**UNITED STATES                                          SECURITIES AND EXCHANGE COMMISSION                                                Washington, D.C. 20549 **
**FORM 10-K **

**[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE         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, 2001                      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.) 

**535 West Broadway                       Council Bluffs, Iowa 51503** (Address of Principal Executive Offices) (Zip Code) 

          Registrant's Telephone Number, Including Area Code:                                                    (712) 328-3918                                                       ________ 

      Securities Registered Pursuant to Section 12(b) of the Act: 
**Title of Each Class **  **Name ofEach Exchange on Which Registered ****Common Stock $.40 Par Value****New York Stock Exchange, Inc.****Preferred Securities of AICI Capital Trust****NewYork 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) ofthe  Securities  Exchange  Act of 1934 during the  preceding  12 months(or for such shorter  period that the  Registrant  has been required tofile  such   reports),   and  (2)  has  been  subject  to  such  filingrequirements for the past 90 days.  Yes [X]   No [  ] 

           Indicate by check mark if  disclosure  of  delinquentfilers  pursuant  to  Item  405 of  Regulation  S-K  is  not  containedherein,  and  will  not be  contained,  to  the  best  of  Registrant'sknowledge,  in definitive proxy or information statements  incorporatedby  reference  in Part III of this Form 10-K or any  amendment  to thisForm 10-K.  [  ] 

           The  aggregate   market  value  of  the  Registrant'svoting  stock held by  nonaffiliates  (10,179,167  shares) on March 18,2002 was $55,476,461. 

           The   number  of   shares   of  each   class  of  theRegistrant's common stock outstanding on March 18, 2002 was: 
**Class of Common Stock****No. ofShares Outstanding **  **Common Stock, $.40 Par Value****14,438,935 **
**DOCUMENTS INCORPORATED BY REFERENCE** 

            Portions   of   the   Proxy    Statement    for   theRegistrant's  2002 Annual Meeting of Shareholders  are  incorporated byreference into Part III. 

**GLOSSARY OF INSURANCE TERMS **

          *  Admitted  Insurer:*  An insurance  company licensed bya state  regulatory  authority to transact  insurance  business in thatstate.  An  admitted  insurer is  subject to the rules and  regulationsof each state in which it is licensed  governing  virtually all aspectsof its  insurance  operations  and financial  condition.  A nonadmittedinsurer,  also known as an excess and  surplus  lines  insurer,  is notlicensed  to  transact  insurance  business in a given state but may bepermitted to write certain  business in that state in  accordance  withthe  provisions  of excess  and  surplus  lines  insurance  laws  whichgenerally involve less rate, form and operational regulation. 

          *Case  Reserve:*   The  estimated  liability  for  lossestablished by an insurance company for a reported claim. 

          *Catastrophic    Coverage("CAT")*:    The   minimumavailable level of Multi-Peril Crop Insurance,  providing  coverage for50% of a producer's  historical  yield for eligible crops at 55% of theprice established annually by RMA. 

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

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

          *Crop    Revenue    CoveragePlus("CRCPlus")*:    Anendorsement  to CRC that allows the  agricultural  producer to increasethe base  price of the  underlying  CRC  policy by a  specific  amount.Unlike  CRC,   however,   CRCPlus   coverages  are  not  subsidized  orreinsured by the federal government. 

          *Crop Year*:  For MPCI,  a crop year  commences on July1 and ends on June 30.  For crop hail and named  peril  insurance,  thecrop year is typically the calendar year. 

          *Direct Written  Premiums:*  Total  premiums  collectedin  respect of  policies  issued by an  insurer  during a given  periodwithout any reduction for premiums ceded to reinsurers. 

          *Excess and  Surplus  Lines  Insurance:*  The  businessof insuring  risks for which  insurance is generally  unavailable  fromadmitted  insurers  in whole or in part.  Such  business  is  placed bythe broker or agent with  nonadmitted  insurers in accordance  with theexcess and surplus lines provisions of state insurance laws.

        *Excess  of Loss  Reinsurance:*  A form of  reinsurancein which  the  reinsurer,  subject  to a  specified  limit,  agrees  toindemnify  the  ceding  company  for  the  amount  of each  loss,  on adefined class of business, that exceeds a specified retention. 

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

        *Federal  Crop  Insurance   Corporation   ("FCIC"):*  Awholly  owned   government   corporation   administered   by  the  RiskManagement Agency within USDA. 

       *Generally Accepted  Accounting  Principles  ("GAAP"):*Accounting  practices  as set forth in opinions and  pronouncements  ofthe Financial  Accounting  Standards  Board and  Accounting  PrinciplesBoard  and  American   Institute  of   Certified   Public   AccountantsAccounting   Research   Bulletins  and  which  are  applicable  in  thecircumstances as of the date in question. 

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

        *Incurred  But Not  Reported  ("IBNR")Reserves*:  Theliability  for future  payments  on losses that have  already  occurredbut have not yet been reported to the insurer.  IBNR  reserves  includeLAE  related to such  losses and may also  provide  for future  adverseloss development on reported claims. 

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

        *Loss   Adjustment    Expenses("LAE")*:    Expensesincurred in the  settlement  of claims,  including  outside  adjustmentexpenses,  legal  fees and  internal  administrative  costs  associatedwith  the  claims  adjustment   process,   but  not  including  generaloverhead expenses. 

       *Loss  Ratio:*  The  ratio of losses  and LAE  incurredto premiums earned. 

