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

                   For the Fiscal Year Ended December 31, 1999
                         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.

Preferred Securities of AICI Capital Trust 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. [X]

<PAGE>

               The aggregate market value of the Registrant's voting stock held
by nonaffiliates (8,244,282 shares) on March 1, 2000 was $38,645,072.

               The number of shares of each class of the Registrant's common
stock outstanding on March 1, 2000 was:

          Class of Common Stock           No. of Shares Outstanding
       Common Stock, $.40 Par Value              14,290,246

                       DOCUMENTS INCORPORATED BY REFERENCE

               Portions of the Proxy Statement for the Registrant's 2000 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 nonadmitted 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 an insurance company 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.

                  CropRevenueCoverage ("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 Research
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 FCIC, 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 FCIC, 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 FCIC 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
used in computing MPCI Premiums (other than for CRC), 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.

<PAGE>



                  Reinsurance:  The practice whereby a company called the
"reinsurer" assumes, for a share of the 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 FCIC
administers and provides reinsurance for the federally regulated MPCI and CRC
programs.

                  Standard Reinsurance Agreement ("SRA"):  The reinsurance
contract related to crop reinsurance under the federal crop program between
FCIC and affiliates of the Company.

                  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.

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
Acceptance Insurance Companies Inc.'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 control of
Acceptance Insurance Companies Inc., cannot be accurately predicted and may
materially impact estimates of future operations.  Important among such
factors are weather conditions, natural disasters, changes in commodity prices,
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.

                  Acceptance Insurance Companies Inc.'s results are
significantly impacted by its crop business, particularly its MPCI line.
Results from the crop lines are not generally known until the fourth quarter
of the year, after crops are harvested and final market prices are established.
Crop segment results are particularly dependent on events beyond the control of
Acceptance Insurance Companies Inc., notably weather conditions during the crop
growing seasons in the states where Acceptance Insurance Companies Inc. writes
a substantial amount of its crop insurance, the market price of grains on
various commodity exchanges, overall worldwide supply and demand, the
continuing globalization of the crop industry and its effect on the export of
crops to other countries and the volatility of crop prices resulting from
domestic and foreign policy decisions.  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 2000
crop season, or the various other factors noted above which may affect crop and
noncrop operation results.  See "Business-Uncertainties Affecting the Insurance
Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-General" for additional information regarding these
events and factors.

Company Strategy

                  Acceptance Insurance Companies Inc. (the "Company")
underwrites and sells crop insurance and specialty property and casualty
insurance to serve niche markets or programs.  Within the crop insurance
industry, the Company is the third largest writer of crop insurance products
in the United States.  The Company selects niche markets or programs for which
the Company believes that its expertise affords it a competitive advantage and
believes that success in niche markets and programs requires that it be
opportunistic.  The Company believes its position as both an admitted
(licensed) and nonadmitted (excess and surplus lines) carrier provides the
versatility to respond when different market conditions and opportunities are
presented.  The Company's goal is to achieve underwriting profits while
managing its investment portfolio to maximize after-tax earnings and
maintaining adequate liquidity to meet all cash needs.

                  In 1999 the Company refined and refocused its business
strategy to achieve the goal stated above.  The Company's four-pronged business
strategy, which it began to implement in late 1999 and in 2000, can be
summarized as follows:

               *  enhance and expand the Crop Insurance segment;

               *  restructure the Property and Casualty insurance segment to
                  achieve underwriting profits;

               *  continue to maintain reinsurance to manage volatility and
                  avoid catastrophic loss exposure; and

               *  continue to manage the investment portfolio to maximize
                  after-tax earnings.

                  The Company intends to enhance and expand its Crop Insurance
segment.  The Company believes opportunities exist to increase its market share
in the crop insurance business and to increase the number of producers using
crop insurance.  It intends to pursue these opportunities by developing new
insurance products for both previously insured and previously uninsured
commodities, increasing its presence in geographic areas presently underserved
by the crop insurance industry or where the Company believes it may have a
competitive advantage, and continuing to provide its agents and customers with
high quality service.

                  The Company is restructuring its property and casualty
insurance business to achieve underwriting profits in this segment of the
Company's business.  The Company will remain in and enter specialized, niche
segments of the property and casualty insurance market that the Company
believes offer the best profitability and growth opportunities.  Additionally,
the Company has discontinued lines of property and casualty business that are
not consistent with the Company's strategy and objectives and will continue to
do so in the future.  The Company is moving away from "longer tail" casualty
business and is redirecting its underwriting focus toward "shorter tail" lines,
including "staffing" industry coverage, fine art and personal jewelry
exposures, condominiums, surety, prize indemnifications and agricultural risks.
 The Company expects to continue to write some property and casualty business
on a nonrisk-bearing basis. Although the Company is discontinuing certain lines
of property and casualty business, it continues to regularly explore new
opportunities to acquire lines of business from experienced underwriters and
other managers with a long and profitable operating history.

                  The Company historically has maintained reinsurance to manage
volatility and avoid catastrophic loss exposure and intends to continue this
practice.  Numerous domestic and foreign reinsurers provide reinsurance for the
Company's various underwriting risks.  The Company's reinsurance generally is
structured into multiple layers and programs to reflect those risks.

                  The Company historically has managed its investment portfolio
to maximize investment earnings. The Company has no current plans for any
significant change in its investment portfolio management practices.  The
Company historically has managed its investment portfolio to maximize
after-tax investment earnings.  While maintaining that practice, the Company
may increase its investment in equities and mezzanine securities which may
reduce current income while generating increased earnings from capital gains.

                  See "Business-Business Segments," "Business-Reinsurance" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations" for a further discussion of actions taken by
the Company to implement this strategy.
 <PAGE>
Organization

                  The Company underwrites its insurance products through five
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") and Redland Insurance
Company ("Redland") (collectively referred to herein as the "Insurance
Companies").  On January 26, 2000 the Company reached an agreement in principle
to sell Redland to Clarendon National Insurance Company ("Clarendon") and
appoint other Company subsidiaries as the exclusive producer and representative
of Redland for business the Company currently writes through Redland.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Redland Insurance Company Subsequent Event" for additional
information regarding this pending transaction.

                  Collectively, the Insurance Companies are admitted in 48
states and the District of Columbia, and operate on a nonadmitted basis in 45
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 B++(Very Good) by A.M. Best Company, Inc. ("A.M. Best").
A.M. Best bases its ratings upon factors that concern policyholders and agents,
and not upon factors concerning investor protection.

                  On November 29, 1999, A.M. Best downgraded the Insurance
Companies' rating from A- to B++. A.M. Best noted that the downgrade reflects
the group's poor operating results, significant reliance on reinsurance and
continued volatility in reserve trends.  Some agents and customers require an
A- or better rating for certain lines of business, primarily the Company's
admitted Property and Casualty segment business.  The Company is attempting to
address this issue through the proposed sale of Redland to Clarendon.

                  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 thereafter operated under
the names NFF Corp. (1971 to 1973), Orange-co, Inc. (1973 to 1987), Stoneridge
Resources, Inc. (1987 to 1992), and was 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, Crop Insurance and
Property and Casualty Insurance.


         Crop Insurance

                  The principal lines of the Company's Crop Insurance segment
are MPCI, supplemental coverages and named peril insurance.  MPCI is a
federally subsidized insurance program designed to encourage farmers to manage
their risk through the purchase of insurance policies.  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, low yields or both.  As
used herein, the term MPCI includes CRC, unless the context indicates
otherwise.  For the year ended December 31, 1999, the Company had gross MPCI
premiums of approximately $365 million and a market share of approximately 16%
of MPCI business written in the United States. The Company's preliminary
estimate of the MPCI premium for 2000 is $392 million based on field reports
and early applications.

<PAGE>



         Supplemental coverages are proprietary products developed and marketed
exclusively by the Company. Supplemental coverages enhance the protection
provided by MPCI.  Unlike MPCI, however, supplemental coverages are
not subsidized by the federal government.  During 1999 the Company's gross
premium from supplemental coverages was approximately $31.1 million.  For the
2000 crop year, however, the FCIC increased the maximum coverage available
under federally reinsured policies, and agricultural producers currently appear
concerned that drought conditions will reduce yields and increase prices.  As
a result of these and other market conditions, the Company expects gross
premium from supplemental coverages for 2000 to be approximately $15.6 million.
Development and marketing of supplemental coverages nevertheless remains a
significant component of the crop division.  See "Management Discussion and
Analysis of Financial Condition and Results of Operations Results of
Operations."

                  The largest named peril crop insurance product offered by the
Company is crop hail insurance which insures growing crops against damage
resulting from hailstorms.  The Company also sells a small volume of insurance
against damage to specific crops from other named perils.  Like the
supplemental coverages, none of the named peril products involve federal
reinsurance or price subsidy participation.  During 1999, the Companys gross
premium from named peril crop insurance including crop hail was approximately
$47.7 million.  The Company's preliminary estimate for named peril crop
insurance premium in 2000 is $46.8 million.

         Property and Casualty Insurance

                  The principle lines of the Company's Property and Casualty
segment are property and casualty coverages, primarily on an admitted basis,
for the "staffing" industry, fine art and personal jewelry exposures,
condominiums, surety, prize indemnifications and agricultural risks. These
lines are marketed through independent insurance agencies.

                  The Company also provides property and casualty coverages,
including general liability, garage liability, liquor liability and workers'
compensation coverage for small and medium businesses which are not served by
standard carriers due to size or location.  These lines are marketed through
general agents.

                  During 1998 the Company discontinued writing certain product
lines.  Additionally, in January 2000 the Company reached an agreement in
principle to transfer the renewal rights to all business previously produced
and serviced by the Company's Scottsdale, Arizona office and to its "long haul"
trucking business.   Net earned premiums for these discontinued lines were
approximately $114 million, $168 million and $179 million in 1999, 1998 and
1997, respectively.  The Company also discontinued or reduced its underwriting
in several other lines of property and casualty business.

                  The Company sold its nonstandard automobile business,
including Phoenix Indemnity Insurance Company (Phoenix Indemnity), in
September 1999.  Net premiums earned from Phoenix Indemnity were $32 million,
$43 million and $42 million in 1999, 1998 and 1997, respectively.

                  The following table reflects the amount of gross premium
written and net premium written for the Crop and Property and Casualty
Insurance segments for the periods set forth below:

<TABLE>
<CAPTION>

                                                                    Years Ended December 31,
                                                        1999                1998                 1997
                                                                      (in thousands)
<S>                                                    <C>                <C>                  <C>
GROSS PREMIUMS WRITTEN:

Crop Insurance(1)......................................$272,904           $256,956             $248,051
Property and Casualty Insurance.........................420,037            444,004              417,759
                                                       --------           ---------            --------
   Total...............................................$692,941           $700,960             $665,810
                                                       ========           =========            ========

NET PREMIUMS WRITTEN:
Crop Insurance(1).......................................$42,059           $ 61,013             $ 59,989
Property and Casualty Insurance.........................209,607            248,479              275,075
                                                       --------           --------             --------
   Total...............................................$251,666           $309,492             $335,064
                                                       ========           ========             ========
<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>
Management

                  In December 1999 Michael R. McCarthy was elected Chairman of
the Company's Board of Directors and John E. Martin was elected President and
Chief Executive Officer of the Company.  Other key members of management of the
Company are Georgia M. Mace, Treasurer and Chief Financial Officer, J. Michael
Gottschalk, Chief Legal Officer, General Counsel and Secretary, Stephen T.
Fitzpatrick, Chief Underwriting Officer and Raymond N. Siebert, Chief
Administrative Officer.

Marketing

                  The Company markets a portion of its property and casualty
insurance products and its crop insurance products through a network of
independent agents specializing in specific lines of insurance.  The Company
also markets its property and casualty insurance products through general
agents who process and accept applications for insurance coverages from retail
agents who sell insurance to insurance buyers. 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 place
profitable business with the Company.

                  Possible regulatory changes affecting the manner in which
insurance products may be marketed and distributed in response to technological
changes and the adaptation of agents to such regulatory and technological
changes may significantly impact the results of operations of the Company and
its competitors.  Insurance regulators and the RMA may permit the Company and
other insurers to sell insurance coverage directly to persons seeking coverage
using current or emerging technologies.  Independent agents who currently
market and sell the Company's products under the traditional distribution
system may adopt current or emerging technologies in their routine business
practices that will alter the method used to distribute insurance products.
The Company, however, does not know whether or when these events, or other
events based on regulatory or technological changes, may occur or the manner in
which they will affect the marketing and distribution of insurance if they do
occur.  Unless the Company adapts to the changes technology causes in the
traditional system for distributing its products, and does so more effectively
than competing insurance companies, the Company's market share and its results
of operations are likely to be adversely affected.

<PAGE>

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,
                                                               1999               1998              1997
<S>                                                          <C>                <C>                <C>
The Company
  Loss Ratio............................................      88.0%(1)           72.3%(2)           63.7%
  Expense Ratio..........................................     41.3(3)            38.9               34.0
                                                             ---------          ---------          -------
  Combined Ratio............................................ 129.3%             111.2%              97.7%
                                                             ==========         =========          ========

Industry Average(4)
  Loss Ratio................................................. 78.3%              76.5%              72.8%
  Expense Ratio.............................................. 29.2               29.5               28.8
                                                             ----------         ---------          --------
  Combined Ratio............................................ 107.5%             106.0%             101.6%
                                                             ===========        =========          ========
<FN>
---------------
(1)      The $44.0 million reserve increase recorded by the Company in 1999,
         for 1998 and prior years, accounts
         for 17.7% of the loss ratio for 1999. See "Loss and Loss Adjustment
         Expense Reserves."
(2)      The $24.2 million reserve increase recorded by the Company in 1998,
         for 1997 and prior years, accounts for
         7.4% of the loss ratio for 1998.
(3)      For a discussion of factors contributing to the increased expense
         ratio, see "Management's Discussion and
         Analysis of Results of Operations and Financial Analysis-Results of
         Operations."
(4)      Source: A.M. Best's Aggregates & Averages Property Casualty (1999
         Edition).  Ratios for 1999 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.

                  Generally, the Company grants general agents the authority to
 sell and bind insurance coverages in accordance with procedures and
limitations established by the Company.  The Company 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.

<PAGE>




Claims

                  The Company's crop and property and casualty claims
departments administer all claims and direct 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 property and casualty 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.  The Company
believes this structure will continue to reduce loss adjustment expense and
shorten the life of open claim files.

