceeds from bank borrowings                                                       15,000       21,000             -
  Repayments of bank borrowings                                                           -       (90,000)            -
  Proceeds from issuance of Company-obligated mandatorily redeemable
    Preferred Securities, net of $3,976 in related expenses                               -        90,899             -
  Proceeds from issuance of common stock                                                 596        2,055         1,313
  Purchase of treasury stock                                                         (22,068)        (739)          (65)
                                                                                     --------     --------     ---------      
           Net cash provided by financing activities                                  (6,472)      23,215         1,248
                                                                                     --------     --------     ---------          
Net increase (decrease) in cash and short-term investments                            16,946         (915)       (1,569)
                                                                                                           
Cash and short-term investments at beginning of year                                     960        1,875         3,444
                                                                                    ---------    ---------     ---------         
Cash and short-term investments at end of year                                      $ 17,906     $    960      $  1,875
                                                                                    =========    =========     ========= 

</TABLE>


<PAGE>



ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------------------------------


The Company aggregates cash and short-term investments with maturity dates of
three months or less from the date of purchase for purposes of reporting cash
flows.

Included in the Statements of Operations in Other is $5,400,000, $4,500,000, 
and $3,585,000 of interest income on surplus notes from subsidiaries for the
years ended December 31, 1998, 1997 and 1996, respectively, and $13,199,000 and
$12,381,000 of dividend income from a subsidiary for the years ended
December 31, 1998 and 1997, respectively.

Cash payments for interest were $8,739,000, $6,795,000, and $4,708,000 during 
the years ended December 31, 1998, 1997 and 1996, respectively.





<PAGE>

<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE V
VALUATION ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
-----------------------------------------------------------------------------------------------------------------------

                     Column A                          Column B       Column C           Column D         Column E

                                                        Balance
                                                          at                                               Balance
                                                       Beginning                                             at
                                                          of                                               End of
                                                        Period        Additions          Deductions        Period

<S>                                                       <C>            <C>                <C>              <C>                 
Allowance for doubtful accounts:
  Year ended December 31, 1998                            $ 4,985        $ 2,147            $ 1,927          $ 5,205

  Year ended December 31, 1997                            $ 3,454        $ 2,558            $ 1,027          $ 4,985

  Year ended December 31, 1996                            $ 2,432        $ 1,956             $  934          $ 3,454

</TABLE>

<PAGE>                                                        
                                                 


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

ACCEPTANCE INSURANCE COMPANIES INC.

         /s/ Kenneth C. Coon
By _____________________________________   Dated: March  24, 1999
   Kenneth C. Coon
   Chairman and Chief Executive Officer
 
         /s/ Georgia M. Mace
By _____________________________________   Dated: March  24, 1999
   Georgia M. Mace
   Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                                         /s/   Jay A. Bielfield
Dated:  March 24, 1999               ______________________________
                                      Jay A. Bielfield, Director

                                         /s/ Kenneth C. Coon
Dated:  March 24, 1999               ______________________________
                                      Kenneth C. Coon, Director

                                         /s/ Edward W. Elliott, Jr.
Dated:  March 24, 1999               ______________________________
                                      Edward W. Elliott, Jr., Director

                                         /s/ Robert LeBuhn
Dated:  March 24, 1999               ________________________________
                                      Robert LeBuhn, Director

                                         /s/ Michael R. McCarthy
Dated:  March 24, 1999              ________________________________
                                      Michael R. McCarthy, Director

                                         /s/ John P. Nelson
Dated:  March 24, 1999              ________________________________
                                      John P. Nelson, Director

                                         /s/ R. L. Richards
Dated:  March 24, 1999              ________________________________
                                      R. L. Richards, Director

                                         /s/ David L. Treadwell
Dated:  March 24, 1999              ________________________________
                                      David L. Treadwell, Director

                                          /s/   Doug T. Valassis
Dated:  March 24, 1999              ________________________________
                                      Doug T. Valassis, Director

<PAGE>                                    




                       ACCEPTANCE INSURANCE COMPANIES INC.
                           ANNUAL REPORT ON FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 31, 1998

                                  EXHIBIT INDEX


NUMBER         EXHIBIT DESCRIPTION

3.1            Registrant's Restated Certificate of Incorporation, incorporated
               by reference to Registrant's Annual Report of Form 10-K for the
               period ending December 31, 1993, and Amendment thereto, 
               incorporated by reference to Registrant's Quarterly Report on
               Form 10-Q for the period ended June 30, 1995.

3.2            Restated By-laws of Acceptance Insurance Companies Inc.,
               incorporated by reference to Registrant's Annual Report on 
               Form 10-K for the fiscal year ended December 31, 1993.