        *Loss  Reserves:*  Liabilities  established by insurersto  reflect  the  estimated  ultimate  cost of claim  payments  as of agiven date.

         *MPCI   Imputed   Premiums:*   For   purposes   of  theprofit/loss  sharing  arrangement with the FCIC, the amount of premiumscredited  to the  Company  for  all CAT  Coverages  it  sells,  as suchamount is determined by formula. 

         *MPCI  Gross  Premiums:*  The  amount of  premiums  forall MPCI and CRC paid by  agricultural  producers  plus the  amount  ofany related federal premium subsidies and MPCI Imputed Premiums. 

        *MPCI  Retained  Premiums:*  The  aggregate  amount  ofMPCI Gross  Premiums that the Company  retains after  allocating  risksto the three FCIC reinsurance pools. 

       *Multi-Peril  Crop  Insurance ("MPCI")*:  A  federallyregulated  subsidized  crop  insurance  program that insures a producerof crops  with  varying  levels of  protection  against  loss of yield.Covered losses can vary but generally  include adverse  weather,  fire,insects, plant disease, wildlife and earthquake. 

       *NAIC:*   The   National   Association   of   InsuranceCommissioners. 

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

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

      *Policyholders'  or Statutory  Surplus:*  As determinedunder SAP  (hereinafter  defined),  the excess of total admitted assetsover total liabilities. 

      *Quota  Share  Reinsurance:*   A  form  of  reinsurancewhereby the reinsurer  agrees to participate,  at a stated  percentage,in all risks of a defined class of business. 

      *Reinsurance:*  The practice  whereby a company  calledthe "reinsurer"  assumes,  for a share of the premium, all or part of arisk  originally  undertaken  by another  insurer  called the  "ceding"company  or   "cedent."   Reinsurance   may  be  affected  by  "treaty"reinsurance,   where  a  standing  agreement  between  the  ceding  andreinsuring  companies  automatically  covers  all  risks  of a  definedcategory,  amount  and  type,  or by  "facultative"  reinsurance  wherereinsurance is negotiated and accepted on a risk-by-risk basis. 

      *Retention:*  The  amount  of  liability,  premiums  orlosses  that an  insurance  company  keeps  for its own  account  afterapplication of reinsurance. 

      *Risk-Based  Capital  ("RBC"):*   Capital  requirementsfor property and casualty  insurance  companies  adopted by the NAIC toassess  minimum  capital   requirements  and  to  raise  the  level  ofprotection   that   statutory   surplus   provides   for   policyholderobligations. 

      *Risk  Management  Agency ("RMA")*:  A division of theUnited States  Department of  Agriculture  ("USDA")  which,  along withthe  FCIC  administers  and  provides  reinsurance  for  the  federallyregulated MPCI and CRC programs. 

      *Standard    Reinsurance    Agreement   ("SRA"):*   Thereinsurance  agreement  related to crop  reinsurance  under the federalcrop program between FCIC and affiliates of the Company. 

      *Stop  Loss   Reinsurance:*   A  form  of  reinsurance,similar to Excess of Loss  Reinsurance,  whereby  the  primary  insurercaps  its  loss on a  particular  risk  by  purchasing  reinsurance  inexcess of such cap. 

     *Statutory     Accounting      Principles("SAP")*:Accounting  practices  that  consist  of  recording   transactions  andpreparing  financial  statements  in  accordance  with  the  rules  andprocedures  prescribed  or  permitted  by the  NAIC's  Codification  ofStatutory  Accounting  Principles  or  established  by  state  laws andpermitted practices. 

 **PART I**

 **Item 1.  Business **

**Forward-Looking Information**

                 Except for the  historical  information  contained inthis  Annual  Report  on  Form  10-K,   matters  discussed  herein  mayconstitute  forward-looking  information,  within  the  meaning  of thePrivate    Securities    Litigation    Reform   Act   of   1995.   Suchforward-looking  information  reflects  Acceptance  Insurance CompaniesInc.'s current best estimates  regarding future operations,  but, sincethese are only  estimates,  actual results may differ  materially  fromsuch estimates. 

                A variety of events,  most of which are  outside  thecontrol of Acceptance  Insurance  Companies Inc.,  cannot be accuratelypredicted and may  materially  impact  estimates of future  operations.Important   among  such   factors  are  weather   conditions,   naturaldisasters,  changes in commodity  prices,  changes in state and federalregulations,  changes in premium  pricing and agency  commission  ratesin  the  industry,   changes  in  the  reinsurance  market,   includingpricing,  availability  and  coverage,  changes in tax laws,  financialmarket  performance,  changes in federal  policies  or court  decisionsaffecting   coverages,   actions  by  federal  or  state  legislatures,regulators or courts  regarding the coverage of agricultural  insurancepolicies  for  terrorist  actions,  changes  in the rate of  inflation,interest rates and general economic conditions. 

             Acceptance  Insurance  Companies  Inc.'s  results aresignificantly   impacted   by  its   agricultural   segment   business,particularly  its MPCI line.  Estimated  results from MPCI business arenot  recorded  until the fourth  quarter of the year,  after  crops areharvested  and  final  market  prices  are  established.   Agriculturalsegment  results  are  particularly  dependent  on  events  beyond  thecontrol  of  Acceptance   Insurance  Companies  Inc.,  notably  weatherconditions  during  the  crop  growing  seasons  in  the  states  whereAcceptance  Insurance  Companies  Inc.  writes a substantial  amount ofits crop  insurance,  the market  price of crops on  various  commodityexchanges  and  overall  worldwide  supply and demand,  the  continuingglobalization  of the crop  industry  and its  effect on the  export ofcrops to other  countries and the  volatility of crop prices  resultingfrom  domestic  and  foreign  policy  decisions.   Federal  regulationsgoverning  aspects of crop insurance are frequently  modified,  and anysuch changes may  significantly  impact crop  insurance  results  sinceMPCI  premiums  account for  approximately  79% of the  Company's  2001gross  written  premiums,  including  MPCI  subsidies  and MPCI ImputedPremiums. 