Loss and Loss Adjustment Expense Reserves

                  In the crop insurance industry, reserves for the payment of
loss and loss adjustment expense are established at the time potential losses
are reported.  The amount of the initial reserve is based on the Company's
historical loss and loss adjustment expense experience and generally is uniform
for all claims arising from crops located in the same geographic area.  Field
adjusters are directed to advise the Company of particular claims which appear
likely to result in payments significantly higher than historic averages and
the Company adjusts the initial reserve for those claims based upon such
reports.  FCIC regulations require that claims under all federally reinsured
policies be paid within thirty, or in some circumstances, sixty days after the
reinsured company receives all documents necessary to establish the existence
and amount of the insured loss.  Accordingly, reserves for crop insurance
claims arising from crops planted in the spring are established primarily in
the third and fourth quarter of each year, and typically are eliminated through
payment of the claim during the fourth quarter of the year or first quarter of
the following year.  Reserves for claims arising from crops planted in the fall
normally are established and paid during the second and third quarter of the
year. Reserves for crop hail insurance are established in the same manner and
claims are typically paid within thirty to sixty days after the necessary
documents are received.

                  In the property and casualty insurance industry, it is not
unusual for 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 estimated 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 and other factors.
The Company's lines of specialty insurance business are considered less
predictable than standard insurance coverages.  The effects of inflation are
implicitly reflected in the Company's 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 monitoring reserve adequacy the Company reviews historical
data and other data and, as additional experience and data become available,
revises estimates of reserves.  These revisions result in increases or
decreases to reserves for insured events of prior years.  In 1999, 1998 and
1997 the Company increased its reserves through charges to earnings of $44.0
 million, $24.2 million, and $6.9 million, respectively, based upon its
reestimation of liability for losses and loss adjustment expenses for prior
accident years.

<PAGE>
                  In the third quarter of fiscal 1999, the Company increased
reserves for 1998 and prior accident years by approximately $44.0 million. This
increase related primarily to an unexpected increase in the number of claims
relating to general liability coverage provided in 1995 and prior years to
contractors in the State of California as a result of the California Supreme
Court decision in Montrose Chemical Corporation v. Admiral Insurance Company.
In that decision, the Court adopted the "continuous trigger" theory of
insurance coverage for third-party liability claims involving continuous,
progressive or deteriorating bodily injury or property damages.  Under this
theory, the time of the insured's act which allegedly caused the accident,
event or condition resulting in a claim is largely immaterial.  As long as the
potential damages remain outstanding, all of the insured contractor's or
subcontractor's successive insurance policies potentially may provide coverage.
Thus, the Court's Montrose decision created a new basis for coverage under
years of previously issued policies.  Beginning in 1996, the Company altered
its underwriting criteria for construction risks and began endorsing policies
exposed to these types of continuous exposures in order to avoid coverage for
conditions which existed prior to the inception of the Company's policies.

                  During 1998 the Company discontinued several product lines
due to the continuation of unexpected loss development and pricing that was 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 developments, management modified the assumptions
used in reserving 1997 and prior accident years for these lines. This
modification created most of the unfavorable development during 1998.

                  The liability estimate established represents management's
best estimate based on currently available evidence, including an analysis
prepared by an independent actuary engaged by the Company.  Even with such
extensive analyses, however, the Company believes 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.

                  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,
                                                              1999              1998             1997
                                                                             (in thousands)
<S>                                                          <C>              <C>               <C>
Net loss and loss adjustment
  expense reserves at beginning
  of year....................................................$285,975         $263,106          $246,752
Provisions for net losses and
  loss adjustment expenses for
  claims occurring in the current
  year....................................................... 174,762          212,894           206,597

Increase in net reserves for
  claims occurring in prior years...........................   44,027           24,167             6,858
                                                             ---------        ---------         ----------

                                                              218,789          237,061           213,455
                                                             --------         ----------        ----------
Net losses and loss adjustment
  expenses paid for claims
  occurring during:
  The current year............................................(76,745)        (100,968)         (110,372)
  Prior years............................................... (123,158)        (113,224)          (86,729)
                                                             ----------       ----------       -----------
                                                             (199,903)        (214,192)         (197,101)
                                                             ----------       ----------       -----------

Sale of Phoenix Indemnity..................................   (26,021)              --                --
                                                             ----------       -----------      ------------

Net loss and loss adjustment
  expense reserves at end of year............................ 278,840          285,975           263,106

Reinsurance recoverable on unpaid
  losses and loss adjustment
  expenses................................................... 502,537          238,769           165,547
                                                             ----------       ----------        -----------
Gross loss and loss adjustment
  expense reserves...........................................$781,377         $524,744          $428,653
                                                             ==========       ==========        ============


</TABLE>

                  The following table presents the development of balance sheet
net loss reserves from calendar years 1989 through 1999.  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 re-estimated 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 property and casualty coverages in a number
of specialty areas of business that 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 affected 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
1998, 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,

                               1989     1990     1991     1992     1993     1994     1995     1996     1997      1998     1999

<S>                         <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>      <C>       <C>
Net reserves for unpaid
  losses and loss
  adjustment expenses       $43,380  $58,439  $66,132  $77,627 $115,714 $141,514 $201,356 $246,752 $263,106 $285,975  $278,840
Cumulative amount of net
  liability paid through (1):
    One year later             30.0%    40.6%    45.7%    36.1%    49.1%    51.0%    47.3%    44.7%    43.0%    46.7%
    Two years later            59.5%    70.8%    72.3%    73.6%    80.5%    86.1%    75.2%    71.8%    71.7%
    Three years later          76.1%    88.5%    96.6%    94.5%   100.9%   104.5%    93.1%    90.0%
    Four years later           84.5%   101.2%   108.1%   109.0%   108.8%   115.5%   102.8%
    Five years later           89.2%   107.5%   115.1%   114.9%   113.6%   121.6%
    Six years later            93.4%   109.7%   118.2%   118.2%   116.0%
    Seven years later          94.5%   111.4%   119.5%   119.4%
    Eight years later          95.5%   111.8%   120.6%
    Nine years later           95.6%   112.8%
    Ten years later            96.6%
Net reserves reestimated as of:
    One year later             99.1%   100.3%   103.5%   103.3%   104.4%   115.8%   104.7%   102.8%   109.2%    115.4%
    Two years later            95.2%   102.3%   109.9%   109.7%   114.5%   115.7%   106.6%   112.0%   119.9%
    Three years later          91.4%   107.4%   116.9%   117.9%   113.1%   120.5%   114.2%   121.7%
    Four years later           92.5%   110.7%   120.1%   117.7%   116.1%   125.9%   122.6%
    Five years later           94.0%   112.7%   119.9%   119.8%   118.2%   133.8%
    Six years later            95.9%   112.0%   120.5%   121.5%   121.3%
    Seven years later          95.4%   112.5%   121.9%   124.3%
    Eight years later          96.0%    113.4%  124.3%
    Nine years later           96.7%   114.8%
    Ten years later            97.2%
Net cumulative redundancy
   (deficiency)                 2.8%   (14.8)%  (24.3)%  (24.3)%  (21.3)%  (33.8)%  (22.6)%  (21.7)%  (19.9)%  (15.4)%

Gross reserves for unpaid loss and
  loss adjustment expenses                              $127,666 $211,600 $221,325 $369,244 $432,173 $428,653 $524,744  $781,377
Reinsurance recoverable on unpaid
  loss and loss adjustment expenses                       50,039   95,886   79,811  167,888  185,421  165,547  238,769   502,537
                                                        -------- -------- -------- -------- -------- -------- --------  --------
Net reserves for unpaid loss and
  loss adjustment expenses                              $ 77,627 $115,714 $141,514 $201,356 $246,752 $263,106 $285,975  $278,840
                                                        ======== ======== ======== ======== ======== ======== ========  ========

Reestimated gross reserves for unpaid
  loss and loss adjustment expenses                       115.5%   121.2%   138.3%   117.5%   119.2%   129.6%   121.0%
Reestimated reinsurance recoverable
  on unpaid loss and loss adjustment
  expenses                                                101.8%   121.1%   146.4%   111.4%   116.0%   144.9%   127.7%

Reestimated net reserves for unpaid
  loss and loss adjustment expenses                       124.3%   121.3%   133.8%   122.6%   121.7%   119.9%   115.4%
                                                        ======== ======== ======== ========  ======   ======  ========

Gross cumulative redundancy (deficiency)                  (15.5)%  (21.2)%  (38.3)%  (17.5)%  (19.2)%  (29.6)%  (21.0)%
                                                        ======== ========  =======  =======  =======  =======  =======
<FN>

(1)      Cumulative amount paid includes reserves of Phoenix Indemnity as of
         August 31, 1999, the date Phoenix Indemnity was sold.

</FN>
</TABLE>


<PAGE>
Reinsurance

                  A significant component of the Company's business strategy
involves the structuring of reinsurance to manage 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
insurance exposure 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 multiple 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 individual policies exceed
reinsurance treaty limits, the Company purchases reinsurance on a facultative
(specific policy) basis.  In addition, the Company further reduces its net
exposures per risk on certain lines of business through further excess of loss
or quota share reinsurance programs.

                  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 $157.5 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. The Company's retention varies between
$100,000 and $ 600,000 per occurrence, depending upon the program.

                  In addition, the Company will often cede 90% or more of some
new programs which it regards as developmental until such time as the program
establishes a more reliable loss and premium history.  On these lines of
business, the Company will typically receive a fee from reinsurers as the
issuing carrier on the program.

                  The Company reinsures its MPCI business with various FCIC
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 reinsurers.  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 80% on crop hail and named peril business and 100% on MPCI
business.  The Company limits this coverage to an aggregate amount determined
annually consistent with the Company's anticipated premium, catastrophic loss
risk exposure and RMA regulations. Additionally the Company's named peril,
crop hail and supplemental business is reinsured through quota share
agreements, ceding from 50% to 85% to reinsurers.

<PAGE>

                  In 1999 the Company was unable to obtain the desired level
of quota share reinsurance on its supplemental, proprietary CropRevenue
CoveragePlus(R) ("CRCPlus") product for cotton and rice.  Consequently, the
Company developed multiple layer aggregate stop loss protection for these
coverages.  The first layer of this protection is combined with aggregate stop
loss protection for the Company's MPCI business.  See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."  For the 2000
crop year, the Company was able to purchase the desired level of quota share
reinsurance applicable to all supplemental crop products which the Company
offered.

                  At December 31, 1999, 80% of the Company's outstanding
reinsurance recoverables were from domestic reinsurance companies or the
federal government, 95% 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 stability and preservation of the
Company's capital base.  Further, the portfolio is invested in types of
securities with average durations which reflect the Company's liabilities and
expected liquidity needs.  The Company determines the strategies and parameters
for the investment of its portfolio, and an outside manager executes trades
consistent with the Company's strategies and parameters.  The Company's fixed
maturity securities are classified as available-for-sale and carried at
estimated fair value.  The investment portfolio at December 31, 1999 and 1998,
consisted of the following:
<TABLE>
<CAPTION>


                                                                     December 31, 1999    December 31, 1998
                                                                   --------------------  ---------------------
                                                                   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....................       $ 87,421   $ 85,094   $ 77,671   $ 78,785
  States, municipalities and political
    subdivisions ...........................................         132,805    126,195    161,017    167,202
  Other debt securities ......................................        19,191     17,823     56,786     53,193
  Mortgage-backed securities .................................        24,902     21,277     38,475     37,927
                                                                    --------   --------   --------   --------
       Total fixed maturity securities .....................         264,319    250,389    333,949    337,107

  Common stocks ..............................................        15,377     10,903     39,438     44,371
  Preferred stocks ...........................................        15,111     14,178     27,246     27,316
  Commercial mortgage loan  .....................................      8,914      8,914      9,549      9,549
  Real estate  ..............................................          3,182      3,182      3,300      3,300
  Short-term investments(1) ...............................          104,702    104,702     67,754     67,754
  Restricted short-term investments  ......................           31,350     31,350      --          --
                                                                    --------   --------   --------   --------
       Total...............................................         $442,955   $423,618   $481,236   $489,397
                                                                    ========   ========   ========   ========

<FN>
---------------
(1)      Due to the short-term nature of crop insurance, the Company must
         maintain short-term investments to fund losses.  Historically, these
         short-term funds are highest in the fall corresponding to the cash
         flow in the agricultural industry.



</FN>
</TABLE>

<PAGE>



                  The following table sets forth, as of December 31, 1999, 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.............................................................$ 14,480         5.8%
More than 1 year through 5 years............................................ 55,696        22.2%
More than 5 years through 10 years.......................................... 42,700        17.1%
More than 10 years......................................................... 119,690        47.8%
Mortgage-backed securities.................................................. 17,823         7.1%
                                                                           --------       ------
     Total.................................................................$250,389       100.0%
                                                                           ========       ======
</TABLE>

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


<TABLE>
<CAPTION>

                                                                                    Years Ended December 31,
                                                                               --------------------------------
                                                                                 1999        1998         1997
                                                                                ------      -----        ------
                                                                              (in thousands, except percentages)
<S>                                                                            <C>        <C>         <C>
Net investment income..........................................................$ 25,064   $ 28,320    $ 28,016
Average investment
  portfolio(1)................................................................. 472,569    497,649     453,876
Pre-tax return on average
  investment portfolio.........................................................    5.3%        5.7%        6.2%
Net realized gains.............................................................$ 10,203   $  6,825    $  7,321
Change in unrealized gain (loss) on available-for-sale securities ..........   $(27,497)  $ (2,431)   $ 12,863

<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.  These coverages are referred to as "surplus lines"
insurance, and these insurers as "surplus lines" or "nonadmitted" 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 nonadmitted insurer,
state regulatory authority may extend to: (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 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.  The insurance holding company laws also 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 from American Agrisurance, Inc. ("American Agrisurance")
under a profit sharing agreement, 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,
where American Growers, Acceptance Indemnity and Acceptance Insurance are
domiciled, no domestic insurer may make a dividend or distribution which,
together with dividends or distributions paid during the preceding 12 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 30-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 the Company
is limited to its earned surplus, also known as unassigned funds.  The tiered
structure of the Company's insurance subsidiaries effectively imposes two
levels of dividend restriction on the payment of dividends to the Company by
Acceptance Indemnity, American Growers and Acceptance Casualty.  During 2000
the statutory limitation on dividends from the Insurance Companies to the
Company without further insurance department approval is approximately $7.4
million.  If the proposed transactions related to the proposed sale of Redland
are completed, the Company expects that the statutory limitation on dividends
from the Insurance Companies to the Company without further insurance
department approval will increase to approximately $21.8 million for the
remainder of 2000.  This anticipated increase would result from the additional
dividends that are expected to be available from American Growers if the
proposed transactions are completed.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources The Company-Parent Only" and "-Redland Insurance Company Subsequent
Event."

                  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 and Texas require 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 Company's noninsurance 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).