4.3            Form of Preferred Security (included in Exhibit 4.8). 
               Incorporated by reference to Form S-3 Registration No.33-28749,
               filed July 29, 1997.

4.4            Form of Guarantee Agreement Between Acceptance Insurance
               Companies Inc. and Bankers Trust Company.  Incorporated by 
               reference to Form S-3 Registration No.33-28749, filed July 29,
               1997.

4.5            Form of Junior Subordinated Indentures Between Acceptance 
               Insurance Companies Inc. and Bankers Trust Company. 
               Incorporated by reference to Form S-3 Registration No. 33-28749,
               filed July 29, 1997.

4.6            Certification of Trust of AICI Capital Trust. Incorporated by
               reference to Form S-3 Registration No. 33-28749, filed July 29,
               1997.

4.7            Trust Agreement between Acceptance Insurance Companies Inc. and
               Bankers Trust (Delaware). Incorporated by reference to Form S-3 
               Registration No. 33-28749, filed July 29, 1997.

4.8            Form of Amended and Restated Trust Agreement among Acceptance
               Insurance Companies Inc., Bankers Trust Company and Bankers 
               Trust (Delaware).  Incorporated by reference to Form S-3
               Registration No.33.28749, filed July 29, 1997.

4.9            Form of Stock Certificate representing shares of Acceptance
               Insurance Companies Inc., Common Stock, $.40 par value. 
               Incorporated by reference to Exhibit 4.1 to Registrant's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1992.

10.1           Intercompany Federal Income Tax Allocation Agreement between 
               Acceptance Insurance Holdings Inc. and its subsidiaries and the
               Registrant dated April 12, 1990, and related agreements.  
               Incorporated by reference to Exhibit 10i to the Registrant's
               Annual Report on Form 10-K for the fiscal year ended 
               August 31, 1990.

10.2           Employment Agreement dated February 19, 1990 between Acceptance 
               Insurance Holdings Inc., the Registrant and Kenneth C. Coon.  
               Incorporated by reference to Exhibit 10.65 to the Registrant's
               Annual Report on Form 10-K for the fiscal year ended
               December 31, 1991.

10.3           Employment Agreement dated July 2, 1993 between the Registrant 
               and John P. Nelson.  Incorporated by reference to Exhibit 10.6 
               to the Registrant's Quarterly Report on Form 10-Q for the period
               ended September 30, 1994.


<PAGE>



10.4           Employment Agreement dated July 2, 1993 between the Registrant
               and Richard C. Gibson. Incorporated by reference to Exhibit 
               10.6 to the Registrant's Quarterly Report on Form 10-Q for the
               period ended September 30, 1994.

10.5           $100,000,000 Amended and Restated Credit Agreement by and Among 
               the Registrant, The First National Bank of Chicago, Comerica
               Bank, First National Bank of Omaha, First Bank, N.A., Wells
               Fargo Bank, National Association and Mercantile Bank, N.A. and 
               The First National Bank of Chicago, As Agent, and Comerica Bank,
               First National Bank of Omaha, and First Bank, N.A., 
               As Co-Agents, dated as of June 6, 1997.  Incorporated by 
               reference to Exhibit 10.5 to the Registrant's Quarterly
               Report on Form 10-Q for the quarter ended June 30, 1997.


10.6           The Registrant's 1997 Employee Stock Purchase Plan.  
               Incorporated by reference to the Registrant's Proxy Statement 
               filed on or about April 29, 1997.

10.7           The Registrant's Employee Stock Ownership and Tax Deferred 
               Savings Plan as merged, amended and restated effective 
               October 1, 1990.  Incorporated by reference to Exhibit 10.4 to
               the Registrant's Quarterly Report on Form 10-Q for the quarter
               ended November 30, 1990.

10.8           First Amendment to the Registrant's Employee Stock Ownership and
               Tax Deferred Savings Plan. Incorporated by reference to 
               Exhibit 99.4 to the Registrant's Annual Report on Form 10-K for 
               the fiscal year ended December 31, 1993.

10.9           Second Amendment to the Registrant's Employee Stock Ownership 
               and Tax Deferred Savings Plan. Incorporated by reference to
               Exhibit 99.5 to the Registrant's Annual Report on Form 10-K for
               the fiscal year ended December 31, 1993.

10.10          The Registrant's 1996 Incentive Stock Option Plan.  
               Incorporated by reference to the Registrant's Proxy Statement 
               filed on or about May 3, 1996.


21             Subsidiaries of the Registrant.

23.1           Consent of Deloitte & Touche LLP.

23.2           Report on schedules of Deloitte & Touche LLP.

27             Financial Data Schedule.