               Forward-looking  information  set forth  herein  doesnot take into  account any impact from any adverse  weather  conditionsduring the 2002 crop season,  or the various  other factors noted abovewhich   may   affect   crop  and   noncrop   operation   results.   See"Business--Uncertainties   Affecting   the   Insurance   Business"   and"Management's  Discussion  and  Analysis  of  Financial  Condition  andResults of  Operations--General"  for additional  information  regardingthese events and factors.

 **Company Strategy **

               Acceptance     Insurance     Companies    Inc.    andsubsidiaries   (the  "Company")  is  primarily  an  agricultural   riskmanagement company.  The Company  concentrates on helping  agriculturalproducers  manage  their  risks by  providing  comprehensive  insuranceproducts.  During 2001 the Company  discontinued  or sold all remainingproperty  and  casualty  segment  business.  The Company  continues  tomanage the  run-off of  discontinued  and sold  business.  For the yearended  December  31,  2001,  the  Company  had MPCI Gross  Premiums  ofapproximately   $698  million  which   represents  a  market  share  ofapproximately  24% of MPCI business  written in the United States.  TheCompany  believes its position in the agricultural  insurance  industryprovides   the   ability  to  respond   when  market   conditions   andopportunities are presented. 

The Company's  four-pronged  business strategy can besummarized as follows: 
- enhance  and  expand  the  agricultural  insurance  segment to                      achieve underwriting profits  
- maintain   reinsurance   to   manage   volatility   and  avoid                      catastrophic loss exposure;  
- manage the investment portfolio to maximize yields while emphasizing capitalstability and preservation and maintaining adequate liquidity to meet cashneeds; and  
- manage the run-off of  discontinued  and sold  business in the                      property and casualty segment.

               During  2001  the  Company's   business  strategy  toexpand  the  agricultural   insurance   segment  was  enhanced  by  theacquisition  on  June 6,  2001  of the  crop  insurance  business  fromSymons   International   Group,  Inc.  and  affiliates   including  IGFInsurance  Company  (collectively  referred to as "IGF").  During 2001,the Company's gross crop insurance  premiums,  including MPCI subsidiesand MPCI Imputed  Premiums,  totaled  approximately  $781  million,  ofwhich   approximately  $306  million  related  to  the  crop  insurancebusiness  acquired from IGF. The Company  funded the  acquisition  withinternally  generated  resources,  including  proceeds from the sale ofcertain property and casualty assets. 

                The   Company   believes   opportunities   exist   toincrease  its  market  share in the  agricultural  insurance  business,particularly  in areas that have been  historically  profitable for theCompany,  to  increase  the  level  of  insurance  protection  used  byagricultural  producers  and to  increase  the  number of  agriculturalproducers  using  insurance.  It intends to pursue these  opportunitiesby developing new insurance  products for both  previously  insured andpreviously   uninsured   commodities,   increasing   its   presence  ingeographic areas presently  underserved by the crop insurance  industryor where the  Company  believes  it may have a  competitive  advantage,and  continuing to provide its agents and  agricultural  producers withhigh  quality   products  and  services.   Additionally,   the  Companybelieves  it  has  an  opportunity  to  improve   earnings  by  plannedreductions in areas that have been historically unprofitable. 

                During  2001  the  Company  discontinued  or sold allremaining   property  and  casualty  segment   business.   The  Companycontinues to manage the run-off of discontinued and sold business. 

                 The Company  historically has maintained  reinsuranceto manage  volatility and avoid  catastrophic loss exposure and intendsto continue this  practice.  Numerous  domestic and foreign  reinsurersprovide  reinsurance  for the  Company's  various  underwriting  risks.The  Company's   reinsurance  generally  is  structured  into  multiplelayers and programs to reflect those risks. 

                 The Company  historically  has managed its investmentportfolio   to   maximize   investment   earnings.   The   Company  hasshortened the average  maturities of its  investments  in order to meetthe liquidity  needs of its expanded crop business and its  obligationsrelated to the run-off of the property and casualty segment business. 

                 See  "Business--Business   Segments,"   "Business--Lossand  Loss  Adjustment  Expense  Reserves,"  "Business--Reinsurance"  and"Management's  Discussion  and  Analysis  of  Financial  Condition  andResults of  Operations--Results  of Operations" for a further discussionof actions taken by the Company to implement this strategy. 

**Organization**

                The  Company   underwrites  its  insurance   productsthrough  two wholly  owned  insurance  company  subsidiaries:  AmericanGrowers   Insurance   Company   ("American   Growers")  and  AcceptanceInsurance Company ("Acceptance  Insurance")  (collectively  referred toherein  as  the  "Insurance  Companies").  The  Company's  agriculturalsegment  insurance  operations  are  primarily  conducted  in  AmericanGrowers and the  property  and casualty  segment  insurance  operationsare primarily conducted in Acceptance Insurance. 