<PAGE>

                  The Company's MPCI program is federally regulated and
supported by the federal government through premium subsidies to agricultural
producers 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 the premiums which may be charged
and generally require compliance with detailed federal guidelines with respect
to underwriting, rating and claims administration.  The Company also 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 nonrenewals or termination of certain agent
relationships; and (iv) limitations upon or decreases in rates permitted to
be charged.

                  The NAIC has approved and recommended states adopt and
implement several regulatory initiatives designed to provide regulators 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 Risk Based Capital ("RBC") standards
for determining adequate levels of capital and surplus to support four areas of
risk facing property and casualty insurers: (i) asset risk (default on fixed
income assets and market decline); (ii) credit risk (losses from unrecoverable
reinsurance and inability to collect agents' balances and other receivables);
(iii) underwriting risk (premium pricing and reserve estimates); and
(iv) off-balance sheet/growth risk (excessive premium growth and unreported
liabilities).  At December 31, 1999 the Insurance Companies met the RBC
requirements as promulgated by the domiciliary states of the Insurance
Companies and the NAIC.

                  The NAIC also maintains an 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, 1999 Redland and
Acceptance Casualty each had four ratios falling outside "normal ranges."
The increase in the number of ratios falling outside "normal ranges" for both
companies was primarily related to the increase in loss reserves and the
changes in the intercompany pooling percentages.

                  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.

<PAGE>

                  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 and
other 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 ordinarily would not accept.

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, supplemental products 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 1980s, to periods of
increased market opportunity as some carriers withdrew from certain market
segments in the mid 1980s, back to a period of intense competition during the
1990s.  This increase in the competitive environment has been one of the
principal causes in the Company's declining property and casualty revenues
over the past three years.

                  The property and casualty industry has experienced a more
rapid growth in policyholders' surplus than in premiums written during the
last decade, resulting in substantially reduced operating leverage and,
consequently, lower returns on equity.  In 1990, the industry ratio of net
premiums written to policyholders' surplus was 1.57 to 1.0.  By 1999, this
ratio decreased to .88 to 1.0.  Even with relatively constant operating
margins, the industry's return on equity has decreased.  This reduction in
operating leverage will continue to negatively affect industry and individual
company return on equity results unless it returns to historically higher
levels.

                  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 (i) weather-related catastrophes;
(ii) taxation and regulatory changes at both the federal and state level;
(iii) changes in industry standards regarding rating and policy forms;
(iv) significant changes in judicial attitudes towards one or more types of
liability claims; (v) the cyclical nature of pricing in the industry; and
(vi) changes in the rate of inflation, interest rates and general
economic conditions.

                  The Company's results may also be influenced by the rating
downgrade by A.M. Best.  On November 29, 1999, A.M. Best downgraded the rating
of the Insurance Companies from A- to B++.  Some agents require an A- or
better rating for certain lines of business, particularly some of the Company's
better performing property and casualty programs.  This rating downgrade will
have a negative impact on the Company's ability to write business in the most
profitable lines within its Property and Casualty segment.  The Company is
attempting to address this issue through the proposed sale of Redland to
Clarendon.  See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Redland Insurance Company Subsequent Event"
regarding this proposed sale.  While this transaction, if completed, will
provide the Company with an A rated issuing carrier, it will also increase the
company's operating expense levels.
<PAGE>

                  The Company's results are significantly impacted by its crop
business, particularly its MPCI line. Since the Company's products insure crop
prices, yields or both, the Company's results are subject to numerous factors
and events that it cannot control.  Results from the crop lines are not
currently known until the fourth quarter of the year, after crops are harvested
and final market prices are established.  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
substantial amounts of crop insurance, the market price of grains on various
commodity exchanges, overall worldwide supply and demand, the continuing
globalization of the crop industry and its effect on the export of crops to
other countries and the volatility of crop prices resulting from domestic and
foreign policy decisions.  Additionally, federal regulations governing aspects
of crop insurance are frequently modified, and all such changes may impact the
results of the Company's crop insurance business.  Forward-looking information
set forth herein does not take into account any impact from any adverse weather
conditions during the 2000 crop season, or the various other factors noted
herein which may affect crop and noncrop operation results.  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 partially subject to state regulation and also 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 prior years resulted in an
increase in loss reserves for the years ended December 31, 1999 and 1998, in
the amounts of $44.0 million and $24.2 million, respectively.  The
establishment of appropriate loss reserves is an inherently uncertain process
and it has been necessary, and may be necessary in the future, 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.  The Company continually reviews the surplus needs
of the Insurance Companies, and from time to time may determine to seek
additional funding.  For a discussion of the Company's liquidity and capital
resources, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

Employees

                  At March 1, 2000 the Company had 426 employees in its Crop
Insurance segment, 191 employees in its Property and Casualty Insurance
segment and 181 employees that were not allocated to the two segments, for a
total of 798 employees.  Acceptance believes that relations with its employees
are good.


<PAGE>
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(2)
Council Bluffs, IA..............................Office          142,000 sq. ft.                            Leased
Council Bluffs, IA..............................Office           33,000 sq. ft.                            Owned
Phoenix, AZ.....................................Office           33,000 sq. ft.                            Assigned(3)
Whitsett, NC....................................Office            7,000 sq. ft.                            Leased
Burlington, NC..................................Office           16,655 sq. ft.                            Subleased (4)
Macon, MO.......................................Office              850 sq. ft.                            Subleased (5)
Scottsdale, AZ..................................Office           27,000 sq. ft.                            Leased(6)
Itasca, IL......................................Office            4,000 sq. ft.                            Leased
Overland Park, KS...............................Office            4,000 sq. ft.                            Leased(7)

<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), December 31, 2001 (Scottsdale),
         August 31, 2001 (Itasca), and December 31, 2001 (Overland Park).
(2)      21,167 square feet are subleased to a third party.  The sublease
         expires on November 30, 2001.
(3)      This lease was assigned to Millers American Group Inc. in September
         1999 in conjunction with the sale of Phoenix Indemnity.
(4)      8,300 square feet are subleased to a third party and 8,355 square
         feet are subleased to another third party. Both subleases expire on
         November 30, 2000.
(5)      850 square feet are subleased to a third party.  The sublease expires
         on March31, 2000.
(6)      3,840 square feet are subleased to Levy Latham Global LLC.
(7)      2,907 square feet are subleased to a third party.  The sublease
         expires on December 31, 2000.

</FN>
</TABLE>

Item 3.  Legal Proceedings.

                  The Company or one or more of the Insurance Companies are
parties to certain legal proceedings which are not ordinary routine litigation
incidental to its business.  These proceedings are:

                  American Agrisurance, Inc., et al. adv. James M.
Wallace, III, et al. (USDC, ED, Arkansas, No.LR-C-99-669).  This action was
filed in Arkansas state court on August 17,1999 and removed by the defendants
to the United States District Court for the Eastern District of Arkansas.
Claimants are five individual Arkansas residents; defendants currently are the
Company, American Agrisurance, American Growers and Redland. Claimants seek to
represent "all rice farmers, wherever situated, who applied for a 1999 Rice
CRCPlus crop insurance policy at the originally offered 3 cents per
pound . . . but who were subsequently notified that they would only receive
1.5 cents per pound of supplemental coverage."  They claim defendants breached
a contract of insurance with each plaintiff and intentionally made false
representations in violation of the Arkansas deceptive trade practices statute.
Claimants seek compensatory damages, interest, attorneys' fees and "all other
appropriate damages or relief."  In an Order entered March 10, 2000, the Court
denied claimants motion for class certification.  Until March 24, 2000
claimants may apply to the United States Court of Appeals for the Eighth
Judicial Circuit for permission to immediately appeal from
this order.  Such an application, however, would not stay this action.

                  Acceptance Insurance Companies Inc., et al. adv. Lawrence I.
Batt, P.C. Profit Sharing Plan and Trust (USDC, Nebraska, No. 8:99CV547).  This
action was filed in the United States District Court for the District of
Nebraska on December 29, 1999.  Claimant seeks to represent a class consisting
of "all persons who purchased Acceptance common stock between March 10, 1998
and November 16, 1999."  The Company and two of its officers are the only named
defendants.  Claimant's sole claim for relief is that defendants failed to
disclose material information in violation of federal securities laws, and
specifically Rule 10b-5 of the U.S. Securities and Exchange Commission.  In
essence, the complaint alleges defendants knowingly and intentionally
understated the Company's liabilities in order to maintain the market price of
the Company's common stock at artificially high levels, and repeatedly made
untrue statements of material fact.  Claimant seeks compensatory damages,
reasonable costs and expenses incurred in this action and "such other and
further relief as the Court may deem just and proper."

                  AICI Capital Trust, et al. adv. Barbara Winer Revocable Trust
(USDC, Nebraska, No. 8:00CV82). This action was filed in the United States
District Court for the District of Nebraska on February 7, 2000.  Claimant
seeks to represent a class consisting of all persons "who purchased AICI
Capital Trust preferred securities on or traceable to the public
offering . . . on July 29, 1997 through November 25, 1999."  The Company, a
business trust established by the Company to issue preferred securities, the
Company's Directors and various other individuals, as well as the financial
underwriters for the Company's preferred securities, are defendants in this
action.  The allegations in this action are essentially indistinguishable from
the allegations in the Batt action.  In the Winer action, Claimant seeks
damages in an amount to be determined at trial, costs and expenses in this
action, including reasonable attorney fees, and such other and further relief
as may be just and proper under the circumstances.

                  The Wallace action is in the discovery phase and the
remaining actions remain in their earliest procedural phases. While the
Company believes each of these actions is without merit, their ultimate
outcome cannot be predicted at this time and the Company currently is unable
to determine the potential effect of this litigation on the Company's financial
position, results of operations or cash flows.  The Company intends to
vigorously contest these three lawsuits.  As of March 1, 2000 the Company
noted published reports of two additional suits which may include allegations
substantially similar to the allegations in the Batt and Winer actions.  The
Company's professional liability insurer has asserted the Company's insurance
coverage does not include the acts, errors and omissions alleged in the
Wallace action.  The Company disputes this assertion.

                  State Insurance Department Proceedings.  The insurance
departments of Arkansas, Iowa, Louisiana, Mississippi, Missouri and Nebraska
participated in a Multi-State Market Conduct Examination with respect to
transactions by the Insurance Companies and affiliates during the period from
January 1, 1997 through April 5, 1999, particularly regarding the Company's
proprietary CRCPlus crop insurance product.  The Company resolved all issues
raised by the Arkansas Department of Insurance and the Arkansas Attorney
General in conjunction with the Spring 1999 sale of CRCPlus in January 2000.
In conjunction with this resolution the Company contributed $750,000 to a fund
for the exclusive purpose of providing risk management education and other
benefits to rice producers; the Company also agreed to contribute an additional
amount of approximately $750,000 to this fund in November, 2000 and an
additional $250,000 in February 2001 if it fails to offer a form of
supplemental insurance coverage for rice producers.

                  In March, 2000 the Company resolved all issues raised by the
Missouri Department of Insurance in conjunction with the Spring 1999 sale of
CRCPlus.  In conjunction with this resolution the Company paid $50,000 to the
Missouri State School Fund.

                  The Company is engaged in an active dialogue with insurance
regulatory officials in Louisiana and Mississippi regarding various issues
raised by each of those states in conjunction with the Multi-State Market
Conduct Examination.  The Company does not believe any regulatory proceedings
will be initiated by these states, or by insurance regulatory officials in
Nebraska or Iowa, nor that any proceedings which might be initiated would be
material.
<PAGE>




                  Risk Management Agency Proceedings.  In June 1999 the Company
entered into an agreement with the RMA related to the unforeseen demand for
CRCPlus during the 1999 Crop Year.  Under the agreement, the Company
established a $1 million research and education fund to benefit rice producers,
agreed to create a strengthened system of checks and balances and management
oversight with respect to its crop insurance operations, and reimbursed the
FCIC approximately $1.2 million under the SRA.  In conjunction with the
Company's settlement with the Arkansas Department of Insurance and Attorney
General as described above, the RMA acknowledged that the Company had
fulfilled its obligations with respect to the $1 million research and
education fund.  The Company is required to report annually to the RMA in
2000 and 2001 regarding its strengthened checks and balances and management
oversight with respect to crop operations.

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, 1999.

                                    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, 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

Year Ended December 31, 1999
  First Quarter............................................................. 20 7/16                13 5/16
  Second Quarter............................................................ 15 11/16               12 1/16
  Third Quarter............................................................. 15 15/16               11 3/4
  Fourth Quarter............................................................ 15 1/8                   4 7/8

</TABLE>

As of March 7, 2000, there were approximately 982 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 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.

<PAGE>



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,
                                                       --------------------------------------------------------------------------
                                                         1999(1)         1998(1)         1997(1)         1996(1)         1995(1)
                                                        --------       ---------        --------      ----------       ---------
                                                                     (in thousands, except per share data and ratios)
<S>                                                     <C>             <C>             <C>            <C>             <C>
Income Statement Data:
  Revenues:
    Gross premiums written ......................       $692,941        $700,960        $665,810       $651,060        $537,349
                                                        ========        ========        ========       ========        ========
    Net premiums written ........................       $251,666        $309,492        $335,064       $366,949        $286,183
                                                        ========        ========        ========       ========        ========
    Net premiums earned .........................       $248,712        $328,044        $335,215       $348,653        $271,584
    Net investment income........................         25,064          28,320          28,016         26,491          20,651
    Net realized capital gains  .................         10,203           6,825           7,321          5,216           2,707
    Agency income    ..........................               --              --              --          1,035           2,863
                                                        --------        --------        --------       --------        --------
Total revenues                                           283,979         363,189         370,552        381,395         297,805

  Costs and expenses:
    Losses and loss adjustment
      expenses ...................................       218,789         237,061         213,455        243,257         212,337
    Underwriting and other expenses .............        108,529         104,736          97,109         95,803          72,602
    Agency expenses     ................................      --              --              --          1,024           2,596
 General and administrative expenses  ............         4,592           3,502           2,063          2,015           2,165
                                                        --------        --------        --------       --------       ---------
  Total expenses................................         331,910         345,299         312,627        342,099         289,700
                                                        ---------       --------        --------       --------       ---------
  Operating profit (loss)     ................           (47,931)         17,890          57,925         39,296           8,105

  Other expense:
    Interest expense ...........................         (9,058)          (8,994)         (6,569)        (4,896)         (2,591)
    Other expense, net .........................            (67)            (816)            (51)          (910)           (171)
                                                         --------        --------       ---------      ---------      ----------
    Income (loss) before income taxes
      and cumulative effect of change
      in accounting principle...................         (57,056)          8,080          51,305         33,490           5,343