               Collectively,  the  Insurance  Companies are admittedin 37  states.  Each  of the  Insurance  Companies  is  rated  B++(VeryGood) by A.M. Best Company,  Inc.  ("A.M.  Best").  A.M. Best bases itsratings upon factors that  concern  policyholders  and agents,  and notupon factors concerning investor protection. 

               The  Company  was  incorporated  in Ohio as  NationalFast  Food  Corp.  in  1968,  reincorporated  in  Delaware  in 1969 andthereafter   operated  under  the  names  NFF  Corp.  (1971  to  1973),Orange-co,  Inc. (1973 to 1987),  Stoneridge  Resources,  Inc. (1987 to1992), and was renamed Acceptance Insurance Companies Inc. in 1992. 

** Business Segments **

                 The   Company's   underwriting   and   marketing   isorganized by two segments,  the  agricultural  segment and property andcasualty segment. 

**Agricultural Segment **

                 The  principal  lines of the  Company's  agriculturalsegment are MPCI,  supplemental  coverages  and named peril  insurance.MPCI  is  a  federally   subsidized   insurance   program  designed  toencourage  agricultural  producers  to manage  their risk  through  thepurchase of insurance policies.  MPCI provides  agricultural  producerswith yield  coverage  for crop  damage from  substantially  all naturalperils.  CRC  is  an  extension  of  the  MPCI  program  that  providesagricultural  producers  with  protection  from  revenue loss caused bychanges in crop prices,  low yields,  or a  combination  of the two. Asused herein,  the term MPCI includes CRC, unless the context  indicatesotherwise.  For the years ended  December 31, 2001,  2000 and 1999, theCompany had $698 million,  $375 million and $365 million,  respectivelyof MPCI  Gross  Premiums.  The  $698  million  for  2001  represents  amarket  share of  approximately  24% of MPCI  business  written  in theUnited  States.  The  MPCI  premium  volume  increase  of $323  millionduring 2001 was  primarily  a result of the  Company's  acquisition  onJune 6, 2001 of the crop insurance business from IGF.

                    Supplementalcoverages are proprietary products developed and marketed exclusively by theCompany. Supplemental coverages enhance the protection provided by MPCI. UnlikeMPCI, however, supplemental coverages are not subsidized or reinsured by thefederal government. During 2001, 2000 and 1999, the Company’s gross premiumfrom supplemental coverages was approximately $2.5 million, $13.7 million and$31.1 million, respectively.
              The  largest  named  peril  crop  insurance   productoffered by the Company is crop hail  insurance  which  insures  growingcrops  against  damage  resulting  from  hailstorms.  The Company  alsosells a small  volume of  insurance  against  damage to specific  cropsfrom other  named  perils.  Like the  supplemental  coverages,  none ofthe named peril products  involve federal  reinsurance or price subsidyparticipation.   During  2001,  2000  and  1999,  the  Company's  grosspremium  from  named  peril  crop  insurance  including  crop  hail wasapproximately   $80.1   million,   $45.4  million  and  $47.7  million,respectively.  The  increase  in 2001 was  primarily  a  result  of theCompany's  acquisition on June 6, 2001 of the crop  insurance  businessfrom  IGF.  While  the  crop  insurance   business  acquired  from  IGFaccounted   for  $36.9   million  of  the  gross   premiums   in  2001,approximately  $28.8 million of this business,  for policies  effectiveprior to June 6, 2001,  was ceded to an  affiliate  of IGF under a 100%quota share reinsurance agreement. 
              During  2001,   the  Company  wrote  crop   insurancethrough its  insurance  subsidiaries  or other  companies in a total of44 states.  Approximately  47% of  agricultural  segment gross premiumswritten,  including MPCI subsidies and MPCI Imputed  Premiums,  relatedto business written in the states of Texas,  Iowa,  Nebraska,  Illinoisand  Minnesota.   Additionally,   78%  of  agricultural  segment  grosspremiums  written  related to the crops of corn,  soybeans,  cotton andwheat. 

              The   Company's    agricultural   segment   insuranceproducts  provide  coverage for only specific  listed perils,  of whichterrorism  is not listed.  Accordingly,  the  Company  does not believethe issue in the  property and casualty  insurance  industry  regardingterrorism  coverage  after  the  events  of  September  11,  2001  willadversely  affect  its  reinsurance  negotiations  in its  agriculturalsegment. 

**Property and Casualty Segment **

               During  2001,  the  Company's  property  and casualtysegment primarily consists of general liability,  commercial  property,commercial   casualty,   inland   marine  and   workers'   compensationcoverages.

              The   Company   has   announced   several   strategicdecisions over the last three years which have  significantly  impactedthe  continuation  of the property and casualty  segment.  During 1999,the  Company  discontinued  or  reduced  its  underwriting  in  severalproduct lines of property and casualty segment  business.  In September1999, the Company sold its nonstandard  automobile business,  includingPhoenix  Indemnity  Insurance  Company  ("Phoenix  Indemnity").  In thefirst  quarter of 2000 the Company  transferred  the renewal  rights toall  business   previously  produced  and  serviced  by  the  Company'sScottsdale,  Arizona  office  and its "long  haul"  trucking  business.During 2001 the Company  discontinued  or sold all  remaining  propertyand  casualty  segment  business.  The Company  continues to manage therun-off of  discontinued  and sold business.  Additionally,  as part ofits strategy to exit the property and casualty  segment  business,  theCompany  sold  Acceptance  Indemnity  Insurance  Company  ("AIIC")  andAcceptance   Casualty  Insurance  Company  ("ACIC").   Based  upon  theabove,  the  Company  expects the  property  and  casualty  segment netpremiums earned in 2002 to be significantly lower than 2001. 

**Segment Premiums **

               Gross  premiums  written,  net  premiums  written andnet  premiums  earned for the  agricultural  and  property and casualtysegments for the years ended December 31, are as follows: 

 

 

(1)      For  a  discussion  of  the   accounting   treatment  of  MPCIpremiums,  see  "Management's  Discussion  and  Analysis  of  FinancialCondition and Results of Operations--General." 

**Management**

               Michael R.  McCarthy  is  Chairman  of the  Company'sBoard  of  Directors   and  John  E.  Martin  is  President  and  ChiefExecutive  Officer of the  Company.  Other  executive  officers  of theCompany are  Charles E. Boyle,  Chief  Information  Officer,  Dennis G.Daggett,  Chief Marketing Officer, J. Michael  Gottschalk,  Chief LegalOfficer and Secretary,  Dwayne D. Hallman,  Chief Financial Officer andTreasurer,  and James K.  Petersen,  Chief  Administrative  Officer andChief Field Services Officer.

 **Marketing **

              The Company's  crop  insurance  products and servicesare marketed by American  Agrisurance,  Inc.  ("AmAg"),  a wholly ownedsubsidiary  and  U.S.  Ag  Insurance   Services,   Inc.,  a  60%  ownedsubsidiary.  The Company  markets its crop insurance  products  througha network of independent  agents.  The Company  compensates  its agentsthrough  commissions  based on a percentage of premiums  produced.  TheCompany  also offers many of its agents a contingent  commission  basedon volume and  profitability  and other programs  designed to encourageagents to place  profitable  business  with the Company.  The Company'sability  to  retain   business   is   significantly   impacted  by  itscommission  programs  in  comparison  to  that of its  competitors.  Anincrease in the  commissions  paid by its competitors may result in theCompany's  inability  to retain  certain  business  or the need for theCompany to make changes in its commission programs. 

             Possible  regulatory  changes affecting the manner inwhich  insurance  products may be marketed and  distributed in responseto  technological   changes  and  the  adaptation  of  agents  to  suchregulatory  and  technological  changes  may  significantly  impact theresults of  operations  of the Company and its  competitors.  Insuranceregulators  and the RMA may  encourage  the Company and other  insurersto sell insurance  coverage  directly to persons seeking coverage usingcurrent or  emerging  technologies.  Independent  agents who  currentlymarket  and  sell  the  Company's   products   under  the   traditionaldistribution  system may adopt  current  or  emerging  technologies  intheir  routine  business  practices  that will alter the method used todistribute  insurance  products.  The Company,  however,  does not knowwhether or when these  events,  or other events based on  regulatory ortechnological  changes,  may significantly occur or the manner in whichthey will affect the marketing and  distribution  of insurance.  Unlessthe   Company   adapts  to  the  changes   technology   causes  in  thetraditional  system for  distributing  its  products,  and does so moreeffectively than competing  insurance  companies,  the Company's marketshare  and  its  results  of  operations  are  likely  to be  adverselyaffected. 

**Underwriting **

               Generally,  the Company  grants  agents the authorityto sell and bind  insurance  coverages in  accordance  with  proceduresand  limitations  established  by  the  Company.  The  Company  reviewscoverages  bound by agents,  decides  whether the  insurance is writtenin accordance with such  procedures and  limitations,  and,  subject tostate law limits and policy terms,  may cancel  coverages  that are notin compliance. 

              The MPCI business varies from  traditional  insuranceas the rates are  established  by the USDA and the Company is generallyrequired  to accept  all MPCI  applications  in the states it elects tosell MPCI  coverages.  The  underwriting of MPCI business is managed byvarying  agent  commissions  based upon  factors  including  historicalprofitability  of  territories  and crops.  After the MPCI policies areissued  the  Company  manages  the  amount  of  business  that  will beretained by determining  which of the three FCIC  reinsurance  pools toallocate each risk. 

**Claims **

             The field  services  department  manages  all  claimsarising out of the  Company's  crop  insurance  operations  through itshome  office  staff  and a system  of  regional  claims  offices  whichsupervise specially trained employees and independent adjusters. 

             As of May 1, 2001 the Company  engaged  Berkley  RiskAdministrators   Company   ("BRAC")  to  manage  the   adjustment   andcompletion  of all  remaining  property  and casualty  segment  claims.BRAC has employed certain persons previously employed by the Company. 