  Income tax expense (benefit)  .................        (21,436)          2,544          15,992          3,210           1,188
 Cumulative effect of change in
    accounting principle    .......................         (338)             --              --             --              --
                                                       ----------        --------       ---------      --------         -------
  Net income.................................          $ (35,958)        $ 5,536        $ 35,313       $ 30,280         $ 4,155
                                                       ==========        ========       =========      ========         =======

  Net income
    per share:
    - Basic   .................................        $  (2.52)         $   .37        $   2.34           $2.03         $   .28
    - Diluted ..................................          (2.52)             .37            2.30            1.99             .28

GAAP Ratios:
  Loss ratio    .................................         88.0%             72.3%           63.7%           69.7%           78.2%
  Expense ratio    ..............................         43.6%             31.9%           28.9%           27.5%           26.7%
                                                       ---------         ---------       --------        --------       ---------
  Combined loss and expense ratio ..........             131.6%            104.2%           92.6%           97.2%          104.9%
                                                       =========         =========       ========        ========       =========

</TABLE>





<PAGE>

<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                     ---------------------------------------------------------------------------
                                                          1999           1998             1997             1996            1995
                                                      -----------    -----------       ---------        ---------      ---------

<S>                                                    <C>             <C>              <C>              <C>            <C>
Balance Sheet Data:
  Investments ...................................       $423,618        $489,397        $452,717         $405,926       $368,001
  Total assets................................         1,278,312       1,092,943         979,453          884,380        781,034
  Loss and loss adjustment
    expense reserves .............................       781,377         524,744         428,653          432,173        369,244
  Unearned premiums.............................         127,938         162,037         157,134          140,217        124,122
  Borrowings and term debt   .......................          --          15,000              --           69,000         69,000
  Company-obligated mandatorily
    redeemable Preferred Securities
    of AICI Capital Trust, holding
    solely Junior Subordinated
    Debentures of the Company .....................       94,875          94,875          94,875               --             --
  Stockholders' equity..........................         180,958         236,154         253,670          207,820        177,787

Other Data:
  Statutory Surplus of Insurance
    Companies(2) ...............................         158,551         236,041         238,520          191,455        169,628

<FN>
__________________

(1)      For a discussion of the Company's discontinued lines of business, see
         "Business-Company Strategy" and "-Business Segments" and 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)      Statutory data has been derived from the separate financial statements
         of the Insurance Companies prepared in accordance with SAP.  The
         decline in statutory surplus from 1998 to 1999 was partially related
         to the net loss incurred by the Insurance Companies, the repayment of
         a $20 million surplus note and $6.0 million dividend payment by
         Redland.


</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

                  The Company continues to focus its emphasis on its crop
segment which has recorded operating profits during each of the last six years.
The principal lines of the Company's Crop Insurance segment are MPCI,
supplemental coverages, and named peril insurance.  MPCI is a federally
subsidized risk management program designed to encourage farmers to manage
their risk through the purchase of insurance policies. 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, low yields or both.  As
used herein, the term MPCI includes CRC, unless the context indicates
otherwise.  For the year ended December 31, 1999, the Company had a market
share of approximately 16% of MPCI business written in the United States.

                  The accounting treatment for MPCI is different than the 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. 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 has
historically recorded an estimate of the profit or loss during the third
quarter and then re-evaluated the estimate using additional loss information
available.  Due to the nature of the CRC product whereby results are influenced
by changes in the market prices of various commodities in the fourth quarter
and the increasing significance of CRC as a percentage of MPCI, the Company
intends to record its initial estimate of the profit or loss for the 2000 crop
results in the fourth quarter of 2000.

                  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
one year 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.  With the Company's increased emphasis on the crop segment,
the seasonal and short term nature of the Company's crop business, as well
as the impact on the crop 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.

                  In its Property and Casualty segment, the Company sold its
nonstandard automobile business, including Phoenix Indemnity in 1999 and in
2000 reached agreements in principle to transfer its general agency
business produced by its Scottsdale office and its transportation business to
other carriers. These transactions are part of the Company's strategy in this
segment.  See "Business-Company Strategy" and " Business-Segments."

<PAGE>

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 commodity prices, 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.

                  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 fourth quarter of the year, after crops are
harvested and final market prices are established.  Crop segment 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, the market price of grains
on various commodity exchanges and overall worldwide supply and demand, the
continuing globalization of the crop industry and its effect on the export of
crops to other countries and the volatility of crop prices resulting from
domestic and foreign policy decisions.  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 2000
crop season, or the various other factors noted above which may affect
crop and noncrop operation results.  See "Business-Uncertainties Affecting the
Insurance Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General" above for additional information
regarding these events and factors.

Results of Operations
Year ended December 31, 1999
Compared to Year ended December 31, 1998

                  The Company's net income decreased from $5.5 million for the
year ended December 31, 1998 to a net loss of $36.0 million for the year ended
December 31, 1999.  The results for 1999 were impacted by a strengthening
of the Company's reserves for loss and loss adjustment expense, a reduction in
net premiums written in the Company's Property and Casualty segment, an
increase in net operating expenses as well as an increase in reinsurance costs
in the Company's crop segment, a decline in MPCI profit share, and a decline
in investment income.  Additionally, certain special and nonrecurring charges
affected the comparison of results from 1998 to 1999. Results in 1999 were
negatively impacted by charges associated primarily with the divestitures of
various lines of property and casualty business. They include severance costs,
charges relating to discontinued software development, reduction of certain
deferred policy acquisition costs and an increased allowance for doubtful
accounts. As part of a retirement agreement, a former employee has the right to
put to the Company 274,635 previously issued shares of Common Stock at $15 per
share between June 30, 2002 and July 30, 2002.  As a result of this redemption
feature, the Company has recorded the related redemption amount as temporary
equity.  Also included in 1999 results are charges associated with the
Company's recent and anticipated resolutions of disputes with state regulatory
authorities regarding its crop insurance business and the evaluation of
strategic and capital alternatives.

<PAGE>

                  Historically, the Company has performed an analysis of its
loss and loss adjustment expense reserves quarterly, and has conducted an
analysis, in conjunction with its independent actuary, as of September 30 of
each year that includes an actuarial study by its independent actuary.  This
study indicated a significant increase in the number of claims incurred by the
Company but not previously reported (IBNR) at September 30, 1999.  The increase
in previously unreported claims was principally under policies covering the
1990 through 1995 accident years, and primarily were new construction defect
claims reported under general liability policies insuring contractors in the
state of California. To a lesser extent, the Company also experienced an
increase in reported claims for the 1998 year in its commercial automobile
lines.

                  California construction defect claims increased as a result
of the 1995 California Supreme Court decision in Montrose Chemical Corporation
 vs. Admiral Insurance Company.  In that decision, the Court adopted the
"continuous trigger" theory of insurance coverage for third party cases
involving claims of continuous, progressive or deteriorating bodily injury or
property damage.  Under this theory, the timing of the insured's act which
allegedly caused the accident, event or condition resulting in a claim is
largely immaterial.  As long as the potential damages remain outstanding, all
of the contractor's or subcontractor's successive policies potentially may
provide coverage.  Thus, the Court's Montrose decision created a whole new
basis for coverage  under years of previously issued policies.  Beginning
in 1996, the Company altered its underwriting criteria for construction risks
and began endorsing policies exposed to these types of continuous exposures in
order to avoid coverage for conditions which existed prior to the inception of
Company policies. Primarily as a result of the unexpected increase in claims
from the 1990 through 1995 accident years, the Company increased its loss
reserves during 1999 for 1998 and prior years by approximately $44.0 million.

                  In February 1999, the Company announced a restructuring of
its Property and Casualty segment in which approximately one-third of its
property and casualty gross written premiums for 1998 were discontinued.  As a
part of this restructuring, the Company ceded the unearned premium from its
discontinued lines, as well as new premiums written during the run-off of the
discontinued lines, to an independent reinsurer.  Additionally, the Company
sold its nonstandard automobile business, including Phoenix Indemnity, in
September 1999. Accordingly, during the year ended December 31, 1999, the
Company's property and casualty net earned premiums declined by approximately
23% as compared to 1998.  While the Company reduced operating expenditures in
conjunction with the reduced premium writings, the Company's property and
casualty underwriting expense ratio increased from 33.7% in 1998 to 39.7% in
1999. The increase primarily resulted from costs totaling approximately $9.0
million relating primarily to the divestitures of various lines of property and
casualty business. The Company expects further reductions in its Property and
Casualty segment net written premiums in 2000 as a result of these and other
divestitures and premium transfer transactions.

                  The Company experienced increased demand for its crop segment
products during 1999 as compared to 1998, particularly products sold under the
federally subsidized Multi-Peril Crop Insurance (MPCI) program and the
Company's proprietary CRCPlus product.  During 1999, the Company's MPCI
premiums increased to approximately $365 million from $274 million in 1998.
The Company's preliminary estimate of the MPCI premium for 2000 is $392
million based on field reports and early applications.  The actual amount of
MPCI premium will not be known until final acreage reports are received in the
third quarter.  Accordingly, the actual amount of MPCI premium for 2000 may
vary substantially from the preliminary estimate.  In 1999 the Company's net
expenses as a percentage of written premiums increased from 1998 to 1999 due to
a decrease in the rate at which the Company is reimbursed by the federal
government for the expenses of operating its MPCI program. In 1998 the
Company's reimbursement rate was approximately 24.7%, while in 1999 this
reimbursement rate fell to 21.6%.  Due to competitive pressures, the Company
was unable to pass any of this expense reduction along to its agents as agents'
commissions remained relatively constant.  The Company does not expect a
similar reduction in its expense reimbursements from the federal government
during the 2000 crop year, but a change in the Company's mix of business could
result in a reduction in its total reimbursement rate for the 2000 crop
season.

<PAGE>

                  The increased demand for the Company's proprietary CRCPlus
product in 1999 exceeded the Company's traditional reinsurance program.  Five
factors generally contributed to this demand: steadily declining commodity
prices during the primary sales season, increased federal subsidies for
purchasers of crop insurance, rapid market acceptance of this product for
newly offered specialty crops, a technical error in the quoting software for
one specialty crop which understated the applicable premium for that crop, and
disproportionately high coverage levels for certain crops.  As a result, the
Company elected to close its sales season early and limit available coverage
for some crops.  The Company experienced additional costs in 1999 of $1.5
million in the placement of its quota share reinsurance program for CRCPlus.
The Company also experienced higher operating expenses associated with the
early sales closing for it CRCPlus product.  These expenses totaled $5.4
million for 1999.

                  The Company ceded a portion of the profit share related to
approximately $35.0 million of its retained premiums under the MPCI program for
1999 to reinsurers participating in its overall crop reinsurance programs.  The
Company expects to continue to cede portions of its premiums under MPCI program
in the future in order to secure the required reinsurance capacity for its
crop programs and currently estimates ceding approximately $79 million of such
premiums for the 2000 crop year.  Additionally, in order to maintain its
aggregate retained risk near historic levels, the Company's excess reinsurance
costs increased by $8.2 million during 1999 as compared to 1998.  The Company
expects $7.5 million of these additional excess reinsurance costs to continue
each year for up to seven years in the future.  The Company has obtained a
letter of credit to secure the expected future ceded premiums.

                  During 1999 the Company earned a profit share of $40.1
million on its MPCI retained pool of approximately $246.1 million while in
1998 the Company earned a profit share of $49.1 million on $196.5 million
retained premium pool. Also, in 1999 and 1998, the Company recorded additional
profit share relating to previous years of approximately $.8 million and $4.0
million, respectively.
                  The decreases in operating profits from $33.9 million in 1998
to $0.8 million in 1999 were primarily attributable to the decrease in
reimbursement rate, increase in reinsurance costs, the higher operating costs
and less profit share.
                  The Company's net investment income declined from
approximately $28.3 million for the year ended December 31, 1998 to  $25.1
million for 1999.  This decline in the investment income of the Company was
affected by a decline in the size of the average outstanding portfolio of the
Company from $498 million during the year ended December 31, 1998 to $473
million for 1999.  In addition, the yield on the portfolio declined from 5.7%
during the year ended December 31, 1998 to 5.3% for 1999.  This decrease in
yield primarily resulted from several of the Company's higher yielding
preferred stock investments being called and a decrease in the Company's
mortgage backed security portfolio. The mortgage backed securities were on
average, $23 million less for 1999 versus 1998 as the Company reduced both the
interest rate risk and the investment yield on its mortgage backed portfolio
through the elimination of substantially all of its inverse floating rate
collateralized mortgage obligations. Net realized gains approximated $10.2
million for the year ended December 31, 1999 as compared to  $6.8 million 1998.

<PAGE>


Year Ended December 31, 1998
Compared to Year Ended December 31, 1997


               The Company's 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 Company's 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 specialty 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
nonstandard 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.  Before
the charges associated with the restructuring, the Company's net income for
1998 was $28.8 million.  In addition to the nonstandard automobile business,
the Company discontinued several product lines including coverages for certain
specialty automobile lines, aviation, and complex general liability risks.

                  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.

                  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 nonstandard 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.

                  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 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.

<PAGE>

Liquidity and Capital Resources

         The Company has included a discussion of the liquidity and capital
resources requirement of the Company and the Company's 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.

                  In December 1999, the Company received a $20 million surplus
note payment from one of its insurance subsidiaries.  The Company currently
holds two 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 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
certain 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. These amounts
are distributed from time to time in the form of a dividend to the Company.
In 1999 there was no profit sharing distribution.

                  Dividends from the Insurance Companies 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 2000, the
statutory limitation on dividends from the Insurance Companies to the Company
without further insurance departmental approval is approximately $7.4 million.
If the proposed transactions related to the proposed sale of Redland are
completed, the Company expects that the statutory limitation on dividends
from the Insurance Companies to the Company without further insurance
department approval will increase to approximately $21.8 million for the
remainder of 2000.  This anticipated increase would result from the additional
dividends that are expected to be available from American Growers if these
proposed transactions are completed.  See "Business-Regulation."


<PAGE>

            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.

            In 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 2027 which were issued in 1997 in an amount
equal to the Preferred Securities and the Common Securities.  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, 1999, the Company had $94.875 million outstanding
at a weighted average interest cost of 9.2%.

                  As of December 31, 1999, the Company maintains a credit
facility (the "Credit Facility") with its bank lenders in the amount of $31.4
million, pursuant to a revised credit agreement (the "Credit Agreement") that
the Company entered into with Comerica Bank as the new agent bank and U.S.
Bank and First National Bank of Omaha as participating banks.  The Credit
Facility provides for a $31.4 million line of credit, on a fully collateralized
basis. The entire amount of the line of credit was used for the issuance of an
outstanding letter of credit relating to reinsurance coverage on certain crop
insurance products.  The Credit Facility contains covenants that 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
specific levels of surplus and requires the Company to meet certain tests
established by the regulatory authorities.

                  The Company is currently negotiating a new credit facility
with Comerica Bank, as agent bank, to replace the existing credit agreement.
The Company expects that the amount of the new credit facility will be the same
as the existing credit agreement and will be used for the same purpose as the
existing credit agreement.  Therefore, no new borrowings are expected to be
available under the new credit facility.  Although a definitive agreement has
not been reached, the Company expects that the new credit facility will not
require the Company to pledge the stock of Redland and Acceptance nor restrict
the payment of dividends.  Also, the Company does not anticipate that the new
credit facility will contain financial maintenance covenants similar to the
existing credit agreement.  The Company anticipates that the new credit
facility will be entered into on or before March 31, 2000.

                  The Company believes that the $20 million surplus note
payment to it in December 1999 by one of its insurance subsidiaries and the
transfer of $20 million from one of its property and casualty insurance
subsidiaries to American Growers in December of 1999 in the form of a surplus
note have provided for the short-term capital needs of the Company.  The
Company, however, continually reviews its capital needs and the surplus needs
of the Insurance Companies and from time to time may seek additional funding
which may include, among other things, an account receivable financing at the
Insurance Companies level, arranging a new bank line of credit, a placement of
equity or debt securities, or the disposition or acquisition of certain lines
of property and casualty operations to satisfy liquidity needs that may arise
in the future.

<PAGE>

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 crop business differs 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 remitted within approximately
30 days of receipt 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 received $51.5 million in
payments under the MPCI program in March of 1999. The Company is expecting to
receive a net payment of approximately $61.6 million under the MPCI program in
March of 2000.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations General" above for additional information
regarding the effects of the seasonal nature of the crop business on the
Company's cash flow.

Changes in Financial Condition

                   The Company's stockholders' equity decreased by
approximately $55.2 million at December 31, 1999 as compared to December 31,
1998.  The principal components of this decrease were a net loss of $36.0
million during 1999 and a decrease in the value of the Company's investment
portfolio causing the unrealized gain on available-for-sale securities, net of
tax, to decrease from $5.3 million at December 31, 1998 to a $12.6 million
unrealized loss at December 31, 1999.  This change in the unrealized gain on
available-for-sale securities was attributable to a decline in the unrealized
gain in the Company's fixed maturity and equity securities.

Consolidated Cash Flows

                  Cash used by operating activities was $20.9 million for the
year ended December 31, 1999 compared to cash provided from operations for the
same period in 1998 of  $34.0 million.  This decrease in cash flow from period
to period was a result of profit sharing payments received from the federal
government under the Company's MPCI crop insurance program of $57.0 million in
1998 compared to $51.5 million in 1999, $19.3 million in payments made during
1999 related to reinsurance on the Company's discontinued lines of business,
and declining premium volume in the Company's Property and Casualty segment.

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

<PAGE>



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 market risk
sensitive instruments are entered into for purposes other than trading.

                  At December 31, 1999, the Company had $259.3 million of fixed
maturity investments and mortgage loans and $25.1 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 fixed maturity investments until maturity and therefore
would not expect to realize a material adverse impact on income or cash flows.

                  The Company's Preferred Securities of $94.875 million at
December 31, 1999, mature in August 2027 and are redeemable at the Company's
option in September 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 $13.6
million on its fixed maturity securities and mortgage loans and a gain in fair
value of $6.3 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 $5.0 million.

Redland Insurance Company Subsequent Event

         In January 2000, the Company announced an agreement in principle for
the sale of Redland to Clarendon.  The proposed transaction includes the
appointment of other Company subsidiaries as the exclusive producer and
administrator of Redland for the business the Company currently writes through
Redland.  The Company would also reinsure certain portions of the business
written by Redland in the future and the Company and Clarendon would jointly
develop additional specialty program business.  The proposed sale would be a
cash transaction based upon the market value of Redland after the divestiture
of various assets, including the Redland subsidiaries to The Redland Group,
Inc.  The Company does not expect to realize a significant gain or loss from
the proposed transaction which is expected to close during the second quarter
of 2000. The Company may retain an option to repurchase Redland under certain
circumstances.  Upon closing, Redland is expected to cede most of its business
to Clarendon which maintains the rating of A (Excellent) rating from A.M. Best.

         The Company is pursuing the proposed transaction as part of its
overall strategy to focus its property and casualty operations on core lines
of profitable specialty business and to meet the requirements of current and
future agents and customers for insurance products issued by an insurance
company that is rated A- or better by A.M. Best.  The Company and Clarendon
have entered into an interim agreement that allows Redland to issue policies
with Clarendon endorsements.  The Company has no reason to believe that the
proposed sale of Redland will not be completed.  If, however, the proposed sale
is not completed, the Company intends to seek other agreements with Clarendon,
similar to the interim agreements, in order to retain the A rating on the
policies.


<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 might have recognized 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 identified its information technology ("IT") systems
requiring modification to be Year 2000 compliant and implemented a corrective
plan to make necessary modifications to, and to test, the Company's IT systems
for Year 2000 compliance.  The Company also reviewed its Non-IT systems which
rely on microprocessors, such as copiers, fax machines, telephone equipment and
mail room equipment and made, or required lessors and other providers to make,
all of its Non-IT systems Year 2000 compliant.  As of the date of this report,
the Company's IT and Non-IT systems have functioned normally at all times prior
and subsequent to January 1, 2000.  None of the Company's material
relationships with third parties have been disrupted by the advent of year
2000 as of the date of this report.

         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 underwritten by the Insurance Companies.  Although the
Company has concluded Year 2000 exposures are not covered under its existing
insurance policies, the Company acted 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 is
not aware of any claims reported to it alleging coverage for losses caused by
the advent of year 2000 as of the date of this report.

                  It is possible, however, that the full impact of the date
change has not been fully recognized.  For example, it is possible that Year
2000 or similar issues such as leap year-related problems may occur at month,
quarterly, or year end.  The Company believes that any such problems are likely
to be minor and correctable.  In addition, the Company could still be
negatively affected if its customers or third parties on which the Company
relies are adversely affected by the Year 2000 or similar issues.  The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers or third parties on which the Company relies.

                  Prior to December 31, 1999 the Company expensed costs of
approximately $2.9 million relating to the Year 2000 issue.

<PAGE>


Class Action Suits
                  The Company is a defendant in three class-action lawsuits.
One case was filed in August 1999 in the Arkansas United States District Court
where the plaintiffs assert the Company made false representations and engaged
in deceptive trade practices related to the Company's 1999 CropRevenue
CoveragePlus(R) coverage for rice.  The plaintiffs seek compensatory damages,
interest, attorney fees and all appropriate damages or relief. The District
Court denied plaintiffs' request for class action status on March 10, 2000.

                  In December 1999, the Company was sued in the Nebraska
United States District Court where the plaintiffs allege the Company knowingly
and intentionally understated the Company's liabilities in order to maintain
the market price of the Company's common stock at artificially high levels and
made untrue statements of material fact. The plaintiffs seek compensatory
damages, interest, costs and attorney fees. In February 2000, the Company was
sued in the Nebraska United States District Court where the plaintiffs allege
the Company intentionally understated the Company's liabilities in order to
maintain the market price of the Company's Redeemable Preferred Securities at
artificially high levels and made untrue statements of material fact. The
plaintiffs seek money damages, costs and attorney fees.  As of March 1, 2000
the Company noted published reports of two additional suits which may include
allegations substantially similar to the allegations in the two suits now
pending in the Nebraska United States District Court.

                  While the Company believes each of these actions are without
merit, the ultimate outcome of this litigation cannot be predicted at this
time and the Company currently is unable to determine the potential effect on
the Company's financial position, results of operations or cash flows.  The
Company intends to vigorously contest the pending lawsuits and all similar
suits.

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, 2000.  The Company has not completed the process of
evaluating the impact of the adoption of SFAS No. 133 on 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.
 <PAGE>
                                    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 2000 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.


Item 11.  Executive Compensation

                  The information required by Item 11 will be set forth in the
Company's 2000 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

                  The information required by Item 12 will be set forth in the
Company's 2000 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 13 will be set forth in the
Company's 2000 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,
          1999 and 1998 consisting of the following:

                               Independent Auditors' Report
                               Consolidated Balance Sheets
                               Consolidated Statements of Operations
                               Consolidated Statements of Stockholders' Equity
                               Consolidated Statements of Cash Flows
                               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) The following Current Reports on Form 8-K have been filed
                   during the last fiscal quarter of the period covered by
                   this Report:


Item                     Financial Statements               Date of
                         Filed                              Report

Item 5. Other Events.    No                                 November 29, 1999


Item 5. Other Events.    No                                 December 15, 1999

Item 5. Other Events.    No                                 December 22, 1999







                          INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements for the
  Years Ended December 31, 1999 and December 31,
  1998:



  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, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for guaranty-fund and other insurance-related
assessments included in liabilities as of January 1, 1999.




/s/ DELOITTE & TOUCHE LLP


Omaha, Nebraska
February 28, 2000





<PAGE>

<TABLE>
<CAPTION>


ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)
DECEMBER 31, 1999 AND 1998
_____________________________________________________________________________________________________________________________

ASSETS                                                                                                  1999            1998
<S>                                                                                                 <C>             <C>
Investments:
  Fixed maturities available-for-sale, at fair value (Note 2)                                       $250,389        $337,107
  Marketable equity securities available-for-sale, at fair value (Note 2)                             25,081          71,687
  Mortgage loan                                                                                        8,914           9,549
  Real estate                                                                                          3,182           3,300
  Short-term investments, at cost, which approximates market                                         104,702          67,754
  Restricted short-term investments, at cost, which approximates market (Note 1)                      31,350               -
                                                                                                    ---------      ---------
                                                                                                     423,618         489,397
Cash                                                                                                   2,579           6,897
Receivables, net (Note 5)                                                                            177,296         169,071
Income tax receivable                                                                                 14,177          16,880
Reinsurance recoverable on unpaid losses and loss adjustment expenses                                502,537         238,769
Prepaid reinsurance premiums                                                                          54,888          76,663
Property and equipment, net of accumulated depreciation of $15,242
  and $12,328                                                                                         18,723          16,425
Deferred policy acquisition costs                                                                     17,495          25,433
Excess of cost over acquired net assets                                                               28,515          33,363
Deferred income tax (Note 6)                                                                          27,387           6,901
Other assets                                                                                          11,097          13,144
                                                                                                    ---------      ----------

                                                                                                  $1,278,312      $1,092,943
                                                                                                  ===========     ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Losses and loss adjustment expenses (Note 7)                                                      $  781,377        $524,744
Unearned premiums                                                                                    127,938         162,037
Amounts payable to reinsurers                                                                         49,224          35,840
Accounts payable and accrued liabilities                                                              41,400          24,293
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                                                                       1,094,814         856,789

Common stock subject to redemption (Note 13)                                                           2,540               -

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;
    15,494,334 and 15,466,860 shares issued                                                            6,198           6,187
  Capital in excess of par value                                                                     198,932         198,657
  Accumulated other comprehensive income (loss), net of tax                                         (12,568)           5,305
  Retained earnings                                                                                   17,212          52,281
  Common stock subject to redemption (Note 13)                                                       (2,540)               -
  Treasury stock, at cost, 1,209,520 shares (Note 12)                                               (26,047)        (26,047)
  Contingent stock, 20,396 shares                                                                      (229)           (229)
                                                                                                   ----------      ---------
           Total stockholders' equity                                                                180,958         236,154
                                                                                                   ----------      ---------

                                                                                                  $1,278,312      $1,092,943
                                                                                                  ===========     ==========
<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, 1999, 1998 AND 1997
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                             1999            1998            1997
<S>                                                                                     <C>              <C>            <C>
Revenues:
  Insurance premiums earned (Note 7)                                                     $248,712        $328,044        $335,215
  Net investment income (Note 2)                                                           25,064          28,320          28,016
  Net realized capital gains                                                               10,203           6,825           7,321
                                                                                         ---------       --------       ---------
                                                                                          283,979         363,189         370,552
                                                                                         ---------       --------       ---------
Costs and expenses:
  Cost of revenues:
    Insurance losses and loss adjustment expenses (Note 7)                                218,789         237,061         213,455
    Insurance underwriting expenses                                                       108,529         104,736          97,109
  General and administrative expenses                                                       4,592           3,502           2,063
                                                                                         ---------       ---------      ---------
                                                                                          331,910         345,299         312,627
                                                                                        ----------       ---------      ---------
           Operating profit (loss)                                                       (47,931)          17,890          57,925
                                                                                        ----------       ---------      ---------

Other income (expense):
  Interest expense                                                                        (9,058)         (8,994)         (6,569)
  Loss on investee (Note 4)                                                                     -           (704)           (209)
  Other, net                                                                                 (67)           (112)             158
                                                                                         ---------       ---------      ----------
                                                                                          (9,125)         (9,810)         (6,620)
                                                                                        ----------       ---------      ----------
           Income (loss) before income taxes and cumulative effect
             of change in accounting principle                                           (57,056)           8,080          51,305

Income tax expense (benefit) (Note 6):
  Current                                                                                (11,645)         (7,248)          15,164
  Deferred                                                                                (9,791)           9,792             828
                                                                                        ----------        --------      ---------
                                                                                         (21,436)           2,544          15,992
                                                                                        ----------        --------      ----------

Income (loss) before cumulative effect of change in accounting principle                 (35,620)           5,536          35,313

Cumulative effect of change in accounting principle (Note 1)                                (338)               -               -
                                                                                        ----------        ---------     ----------

           Net income (loss)                                                            $(35,958)          $5,536         $35,313
                                                                                        ==========       ==========      =========

Income (loss) per share:
  Basic:
    Income (loss) before cumulative effect of change in accounting principle              $(2.50)           $0.37           $2.34
    Cumulative effect of change in accounting principle                                    (0.02)               -               -
    Net income (loss)                                                                      (2.52)            0.37            2.34
  Diluted:
    Income (loss) before cumulative effect of change in accounting principle               (2.50)            0.37            2.30
    Cumulative effect of change in accounting principle                                    (0.02)               -               -
    Net income (loss)                                                                      (2.52)            0.37            2.30

<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, 1999, 1998 AND 1997
---------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                Accumulated
                                                                                Other                  Retained
                                Common                         Capital in       Comprehensive          Earnings
                                Shares          Common         Excess of        Income/(Loss),         (Accumulated
                                Issued          Stock          Par Value        Net of Tax             Deficit)
<S>                             <C>             <C>            <C>              <C>                    <C>
Balance at January
 1, 1997                        15,257          $6,103         $196,090         $ (1,476)              $ 11,432

  Net income                        -                -                -                -                 35,313
  Change in unrealized
  gain (loss) on
  available-for-sale
  securities, net of
  income taxes of $(4,502)
  (Note 18)                         -                -                -            8,361                      -