**Loss and Loss Adjustment Expense Reserves**

             In the crop insuranceindustry, reserves for the payment of losses and loss adjustment expenses areestablished at the time potential losses are reported. The amount of the initialreserve is based on the Company's historical loss and loss adjustment expenseexperience and generally is uniform for all claims arising from crops located inthe same geographic area. Field adjusters are directed to advise the Company ofparticular claims which appear likely to result in payments significantly higherthan historic averages and the initial reserve is adjusted for those claimsbased upon such reports. FCIC regulations require that claims under allfederally reinsured policies be paid within thirty, or in some circumstances,sixty days after the reinsured company receives all documents necessary toestablish the existence and amount of the insured loss. Accordingly, reservesfor crop insurance claims arising from crops planted in the spring areestablished primarily in the third and fourth quarter of each year, andtypically are eliminated through payment of the claim during the fourth quarterof the year or first two quarters of the following year. Reserves for claimsarising from crops planted in the fall normally are established and paid duringthe second and third quarter of the following year. Reserves for crop hailinsurance are established in the same manner and claims are typically paidwithin thirty to sixty days after the necessary documents are received.
              In the property and casualty insurance  industry,  itis not unusual for several  years to elapse  between the  occurrence ofan  insured  loss,  the  report  of the  loss  to the  insurer  and theinsurer's  payment  of that  loss.  The  liability  for losses and lossadjustment  expenses is estimated  by  management  based on  historicalpatterns and  expectations  of claims  reported and paid,  losses whichhave  occurred  but  which  are  not  yet  reported,  trends  in  claimexperience,  information  available on an industry-wide  basis, changesin the  Company's  claim  handling  procedures  and  premium  rates andother  factors.  The Company's  lines of specialty  insurance  businessare considered  less  predictable  than standard  insurance  coverages.The effects of inflation  are  implicitly  reflected  in the  Company'sloss reserves  through the industry data utilized in establishing  suchreserves.  The Company  does not  discount  its  reserves to  estimatedpresent value for financial reporting purposes. 
             During the 1990s,  the Company  continuously  enteredinto  many  new  markets  or  programs.  Many of  these  programs  werecancelled as a result of  unsuccessful  marketing or poor  underwritingperformance.  In  addition,  as the  Company is  primarily  focusing onits  agricultural  segment,  it has  discontinued  or  sold  all of itsremaining  property  and  casualty  segment  lines  of  business.   TheCompany  continues  to be  responsible  for  all  claims  prior  to thediscontinuance  or sale of the  property  and  casualty  segment  lines(referred to as the "Runoff  Business").  During May 2001,  the Companyclosed its claims  department  handling the Runoff Business and engageda third-party  administrator  specializing  in such runoff  business tohandle these property and casualty segment claims. 

              In monitoring  reserve  adequacy the Company  reviewshistorical  data and other data and, as additional  experience and databecome  available,  revises  estimates  of  reserves.  These  revisionsresult in increases  or  decreases  to reserves  for insured  events ofprior  years.  In  2001,  2000  and  1999  the  Company  increased  itsreserves  through  charges to earnings of $14.7 million,  $8.2 million,and  $44.0  million,  respectively,  based  upon  its  reestimation  ofliability for losses and loss  adjustment  expenses for prior  accidentyears. 

               The  $14.7  million  charge in 2001 was  primarily  aresult  of  the  development  of  general  liability  losses  and  lossadjustment  expenses  in  1999  and  prior  accident  years.  The  $8.2million  charge in 2000 was  primarily a result of the  development  of1999 CRCPlus losses of approximately $5.7 million. 

               In the third  quarter  of fiscal  1999,  the  Companyincreased  reserves for 1998 and prior accident years by  approximately$44.0  million.  This  increase  related  primarily  to  an  unexpectedincrease  in  the  number  of  claims  relating  to  general  liabilitycoverage  provided in 1995 and prior years to  contractors in the Stateof California as a result of the  California  Supreme Court decision in *Montrose   Chemical    Corporation   v.   Admiral   Insurance   Company(Montrose).*  In  that  decision,  the  Court  adopted  the  "continuoustrigger" theory of insurance coverage for third-party  liability claimsinvolving  continuous,  progressive or  deteriorating  bodily injury orproperty  damages.  Under this theory,  the time of the  insured's  actwhich allegedly  caused the accident,  event or condition  resulting ina  claim  is  largely  immaterial.  As long  as the  potential  damagesremain    outstanding,    all   of   the   insured    contractor's   orsubcontractor's  successive  insurance policies potentially may providecoverage.  Thus,  the  Court's *Montrose*  decision  created a new basisfor coverage under years of previously  issued  policies.  Beginning in1996, the Company altered its  underwriting  criteria for  constructionrisks  and  began  endorsing   policies   exposed  to  these  types  ofcontinuous  exposures in order to avoid coverage for  conditions  whichexisted prior to the inception of the Company's policies. 

               The   liability   estimate   established   representsmanagement's  best  estimate  based on  currently  available  evidence,including an analysis  prepared by an  independent  actuary  engaged bythe Company.  Even with such extensive analyses,  however,  the Companybelieves   its   ultimate   liability   may  from  time  to  time  varysignificantly from such estimates. 

              The Company  annually  obtains an independent  reviewof its loss  reserving  process  and reserve  estimates  as part of theannual audit of its  financial  statements  by a  professional  actuarywho is independent of the Company and its auditors. 

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

 

 

              The  following  table  presents  the  development  ofbalance  sheet net loss  reserves  from  calendar  years  1991  through2000.  The  top  line of the  table  shows  the  loss  reserves  at thebalance  sheet  date for each of the  indicated  years.  These  amountsare the  estimates  of losses and loss  adjustment  expenses for claimsarising in all prior years that are unpaid at the  balance  sheet date,including  losses that had been  incurred  but not yet  reported to theCompany.  The middle section of the table shows the  cumulative  amountpaid,  expressed as a percentage of the initial  reserve  amount,  withrespect  to  previously  recorded  reserves  as  of  the  end  of  eachsucceeding   year.   The  lower   section   of  the  table   shows  there-estimated  amount,  expressed as a percentage of the initial reserveamount,  of the previously  recorded reserves based on experience as ofthe  end  of  each  succeeding  year.  The  estimate  changes  as  moreinformation  becomes  known about the  frequency and severity of claimsfor individual  years.  The "Net  cumulative  redundancy  (deficiency)"caption  represents  the aggregate  percentage  increase  (decrease) inthe  initial  reserves  estimated.  It should  be noted  that the tablepresents  the  "run  off"  of  balance  sheet  reserves,   rather  thanaccident or policy year loss  development.  The  Company  computes  thecumulative redundancy (deficiency) annually on a calendar year basis. 