    Total comprehensive
    income

  Contingent share
   settlement related to
   Redland acquisition              -                -                -                -                      -
  Issuance of common
  stock under employee
  benefit plans                    164              65            1,990                -                      -
  Purchase of
   treasury stock                   -                -                -                -                      -
                                -------         --------       ---------        ---------              ---------

Balance at December
31, 1997                        15,421           6,168          198,080            6,885                 46,745

  Net income                        -                -                -                -                  5,536
  Change in unrealized
  gain (loss) on
  available-for-sale
  securities, net of
  income taxes of $851
  (Note 18)                         -                -                -           (1,580)                     -

    Total comprehensive
       income

  Issuance of common
  stock under employee
  benefit plans                     46              19              577                -                      -
  Purchase of
   treasury stock                   -                -                -                -                      -
                                -------         --------       ---------        ---------              ---------
Balance at December
31, 1998                        15,467           6,187          198,657            5,305                 52,281

  Net loss                          -                -                -                -                (35,958)
  Change in unrealized
  gains (loss) on
  available-for-sale
  securities, net of
  income taxes of $9,624
  (Note 18)                         -                -                -          (17,873)                     -

    Total comprehensive
     income

  Issurance of common
  stock under employee
  benefit plans                     27              11              275                -                      -
  Common stock subject
  to redemption                     -                -                -                -                    889
                                -------         --------       ---------        ---------              ---------

Balance at December
31, 1999                        15,494          $6,198         $198,932         $(12,568)              $ 17,212
                                =======         ========       =========        =========              ========



<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
---------------------------------------------------------------------------

                                                       Common
                                                       Stock                                                       Total
                                                       Subject to          Treasury            Contingent          Stockholders'
                                                       Redemption          Stock               Stock               Equity

<S>                                                    <C>                 <C>                 <C>                 <C>
Balance at January
 1, 1997                                               $     -             $ (1,629)           $(2,700)            $207,820

  Net income                                                 -                    -                  -               35,313
  Change in unrealized
  gain (loss) on
  available-for-sale
  securities, net of
  income taxes of $(4,502)
  (Note 18)                                                  -                    -                  -                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                                              -                    -                  -                2,055
  Purchase of
   treasury stock                                            -                 (739)                 -                 (739)
                                                       ---------           ---------           ---------           ---------

Balance at December
31, 1997                                                     -               (3,979)              (229)             253,670

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

  Net loss                                                   -                    -                  -              (35,958)
  Change in unrealized
  gains (loss) on
  available-for-sale
  securities, net of
  income taxes of $9,624
  (Note 18)                                                  -                    -                  -              (17,873)
                                                                                                                   ---------
    Total comprehensive
     income                                                                                                         (53,831)
                                                                                                                   ---------
  Issurance of common
  stock under employee
  benefit plans                                              -                    -                  -                  286
  Common stock subject
  to redemption                                         (2,540)                   -                  -               (1,651)
                                                       ---------           ---------           ---------           ---------

Balance at December
31, 1999                                               $(2,540)            $(26,047)           $  (229)            $180,958
                                                       =========           =========           =========           =========






<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, 1999, 1998 AND 1997
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                            1999             1998            1997
<S>                                                                                       <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                                                       $(35,958)       $   5,536       $ 35,313
  Adjustments to reconcile net income (loss) to net cash from operating activities:
    Depreciation and amortization                                                            5,868            5,554          4,523
    Deferred tax expense                                                                    (9,791)           9,792            828
    Loss on investee                                                                             -              704            209
    Policy acquisition costs incurred                                                      (73,060)         (85,106)       (84,000)
    Amortization of deferred policy acquisition costs                                       76,558           90,001         83,109
    Realized capital gains                                                                 (10,203)          (6,825)        (7,321)
    Increase (decrease) in cash attributable to changes in assets and liabilities:
      Receivables                                                                          (31,419)           7,189        (47,982)
      Income tax receivable                                                                  2,703          (12,347)           552
      Reinsurance recoverable on unpaid losses and loss adjustment expenses               (263,768)         (73,222)        19,874
      Prepaid reinsurance premiums                                                          21,775          (23,455)       (17,068)
      Losses and loss adjustment expenses                                                  282,650           96,091         (3,520)
      Unearned premiums                                                                    (18,820)           4,903         16,917
      Amounts payable to reinsurers                                                         13,384           17,885          7,798
      Accounts payable and accrued liabilities                                              17,937           (2,873)         2,153
    Other, net                                                                               1,293              131         (1,236)
                                                                                          ---------       ----------      ---------
           Net cash from operating activities                                              (20,851)          33,958         10,149
                                                                                          ---------       ----------      ---------

Cash flows from investing activities:
  Proceeds from sales of investments available-for-sale                                    234,287          163,064        206,075
  Proceeds from sales of short-term investments                                             19,882                -              -
  Proceeds from maturities of investments available-for-sale                                46,085          113,157        102,470
  Proceeds from maturities of short-term investments                                         8,274            5,344         27,633
  Proceeds from sale of Phoenix Indemnity, net of cash sold                                 21,591               -               -
  Proceeds from sale of Major Realty Corporation                                                 -            8,479              -
  Purchases of investments available-for-sale                                             (196,101)        (273,338)      (343,089)
  Purchases of short-term investments                                                      (27,375)          (5,258)       (20,606)
  Increase in restricted short-term investments                                            (31,350)               -              -
  Other, net                                                                                (6,826)          (4,428)        (9,158)
                                                                                          ---------       ----------      ---------
           Net cash from investing activities                                               68,467            7,020        (36,675)
                                                                                          ---------       ----------      ---------

Cash flows from financing activities:
  Proceeds from bank borrowings                                                                  -           15,000         21,000
  Repayments of bank borrowings                                                            (15,000)               -        (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                                                       286              596          2,055
  Purchase of treasury stock                                                                     -          (22,068)          (739)
                                                                                          ----------      ----------      ---------
           Net cash from financing activities                                              (14,714)          (6,472)        23,215
                                                                                          ----------      ----------      ---------

Net increase (decrease) in cash and short-term investments                                  32,902           34,506         (3,311)

Cash and short-term investments at beginning of year                                        72,822           38,316         41,627
                                                                                          ---------       ----------       --------

Cash and short-term investments at end of year                                            $105,724        $  72,822       $ 38,316
                                                                                          =========       ==========      =========

<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, 1999, 1998 AND 1997
(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 Group").

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

      The Company's results 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 changes at both the federal and state level; (c)
      changes in industry standards regarding rating and policy forms; (d)
      significant changes in judicial attitudes towards one or more types of
      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 and commodity prices.

      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 - Premiums are recognized as income ratably over the
      terms of the related policies except for the crop hail premiums which are
      recorded based on 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
      profit sharing 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


<PAGE>

      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.

      Unearned premiums represent the portion of premiums written which relates
      to the unexpired term of policies and is calculated generally using the
      pro rata method.  The Company also records 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,
      which may be material are reflected in the statement of operations.

      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.
      The recovery of deferred acquisition costs considers anticipated
      investment income and is reviewed periodically during the year.  In the
      fourth quarter of fiscal 1999, the Company amortized $3.3 million of
      previously deferred policy acquisition costs in conjunction with its
      review of recoverability.

      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, 1999
      and 1998, approximately $1,557,000 and $1,829,000 of short-term
      investments had maturity dates at acquisition of greater than three
      months.  Restricted short-term investments are not considered a cash
      equivalent.

      Restricted Short-Term Investments - The restricted short-term investments
      balance is comprised of investments deposited with a trustee for the
      Company's issuance of an outstanding letter of credit relating to
      reinsurance coverage on certain crop insurance products.

      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 and certain marketable equity
      securities do not pay dividends.  Available-for-sale securities are
      stated at fair value with the unrealized gains and losses reported as a
      separate component of other comprehensive income (loss), net of tax.
      Realized investment gains and losses on sales of securities are
      determined on the specific identification method.

      Mortgage loan is carried at its unpaid principal balance.  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 periods 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 $8,211,000 and $8,036,000 at December 31, 1999
      and 1998, respectively.

      Impairment of Long-Lived Assets - The Company reviews long-lived assets
      and certain identifiable intangibles for impairment whenever events or
      changes in circumstances indicate that the carrying amount of an asset
      may not be recoverable. An impairment loss would be recognized when
      evidence exists that the carrying value is not recoverable.  Measurement
      of the impairment of long-lived assets is based upon
      management's estimate of discounted future earnings.

      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


<PAGE>

      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.

      Change in Accounting Principle - In December 1997, the Accounting
      Standards Executive Committee of the American Institute of Certified
      Public Accountants (AcSEC) issued Statement of Position 97-3, Accounting
      by Insurance and Other Enterprises for Insurance-Related Assessments
      (SOP 97-3). SOP 97-3 provides guidance for determining when an entity
      should recognize a liability for guaranty-fund and other
      insurance-related assessments, how to measure that liability, and when an
      asset may be recognized for the recovery of such assessments through
      premium tax offsets.  The Company adopted SOP 97-3 on January 1, 1999
      resulting in a cumulative effect of change in accounting principles of
      $338,000.  The effect on the prior periods on a pro forma basis is not
      significant.

      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, 2000.  The Company has not completed the
      process of evaluating the impact of the adoption of SFAS No. 133 on the
      Company's consolidated financial statements.

      Codification of Statutory Accounting Principles - In March 1998, the
      National Association of Insurance Commissioners adopted the Codification
      of Statutory Accounting Principles (Codification).  The Codification,
      which is intended to standardize regulatory accounting and reporting for
      the insurance industry, is proposed to be effective January 1, 2001.
      However, statutory accounting principles will continue to be established
      by individual state laws and permitted practices and it is uncertain when
      the domiciliary states of the Insurance Companies will require adoption
      of Codification for the preparation of statutory financial statements.
      The Company has not finalized the quantification of the effects of
      Codification on its statutory 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>

                                                                                  1999           1998            1997
     <S>                                                                        <C>            <C>             <C>
     Interest on fixed maturities                                               $17,989        $19,991         $18,075
     Interest and dividends on short-term and equity investments                  6,596          7,256           8,329
     Other                                                                        1,314          1,871           2,334
                                                                                --------       --------        --------
                                                                                 25,899         29,118          28,738
     Investment expenses                                                           (835)          (798)           (722)
                                                                                --------       --------        --------

     Net investment income                                                      $25,064        $28,320         $28,016
                                                                                ========       ========        ========
</TABLE>





<PAGE>

     The amortized cost and related estimated fair values of investments in the
     accompanying balance sheets are as follows:

<TABLE>
<CAPTION>


                                                                                     Gross          Gross          Estimated
                                                                      Amortized      Unrealized     Unrealized     Fair
                                                                      Cost           Gains          Losses         Value
       <S>                                                            <C>            <C>            <C>            <C>
       December 31, 1999:
        Fixed maturities available-for-sale:
         U.S. Treasury and government securities                      $ 87,421       $   31         $ 2,358        $ 85,094
         States, municipalities and political
          subdivisions                                                 132,805          323           6,933         126,195
        Mortgage-backed securities                                      19,191            -           1,368          17,823
        Other debt securities                                           24,902            -           3,625          21,277
                                                                      ---------      -------        -------        ---------

                                                                      $264,319       $  354         $14,284        $250,389
                                                                      =========      =======        ========       =========

        Marketable equity securities - preferred stock                $ 15,111       $   87         $ 1,020        $ 14,178
                                                                      =========      =======        ========       =========

        Marketable equity securities - common stock                   $ 15,377       $1,241         $ 5,715        $ 10,903
                                                                      =========      =======        ========       =========

       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
                                                                      =========      =======        ========       ========
</TABLE>



     The amortized cost and related estimated fair values of the fixed maturity
     securities as of December 31, 1999 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.

<TABLE>
<CAPTION>

                                                                       Amortized       Estimated
                                                                       Cost            Fair Value
       <S>                                                             <C>             <C>
       Fixed maturities available-for-sale:
        Due in one year or less                                        $ 14,662        $ 14,480
        Due after one year through five years                            58,297          55,696
        Due after five years through ten years                           45,245          42,700
        Due after ten years                                             126,924         119,690
                                                                      ---------       ----------
                                                                        245,128         232,566
        Mortgage-backed securities                                       19,191          17,823
                                                                      ---------       ----------

                                                                       $264,319        $250,389
                                                                       ========        =========

</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,
     1999, the categories of the Company's CMOs, which at such date had an
     average expected life of approximately five years:

<TABLE>
<CAPTION>

                                                                         Par            Amortized      Estimated
                                                                         Value          Cost           Fair
       Type of CMO                                                       (1)            (1)            Value
       <S>                                                               <C>            <C>            <C>
       Fixed coupon                                                      $ 7,787         $ 7,762        $ 7,375
       Floating rate (2)                                                   7,254           7,186          6,999
       Inverse floating rate (2)                                           4,270           4,243          3,449
                                                                         -------         --------       --------

              Total CMOs (3)                                             $19,311         $19,191        $17,823
                                                                         =======         ========       ========

<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>









<PAGE>


      Proceeds from sales of fixed maturity securities during the years ended
      December 31, 1999, 1998 and 1997 were approximately $167,742,000,
      $111,131,000 and $147,854,000, respectively.  Gross realized gains on
      sales of fixed maturity securities were approximately $2,246,000,
      $2,073,000 and $1,908,000 and gross realized losses on sales of fixed
      maturity securities were approximately $1,462,000, $197,000 and $181,000
      during the years ended December 31, 1999, 1998 and 1997, respectively.
      Gross realized gains on sales of equity securities were approximately
      $14,950,000, $7,665,000, and $6,977,000 and gross realized losses on
      sales of equity securities were approximately $5,661,000, $2,620,000, and
      $733,000 during the years ended December 31, 1999, 1998, and 1997,
      respectively.


      As required by insurance regulatory laws, certain bonds with an amortized
      cost of approximately $23,195,000 and short-term investments of
      approximately $343,000 at December 31, 1999 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.

      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,
      1999 and 1998, are as follows:

<TABLE>
<CAPTION>

                                                                          Carrying Value                  Estimated Fair
                                                                                                              Value
                                                                       1999            1998            1999            1998

        <S>                                                          <C>             <C>             <C>             <C>
        Investments in fixed maturity securities                     $250,389        $337,107        $250,389        $337,107
        Investments in marketable equity securities                    25,081          71,687          25,081          71,687
        Mortgage loan                                                   8,914           9,549           8,914           9,549
        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          52,656          94,401

</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.  During May 1998, the Company closed on a
      transaction whereby the Company's investment in Major Realty was sold for
      cash.  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>

                                                                          1999            1998

        <S>                                                               <C>              <C>
        Insurance premiums and agents' balances due                       $ 68,441         $ 68,494
        Amounts recoverable from reinsurers                                 43,999           24,922
        Profit sharing gain due from the RMA                                61,580           71,452
        Accrued interest                                                     4,389            5,146
        Installment notes receivable                                         5,924            3,975
        Other                                                                   -               287
        Less allowance for doubtful accounts                                (7,037)          (5,205)
                                                                          ---------        ----------

                                                                          $177,296         $169,071
                                                                          =========        ==========
</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, 1999
      and 1998 relates to capital loss items.  The net deferred tax as of
      December 31, is as follows:

<TABLE>
<CAPTION>

                                                                                            1999            1998
        <S>                                                                                <C>             <C>
        Unpaid losses and loss adjustment expenses                                         $11,075         $12,512
        Unearned premiums                                                                    5,113           5,976
        Allowances for doubtful accounts                                                     2,463           1,822
        Net operating loss carryforward                                                      6,109               -
        Unrealized loss on marketable equity securities available-for-sale                   1,892               -
        Unrealized loss on fixed maturities available-for-sale                               4,876               -
        Other                                                                                5,389           2,344
                                                                                           --------        --------
             Deferred tax asset                                                             36,917          22,654
                                                                                           --------        --------

        Deferred policy acquisition costs                                                   (6,123)         (8,902)
        Unrealized gain on marketable equity securities available-for-sale                       -          (1,751)
        Unrealized gain on fixed maturities available-for-sale                                   -          (1,105)
        Unrealized gain on consolidated subsidiary held for sale                                 -          (1,869)
        Other                                                                               (3,332)         (2,051)
                                                                                           --------        --------
             Deferred tax liability                                                         (9,455)        (15,678)
                                                                                           --------        --------
                                                                                            27,462           6,976
        Valuation allowance                                                                    (75)            (75)
                                                                                           --------        --------

        Net deferred tax asset                                                             $27,387         $ 6,901
                                                                                           ========        ========


</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,
                                                                                           1999            1998            1997

        <S>                                                                              <C>                <C>           <C>
        Computed U.S. federal income taxes                                               $(19,970)          $ 2,828       $17,986
        Nondeductible amortization of goodwill and other
         intangibles                                                                          398               445           550
        Tax-exempt interest income                                                         (2,346)           (2,301)       (1,951)
        Dividends received deduction                                                         (597)             (885)       (1,203)
        Recognition of a portion of the deferred tax asset                                      -            (1,037)            -
        Unrealized gain on consolidated subsidiary held for sale                                -             1,869             -
        State income tax                                                                      414               698           289
        Other                                                                                 665               927           321
                                                                                         ---------          --------      --------

             Income tax expense (benefit)                                                $(21,436)          $ 2,544       $15,992
                                                                                         ==========         ========      ========

</TABLE>



      Cash payments (receipts) for income taxes were approximately
      $(14,348,000), $5,099,000, and $14,303,000 during the years ended
      December 31, 1999, 1998, and 1997, respectively.

7.    INSURANCE PREMIUMS AND CLAIMS

      Insurance premiums written and earned by the Company's insurance
      subsidiaries for the years ended December 31, 1999, 1998 and 1997 are as
      follows:

<TABLE>
<CAPTION>

                                                                            1999            1998           1997
        <S>                                                              <C>             <C>            <C>
        Direct premiums written                                          $ 628,299       $ 605,504      $ 591,931
        Assumed premiums written                                            64,642          95,456         73,879
        Ceded premiums written                                            (441,275)       (391,468)      (330,746)
                                                                         ----------      ----------     ----------

          Net premiums written                                           $ 251,666       $ 309,492      $ 335,064
                                                                         ==========      ==========     ==========

        Direct premiums earned                                           $ 643,879       $ 606,105      $ 575,938
        Assumed premiums earned                                             70,424          89,952         72,954
        Ceded premiums earned                                             (465,591)       (368,013)      (313,677)
                                                                         ----------      ----------     ----------

          Net premiums earned                                            $ 248,712       $ 328,044      $ 335,215
                                                                         ==========      ==========     ==========

</TABLE>


<PAGE>

      Included in ceded premiums written and earned is $156.1 million, $141.4
      million, and $136.7 million of MPCI premiums ceded to the RMA for the
      years ended December 31, 1999, 1998, and 1997, respectively. Included in
      assumed premiums written and earned in 1999, 1998, and 1997 is $37.9
      million, $55.0 million, and $51.7 million of MPCI profit share.

      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 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.

      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>

                                                                                   1999             1998            1997
        <S>                                                                     <C>              <C>             <C>
        Net loss and loss adjustment expense reserves at
          beginning of year                                                     $ 285,975        $ 263,106       $ 246,752
                                                                                ----------       ---------       ----------
        Provisions for net losses and loss adjustment expenses
          for claims occurring in the current year                                174,762          212,894         206,597
        Increase in net reserves for claims occurring in prior years               44,027           24,167           6,858
                                                                                ----------       ---------       ----------
                                                                                  218,789          237,061         213,455
                                                                                ----------       ---------       ----------
        Net losses and loss adjustment expenses paid for claims
          occurring during:
            Current year                                                          (76,745)        (100,968)       (110,372)
            Prior years                                                          (123,158)        (113,224)        (86,729)
                                                                                ----------       ----------      ----------
                                                                                 (199,903)        (214,192)       (197,101)
                                                                                ----------       ----------      ----------

        Sale of Phoenix Indemnity                                                 (26,021)               -               -
                                                                                ----------       ----------      ----------
        Net loss and loss adjustment expense reserves at end
          of year                                                                 278,840          285,975         263,106
        Reinsurance recoverable on unpaid losses and loss
          adjustment expenses                                                     502,537          238,769         165,547
                                                                                ----------       ----------      ----------

        Gross loss and loss adjustment expense reserves                         $ 781,377        $ 524,744       $ 428,653
                                                                                ==========       ==========      ==========

</TABLE>








<PAGE>

      Insurance losses and loss adjustment expenses have been reduced by
      recoveries recognized under reinsurance contracts of $725.9 million,
      $424.1 million, and $223.3 million for the years ended December 31, 1999,
      1998, and 1997, respectively, of which approximately $270.0 million,
      $213.8 million, and $109.1 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.  In the third quarter of fiscal
      1999, the Company increased reserves for 1998 and prior accident years by
      approximately $44 million.  This increase related primarily to an
      unexpected increase in the number of claims relating to general liabilty
      coverage provided in 1995 and prior years to contractors in the
      State of California as a result of the California Supreme Court decision
      in Montrose Chemical Corporation vs. Admiral Insurance Company.  In that
      decision, the Court adopted the "continuous trigger" theory of insurance
      coverage for third party liability claims involving continuous,
      progressive or deteriorating bodily injury or property damages.  Under
      this theory, the time of the insured's act which allegedly caused the
      accident, event or condition resulting in a claim is largely immaterial.
      As long as the potential damages remain outstanding, all of the insured
      contractor's or subcontractor's successive insurance policies potentially
      may provide coverage. Thus, the Court's Montrose decision created a new
      basis for coverage under years of previously issued policies.  Beginning
      in 1996, the Company altered its underwriting criteria for construction
      risks and began endorsing policies exposed to these types of continuous
      exposures in order to avoid coverage for conditions which existed prior
      to the inception of the Company's policies.

      During 1998, the Company discontinued several product lines due to the
      continuation of unexpected development and pricing that was 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 developments, management
      modified the assumptions used in reserving 1997 and prior accident
      years for these lines. This modification created most of the unfavorable
      development during 1998.

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).  During 1999, the Revolving Credit Facility
      was reduced to $31.4 million.  At December 31, 1999, the entire facility
      is reserved for an outstanding letter of credit and, accordingly, no
      borrowings are permitted under such facility.

      At December 31, 1999, the Revolving Credit Facility was collateralized by
      the Company's Acceptance and Redland common stock and restricted
      short-term investments of $31.4 million.  Borrowings and interest cost
      averaged $5.3 million and 7.0% during 1999 and $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, requires
      maintenance of specified levels of surplus and requires the Company to
      meet certain tests established by regulatory authorities.



<PAGE>

      Cash payments for interest related to the Revolving Credit Facility were
      approximately $.5 million, $.2 million, and $3.3 million during the years
      ended December 31, 1999, 1998 and 1997, 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.

      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 can be
      called at par value after September 30, 2002, all as described in the
      Junior Debenture Indenture.  At December 31, 1999 and 1998, the Company
      had Preferred Securities of $94.875 million outstanding at a weighted
      average interest cost of 9.2% and 9.1%, respectively.

      Cash payments for interest related to the Junior Subordinated Debentures
      were approximately $8.5 million during the years ended December 31, 1999
      and 1998.

10.   COMMITMENTS AND CONTINGENCIES

      The Company is involved in various insurance related claims 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.

      The Company is a defendant in three class-action lawsuits. One case was
      filed in August 1999 in the Arkansas United States District Court where
      the plaintiffs assert the Company made false representations and engaged
      in deceptive trade practices related to the Company's 1999 CropRevenue
      CoveragePlus(R) coverage for rice. The plaintiffs seek compensatory
      damages, interest, attorney fees and all appropriate damages or relief.

      In December 1999, the Company was sued in the Nebraska United States
      District Court where the plaintiffs allege the Company knowingly and
      intentionally understated the Company's liabilities in order to maintain
      the market price of the Company's common stock at artificially high
      levels and made untrue statements of material fact. The plaintiffs seek
      compensatory damages, interest, costs and attorney fees. In February
      2000, the Company was sued in the Nebraska United States District Court
      where the plaintiffs allege the Company intentionally understated the
      Company's liabilities in order to maintain the market price of the
      Company's Redeemable Preferred Securities at artificially high levels and
      made untrue statements of material fact. The plaintiffs seek money
      damages, costs and attorney fees.

      While the Company believes each of these actions are without merit, the
      ultimate outcome of this litigation cannot be predicted at this time and
      the Company currently is unable to determine the potential effects on the
      Company's financial position, results of operations or cash flows. The
      Company inteds to vigorously contest the pending class-action lawsuits.

      At December 31, 1999 Acceptance Premium Finance Company, Inc., an
      affiliate, had a revolving line of credit agreement which provided for
      borrowings up to $3,000,000 with no maturity schedule.  Borrowings under
      this agreement are guaranteed by the Company. Acceptance Premium Finance
      Company, Inc. had $3,000,000 outstanding under this line of credit at
      December 31, 1999.


<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, 1999:

          2000                                              $3,264
          2001                                               2,666
          2002                                                 151
          2003                                                   6
                                                            _______
                                                            $6,087
                                                            =======

      Rental expense totaled approximately $3,734,000, $4,418,000, and
      $4,353,000 for the years ended December 31, 1999, 1998 and 1997,
      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. At
      December 31, 1999 and 1998, the 1996 incentive stock option plan had
      510,500 and 536,000 options, respectively, available for granting.

      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.



<PAGE>
      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 25,974, 19,113, and 16,744 shares during 1999,
      1998, and 1997, respectively.

      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 (loss) and net income (loss) per share would have been as
      indicated below:

<TABLE>
<CAPTION>

                                                                         1999            1998            1997
          <S>                                                        <C>                <C>            <C>
          Net income (loss):
           As reported                                               $(35,958)          $5,536         $35,313
           Pro forma                                                  (36,673)           4,508          33,672

          Net income (loss) per share:
           Basic:
           As reported                                               $  (2.52)          $ 0.37         $  2.34
           Pro forma                                                    (2.57)            0.30            2.24

           Diluted:
           As reported                                               $  (2.52)          $ 0.37         $  2.30
           Pro forma                                                    (2.57)            0.30            2.19

</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 1999, 1998, and 1997, respectively:  risk-free interest
      rates of 5.4%, 5.7%, and 6.7%; expected volatility of 26%, 24%, 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.





<PAGE>

      A summary of the status of the Company's stock option plans as of
      December 31, 1999, 1998 and 1997 and changes during the years ended on
      those dates is presented below:


<TABLE>
<CAPTION>
                                                        1999                            1998                       1997
                                           ---------------------------------------------------------------------------------------
                                                               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                             1,335,250        $  22.97       1,292,500         $22.16       1,378,021     $21.46
       Granted                                  25,500           23.29          70,500          32.62          10,500      21.00
       Exercised                                 1,500           12.50          26,500           8.99          77,896      10.15
       Forfeited                                32,500           12.84           1,250          22.00          18,125      21.13
                                            -----------                     ----------                     -----------

       Outstanding at end of year            1,326,750        $  23.24       1,335,250         $22.97       1,292,500     $22.16
                                            ===========       =========     ===========        =======      ==========    =======

       Options exercisable at
        year end                               900,250                         697,000                        466,719
       Weighted-average fair value
        per share of options
        granted during the year             $     5.35                      $     5.92                     $     8.84

</TABLE>

      The following table summarizes information about stock options
      outstanding at December 31, 1999:
<TABLE>
<CAPTION>
                                                                         Options                             Options Exercisable
                                                                         Outstanding
                                            ---------------------------------------------------------------------------------------
                                                                          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 15.44                                    354,625       4.5 years          $13.27        334,125        $13.26
          17.13                                              10,500       6.4 years           17.13         10,500         17.13
          19.69 to 21.35                                    186,500       6.2 years           19.79        186,500         19.79
          22.00 to 22.94                                    183,500       6.2 years           22.67        183,500         22.67
          24.54 to 29.95                                    376,625       6.1 years           27.93        185,625         26.01
          32.46 to 44.50                                    215,000       6.1 years           35.21              -             -
                                                          -----------                                      --------

          $11.38 TO 44.50                                 1,326,750       5.7 years          $23.24        900,250        $19.21
                                                          ===========                                      ========


</TABLE>

      The Company has a defined contribution plan for which related expense for
      1999, 1998, and 1997 was approximately $1,360,000, $1,486,000, and
      $1,085,000, respectively.



<PAGE>

      In fiscal 1999, the Company entered into compensation agreements with
      certain individuals related to their retirement or termination of
      employment with the Company.  In connection with the agreements, the
      Company recorded severance and other related charges for 42 employees of
      $4.2 million in Insurance Underwriting Expenses. At December 31, 1999,
      approximately $3.4 million remained unpaid and is included in accounts
      payable and accrued liabilities.

      As part of one of the compensation agreements referred to above, a former
      employee has the right to put to the Company 274,635 previously owned
      shares of common stock of the Company at $15 per share between June 30,
      2002 and July 30, 2002.  As a result of this redemption feature, the
      Company has recorded the related redemption amount as temporary equity.