              The   establishment  of  reserves  is  an  inherentlyuncertain  process.  The Company's  property and casualty coverages arein  specialty  areas of business  that may involve  greater  risks thanstandard  property and casualty  lines.  These risk components may makemore  difficult the task of estimating  reserves for losses,  and causethe Company's  underwriting results to fluctuate.  Further,  conditionsand trends that have affected the  development  of loss reserves in thepast may not  necessarily  occur  in the  future.  Accordingly,  it maynot be appropriate to extrapolate  future  redundancies or deficienciesbased on this information. 

              The   Company   adopted    Statement   of   FinancialAccounting  Standards  No.  113  ("SFAS  No.  113"),   "Accounting  andReporting  for   Reinsurance  of   Short-Duration   and   Long-DurationContracts,"  effective  January 1, 1993.  The  application  of SFAS No.113 resulted in the  reclassification  of amounts ceded to  reinsurers,which  amounts  were  previously  reported as a  reduction  in unearnedpremium and unpaid losses and loss  adjustment  expenses,  to assets onthe   consolidated   balance   sheet.   The  table  below   includes  areconciliation  of net loss and loss  adjustment  expense  reserves  toamounts   presented   on   the   consolidated   balance   sheet   afterreclassifications  related to the  adoption of SFAS No. 113.  The grosscumulative  deficiency  is presented  for 1992 through  2000,  the onlyyears on the table  for  which the  Company  has  restated  amounts  inaccordance with SFAS No. 113. 

 

**Reinsurance **

              A  significant  component of the  Company's  businessstrategy  involves the structuring of reinsurance to manage  volatilityin its  business  segments  as well as to avoid  large or  catastrophicloss   exposure.    Reinsurance    involves   an   insurance    companytransferring,  or ceding,  all or a portion of its  insurance  exposureto a  reinsurer.  The  reinsurer  assumes the ceded  exposure in returnfor a  portion  of  the  premium  received  by the  insurance  company.Reinsurance  does not  discharge  the insurer from its  obligations  toits  insured.  If the  reinsurer  fails  to meet its  obligations,  theceding  insurer  remains  liable  to pay  the  insured  loss,  but  thereinsurer  is  liable  to  the  ceding  insurer  to the  extent  of thereinsured portion of any loss. 

             The  Company   reinsures   its  MPCI   business  withvarious federal  reinsurance  pools  administered by the FCIC. In 2001,the Company  ceded an aggregate  of 28.5% of its MPCI Gross  Premium tothe  federal  reinsurance  pools.   Additionally,   the  Company  cededapproximately  16%,  72% and 81% of its MPCI  Retained  Premiums,  crophail  business,  and  other  named  peril  and  supplemental  business,respectively,   to  private  reinsurers  through  various  quota  shareagreements.  The  Company's  net  exposure  was  further  reduced  by acombined  excess of loss  reinsurance  treaty  purchased  from  privatereinsurers  which  provided  coverage,  less  a  $3  million  aggregatedeductible,  after the Company's  loss ratio reached  specified  limitsfor each  line of  business,  specifically  100% on  MPCI,  75% on crophail and 80% on other named perils. 

             The  Company  intends  to have  separate  reinsurancetreaties for its excess of loss  coverage  related to the MPCI businessand the non-MPCI  crop  business in 2002.  Additionally,  the crop hailquota  share  cessions  for 2001  included a 100%  quota  share with anaffiliate  of IGF  for  the  crop  hail  business  acquired  from  IGF,specifically  for all policies  effective  prior to June 6, 2001.  Thisagreement  will not  continue  and  therefore  the Company  expects itsretention of crop hail business will increase in 2002. 

             The Company  generally has historically  retained thefirst  $500,000 of risk under its property and casualty  segment  linesof  business,  ceding  the next  $1,500,000  (on a per risk  basis)  onproperty  and  $5,500,000  (on an  occurrence  basis)  on  casualty  toreinsurers.  To  the  extent  individual  policies  exceed  reinsurancetreaty   limits,   the  Company  would   purchase   reinsurance   on  afacultative   (specific   policy)  basis.  In  addition,   the  Companyfurther  reduced  its net  exposures  per  risk  on  certain  lines  ofbusiness  through  further  excess of loss or quota  share  reinsuranceprograms.  In its  workers'  compensation  line,  the Company  acquiredexcess of loss  protection with  retentions  varying  between  $100,000and $1,000,000 per occurrence, depending upon the program. 

             During  2001,  the  Company  sold a  majority  of itsremaining  property  and  casualty  segment  lines of business in threeseparate   transactions.   At  the  date  of  each  sale,  the  Companytransferred  unearned  premiums  and any future  written  premiums  forsuch business to the acquirers under 100% quota share agreements. 

             At  December  31,  2001,  approximately  40%  of  theCompany's  outstanding  reinsurance  recoverables  was from reinsurancecompanies   rated  A-   (excellent)   or  better   by  A.M.   Best  andapproximately 50% was from the federal government.