14.   RELATED PARTY TRANSACTIONS

      The Company contracts with a related party, a director, 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
      $381,000, $327,000, and $321,000 in 1999, 1998 and 1997, respectively.
      In addition, the Company pays commissions and fees to the related party
      in connection with insurance written and loss control activities, which
      totalled $286,000, $357,000, and $181,000 in 1999, 1998 and 1997,
      respectively. This related party reimburses the Company for an allocable
      share of certain office occupancy expenses, $3,000, $9,000, and $36,000
      in 1999, 1998 and 1997, respectively.

      The Company made payments during 1999, 1998 and 1997 totalling
      approximately $356,000, $380,000, and $351,000, respectively, to a
      related party, a director, 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 1999 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 27% and 34% of the reinsurance
      recoverables and prepaid reinsurance premiums at December 31, 1999 and
      1998, respectively.  No other reinsurer, except for the RMA, accounted
      for more than 5% of these balances.

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 2000,
      dividends from insurance subsidiaries to the Company without further
      insurance department approval are limited to approximately $7.4 million.

      The Company's insurance subsidiaries reported total statutory
      policyholders' surplus of approximately $158,551,000 and $236,041,000 at
      December 31, 1999 and 1998, respectively, and total statutory net income
      (loss) of $(21,068,000), $1,068,000, and $27,428,000 for the years ended
      December 31, 1999, 1998, and 1997, respectively.

      At December 31, 1999, the Insurance Companies met the Risk Based Capital
      requirements as promulgated by the domiciliary states of the Insurance
      Companies and the NAIC.


<PAGE>
17.   NET INCOME (LOSS) PER SHARE

      The net income (loss) per share for both basic and diluted for the years
      ended December 31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>


                                                                               1999              1998             1997
          <S>                                                               <C>                <C>             <C>
          Income (loss) before cumulative effect of change in
           accounting principle                                             $(35,620)          $ 5,536         $ 35,313
          Cumulative effect of change in accounting principle                   (338)               -                 -
                                                                            ---------          --------        ---------
          Net income (loss)                                                 $(35,958)          $ 5,536         $ 35,313
                                                                            =========          ========        =========

          Weighted average common shares outstanding                          14,249            14,843           15,065
          Dilutive effect of contingent shares                                     -                20               67
          Dilutive effect of stock options                                         -               176              234
                                                                            ---------          --------        ---------
          Diluted weighted average common and equivalent
           shares outstanding                                                 14,249            15,039           15,366
                                                                            =========          ========        =========

          Income (loss) per share:
           Basic:
            Income (loss) before cumulative effect of change in
              accounting principle                                          $  (2.50)          $  0.37         $   2.34
            Cumulative effect of change in accounting principle                (0.02)                -                -
            Net income (loss)                                                  (2.52)             0.37             2.34
           Diluted:
            Income (loss) before cumulative effect of change in
              accounting principle                                             (2.50)             0.37             2.30
            Cumulative effect of change in accounting principle                (0.02)                -                -
            Net income (loss)                                                  (2.52)             0.37             2.30

</TABLE>




      Contingent stock and stock options were not included in the above
      calculations for the year ended December 31, 1999 due to their
      antidilutive nature.



<PAGE>

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>

                                                                                   1999             1998           1997

        <S>                                                                     <C>               <C>            <C>
        Unrealized holding (losses) gains arising during the year               $(17,294)         $ 4,394         $20,184
        Income tax (benefit) expense                                              (6,053)           1,538           7,064
                                                                                ---------         --------        -------

        Unrealized holding (losses) gains arising during the year,
         net of tax                                                              (11,241)           2,856          13,120
                                                                                ---------         --------        -------

        Reclassification adjustment for gains realized in net income              10,203            6,825           7,321
        Income tax expense                                                         3,571            2,389           2,562
                                                                                ---------         --------        -------

        Reclassification adjustment for gains realized in net
         income, net of tax                                                        6,632            4,436           4,759
                                                                                ---------         --------        -------

        Other comprehensive income (loss)                                       $(17,873)         $(1,580)        $ 8,361
                                                                                =========         ========        ========

</TABLE>

19.   BUSINESS SEGMENTS

      The Company is engaged in the specialty property and casualty and the
      crop insurance business.  The Property and Casualty Insurance segment
      primarily consists of commercial property, commercial casualty, inland
      marine and workers' compensation.  The principal lines of the Crop
      Insurance segment are MPCI, supplemental coverages and named peril
      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 and $4.5 million for the years ended December
      31, 1998 and 1997, respectively, from the Crop Insurance segment,
      utilizing the excess capacity of the Property and Casualty Insurance
      segment.  There were no assumed premiums under this treaty during 1999.
      Depreciation and amortization totaled $3.1 million, $3.1 million, and
      $2.2 million for the Property and Casualty Insurance segment and $2.8
      million, $2.5 million, and $2.3 million for the Crop segment for the
      years ended December 31, 1999, 1998 and 1997, respectively.  Management
      does not utilize assets as a significant measurement tool for evaluating
      segments.

      During 1998, the Company discontinued writing certain product lines.
      Additionally, the Company has reached agreements to transfer various
      lines of business to other carriers in 2000.  Net earned premiums for
      these discontinued product lines were approximately $114 million, $168
      million and $179 million in 1999, 1998 and 1997, respectively.



<PAGE>

      During 1998, the Company recorded a $1.1 million impairment in general
      and administrative expenses related to a consolidated subsidiary, Phoenix
      Indemnity Insurance Company ("Phoenix"), that was held for sale at
      December 31, 1998.  In September 1999, the Company sold Phoenix for
      approximately $23 million in cash which approximated net book value.
      Premiums earned from Phoenix, which is part of the Property and Casualty
      segment, were $32 million, $43 million and $42 million in 1999, 1998 and
      1997, respectively.

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


<TABLE>
<CAPTION>

                                                                         Property and
                                                                         Casualty         Crop
                                1999                                     Insurance        Insurance      Total

          <S>                                                            <C>               <C>            <C>
          Revenues                                                       $ 236,267         $ 47,712        $ 283,979
                                                                         ==========        ========        =========

          Operating profit (loss)                                          (48,729)             798          (47,931)
          Interest expense and other                                         5,522            3,603            9,125
                                                                         ----------        ---------       ----------

          Income before income taxes and cumulative effect
           of change in accounting principle                             $ (54,251)        $ (2,805)       $ (57,056)
                                                                         ==========        =========       ==========

                               1998

          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
                                                                         ==========        =========       ==========

</TABLE>





<PAGE>


20.   SUBSEQUENT EVENT

      In January 2000, the Company announced an agreement in principle for the
      sale of Redland Insurance Company ("Redland") to Clarendon National
      Insurance Company ("Clarendon"). The proposed transaction includes the
      appointment of the Company as the exclusive producer and administrator of
      Redland for the business the Company currently writes through Redland.
      The Company would also reinsure certain portions of the business
      written by Redland in the future and the Company and Clarendon would
      jointly develop additional specialty program business. The proposed sale
      would be a cash transaction based upon the market value of Redland after
      the divestiture of various assets, including the Redland subsidiaries to
      Redland Group. The Company does not expect to realize a significant gain
      or loss from the proposed transaction which is expected to close during
      the second quarter of 2000.


21.   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>
     1999:
      December 31                       $ 48,387       $(32,320)       $(17,680)        $(1.24)         $(1.24)
      September 30 (2)                   106,040        (43,770)        (25,203)         (1.77)          (1.77)
      June 30                             67,257         (1,043)          3,901           0.27            0.27
      March 31                            62,295         (1,473)          3,024           0.21            0.21
                                        ---------      ---------       ---------

                                        $283,979       $(78,606)       $(35,958)        $(2.52)         $(2.52)
                                        =========      =========       =========        =======         =======

     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
                                        ========       =========       =========        =======         =======

</TABLE>


      (1) The Company is significantly involved in crop insurance programs.
          The Companys 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
          September 30, 1999 and December 31, 1998 by the approximately $44.0
          million and $24.2 million increase in loss and loss adjustment
          expense reserves, respectively.

      (3) Quarterly net income per share numbers may not add to the annual net
          income per share.

<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1999 AND 1998
BALANCE SHEETS (Parent Company Only)
(IN THOUSANDS)

<TABLE>
<CAPTION>



ASSETS                                                                                   1999            1998
<S>                                                                                  <C>             <C>

Cash and short-term investments                                                      $  4,475        $ 17,906
Restricted short-term investments                                                      31,350               -
Receivables, net                                                                        3,876           5,607
Intercompany receivables                                                                    -             248
Surplus note receivables from subsidiaries                                             40,000          60,000
Investments in subsidiaries                                                           193,130         255,444
Other assets                                                                            7,425           7,297
                                                                                     ---------       --------

                                                                                     $280,256        $346,502
                                                                                     =========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                                             $    593            $473
Intercompany payable                                                                    1,290               -
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                                                            96,758         110,348
                                                                                     ---------       ---------

Common stock subject to redemption                                                      2,540               -

Stockholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized, none issued                   -               -
  Common stock, $.40 par value, 40,000,000 shares authorized; 15,494,334
    and 15,466,860 shares issued                                                        6,198           6,187
  Capital in excess of par value                                                      198,932         198,657
  Accumulated other comprehensive income (loss), net of tax                           (12,568)           5,305
  Retained earnings                                                                    17,212          52,281
  Common stock subject to redemption                                                   (2,540)               -
  Treasury stock, at cost, 1,209,520 shares                                           (26,047)        (26,047)
  Contingent stock, 20,396 shares                                                        (229)           (229)
                                                                                      --------       ----------

           Total stockholders' equity                                                 180,958         236,154
                                                                                     ---------       -----------

                                                                                     $280,256        $346,502
                                                                                     =========       =========
</TABLE>

<PAGE>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
STATEMENTS OF OPERATIONS  (Parent Company Only)
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                        1999            1998            1997

<S>                                                                 <C>              <C>             <C>
Revenues                                                            $      -         $     -         $     -

Costs and expenses:
  General and administrative expenses                                  4,594           2,502           2,112
                                                                    ---------        --------        --------
           Operating loss                                             (4,594)         (2,502)         (2,112)

Other income (expense):
  Interest expense                                                    (9,058)         (8,994)         (6,569)
  Undistributed share of net income (loss) of subsidiaries           (44,151)         (3,933)         25,040
  Other                                                               19,251          19,313          17,889
                                                                    ----------       --------        ---------
                                                                     (33,958)          6,386          36,360
                                                                    ----------       --------        ---------

          Income (loss) before income taxes                          (38,552)          3,884          34,248

Income tax benefit (expense):
  Current                                                              2,148           1,834             995
  Deferred                                                               446            (182)             70
                                                                     ---------       ---------       ---------

Net income (loss)                                                   $(35,958)        $ 5,536         $35,313
                                                                    ==========       =========       =========


</TABLE>


<PAGE>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
STATEMENTS OF CASH FLOWS (Parent Company Only)
(IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                 1999            1998            1997
<S>                                                                             <C>              <C>            <C>
Cash flows from operating activities:
  Net income (loss)                                                             $(35,958)        $  5,536       $  35,313
  Adjustments to reconcile net income from continuing
    operations to net cash used for operating activities:
      Deferred tax expense (benefit)                                                 446              182             (70)
      Undistributed share of net loss (income) of subsidiaries                    44,151            3,933         (25,040)
      Increase (decrease) in cash attributable to changes in
        assets and liabilities:
          Receivables                                                              1,979           13,647         (14,233)
          Payables                                                                 1,410             (138)           (334)
  Other, net                                                                         620              508             234
                                                                                ---------        ----------     -----------
           Net cash used for operating activities                                 12,648           23,668          (4,130)

Cash flows from investing activities:
  Contributions to investments in subsidiaries                                       (15)            (250)        (20,000)
  Proceeds from repayment of surplus note                                         20,000                -               -
  Increase in restricted short-term investments                                  (31,350)               -               -
                                                                                ----------       ----------     ------------
           Net cash used for investing activities                                (11,365)            (250)        (20,000)

Cash flows from financing activities:
  Proceeds from bank borrowings                                                        -           15,000          21,000
  Repayments of bank borrowings                                                  (15,000)               -         (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                                             286              596           2,055
  Purchase of treasury stock                                                           -          (22,068)           (739)
                                                                                ----------       ----------     ------------
           Net cash provided by financing activities                             (14,714)          (6,472)         23,215
                                                                                ----------        ---------     ------------

Net increase (decrease) in cash and short-term investments                       (13,431)          16,946            (915)

Cash and short-term investments at beginning of year                              17,906              960           1,875
                                                                                ----------        ---------     ------------

Cash and short-term investments at end of year                                  $  4,475         $ 17,906       $     960
                                                                                ==========       ==========     ============

</TABLE>


<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

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 $5,360,000, $5,400,000,
and $4,500,000 of interest income on surplus notes from subsidiaries for the
years ended December 31, 1999, 1998 and 1997, respectively, and
$12,989,000 and $13,199,000 of dividend income from subsidiaries for the
years ended December 31, 1999 and 1998, respectively.

Cash payments for interest were $9,047,000, $8,739,000, and $6,795,000
during the years ended December 31, 1999, 1998 and 1997, respectively.


<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE V
VALUATION ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>


     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, 1999                                   $5,205         $2,942          $1,110          $7,037

  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

</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.

By  /s/ John E. Martin                 Dated: March 16, 2000
    --------------------------------
     John E. Martin
     President and Chief Executive Officer

By  /s/ Georgia M. Mace                Dated: March 16, 2000
    --------------------------------
   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.


Dated:  March 16, 2000      /s/ Jay A. Bielfield
                            ----------------------------------
                            Jay A. Bielfield, Director


Dated:  March 16, 2000       /s/ Edward W. Elliott, Jr.
                             ---------------------------------
                             Edward W. Elliott, Jr., Director


Dated:  March 16, 2000       /s/ Robert LeBuhn
                             ---------------------------------
                             Robert LeBuhn, Director


Dated:  March 16, 2000       /s/ Michael R. McCarthy
                             ---------------------------------
                             Michael R. McCarthy, Director


Dated:  March 16, 2000       /s/ John P. Nelson
                             ---------------------------------
                             John P. Nelson, Director


Dated:  March 16, 2000       /s/ R.L. Richards
                             ----------------------------------
                             R. L. Richards, Director


Dated:  March 16, 2000       /s/ David L. Treadwell
                             -----------------------------------
                             David L. Treadwell, Director


Dated:  March 16, 2000       /s/ Doug T. Valassis
                             ------------------------------------
                             Doug T. Valassis, Director



<PAGE>


                       ACCEPTANCE INSURANCE COMPANIES INC.
                           ANNUAL REPORT ON FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 31, 1999

                                  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.

3.3            Amendment to Restated Bylaws of Acceptance Insurance Companies
               Inc.

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.

<PAGE>

10.3           Employment Agreement dated December 14, 1999 between the
               Registrant and John E. Martin.

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

10.5           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.

10.6           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.

10.7           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.

10.8           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.