 **Investments** 

            The  Company's  investment  policy is to  manage  theinvestment  portfolio  to maximize  yields  while  emphasizing  capitalstability and preservation and maintaining  adequate  liquidity to meetcash needs.  The Company  determines  the strategies and parameters forthe investment of its  portfolio,  and an external  investment  managerexecutes   trades   consistent   with  the  Company's   strategies  andparameters.  The  investment  portfolio  at December 31, 2001 and 2000,consisted of the following:

 

**Fixed Maturities**

             Fixedmaturities constituted 42.8% of the Company’s investments at December 31,2001. Fixed maturity investments are classified as available-for-sale andcarried on the Company’s balance sheet at estimated fair value, withunrealized gains and losses, net of taxes, recorded in stockholders’ equityas accumulated other comprehensive income. At December 31, 2001, the pre-tax netunrealized losses on available-for-sale fixed maturities totaled approximately$700,000. At December 31, 2001, approximately $70 million of fixed maturitieswere pledged in order to secure the Company’s obligations under reinsuranceagreements. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Sale of Subsidiaries and Property andCasualty Segment Business” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity andCapital Resources” for additional information.

           Thefollowing table sets forth, as of December 31, 2001, the composition of theCompany's fixed maturity securities portfolio by stated maturity dates. Actualmaturities may differ from stated maturities because the borrowers may have theright to call or prepay obligations with or without call or prepayment penalties(dollars in thousands):

**Marketable Equity Securities **

            Equity holdings  comprised 2.4% of the Company's  investmentsat  December  31,  2001,  and  consist of a  diversified  portfolio  ofunaffiliated common and preferred stocks. 

**Real Estate** 

            Real estate  represents an  investment in unimproved  land asof December 31,  2001.  The Company is actively  marketing  the sale ofthis land. 

**Short-Term Investments**

            TheCompany’s portfolio also includes short-term securities and othermiscellaneous investments, which in the aggregate comprised 40.2% of totalinvestments at December 31, 2001. Due to the short-term nature of crop insuranceand the exit of property and casualty segment lines of business, the Company ismaintaining short-term investments to fund operations, including settlement oflosses and loss adjustment expenses. At December 31, 2001, approximately $40.5million of short-term investments were pledged in order to secure theCompany’s obligations under reinsurance agreements. See“Management’s Discussion and Analysis of Financial Condition andResults of Operations—Sale of Subsidiaries and Property and CasualtySegment Business” and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and CapitalResources” for additional information.
**Restricted Short-Term Investments**
               Therestricted short-term investments balance is comprised of short-term securitiesdeposited with a trustee for the Company’s issuance of an outstandingletter of credit. These funds will become available to the Company over the nextfive years.
**Investment Results** 
           The  Company's   investment  results  for  the  yearsended December 31, are as follows:

**Regulation**

              As ageneral rule, an insurance company must be licensed to transact insurancebusiness in each jurisdiction in which it operates, and almost all significantoperations of a licensed insurer are subject to regulatory scrutiny. Licensedinsurance companies are generally known as "admitted" insurers. Moststates provide a limited exemption from licensing for insurers issuing insurancecoverages that generally are not available from admitted insurers. Thesecoverages are referred to as "surplus lines" insurance, and theseinsurers as "surplus lines" or "nonadmitted" companies.
           The   Company's   admitted   insurance   business  issubject to  comprehensive,  detailed  regulation  throughout the UnitedStates  under  statutes  which  delegate  regulatory,  supervisory  andadministrative  powers to state  insurance  commissioners.  The primarypurpose  of such  regulations  and  supervision  is the  protection  ofpolicyholders   and  claimants   rather  than   stockholders  or  otherinvestors.  Depending  on whether the  insurance  company is  domiciledin the state and  whether it is an  admitted  or  nonadmitted  insurer,state  regulatory  authority may extend to:  (i) periodic  reporting ofthe   insurer's   financial    condition;    (ii) periodic    financialexamination;  (iii) approval  of  rates  and  policy  forms;  (iv) lossreserve  adequacy;   (v) insurer   solvency;   (vi) the   licensing  ofinsurers  and  their  agents;  (vii) restrictions  on  the  payment  ofdividends  and  other  distributions;  (viii) approval  of  changes  incontrol; and (ix) the type and amount of permitted investments. 
           The  Company  also  is  subject  to  laws   governinginsurance holding  companies in Nebraska where the Insurance  Companiesare  domiciled.  These laws,  among other  things,  require the Companyto  file  periodic   information  with  state  regulatory   authoritiesincluding  information  concerning  its capital  structure,  ownership,financial condition,  management and general business  operations.  Theinsurance  holding  company  laws also  regulate  certain  transactionsbetween  the  Company,  its  affiliates  and the  Insurance  Companies,including  the  amount of  dividends  and other  distributions  and theterms of surplus  notes,  and restrict the ability of any one person toacquire certain levels of the Company's  voting  securities  (generally10%) without prior regulatory approval. 

           Except  for  interest  on a  surplus  note  issued byAcceptance  Insurance  and  payments  from AmAg under a profit  sharingagreement,  the  Company is  dependent  for funds to pay its  operatingand other  expenses  upon  dividends and other  distributions  from theInsurance  Companies,  the  payment of which are  subject to review andauthorization  by  state  insurance   regulatory   authorities.   UnderNebraska law, no domestic  insurer may make a dividend or  distributionwhich,  together  with  dividends  or  distributions  paid  during  thepreceding 12 months,  exceeds the greater of (i) 10% of such  insurer'spolicyholders'  surplus as of the  preceding  December 31 or  (ii) suchinsurer's  statutory net income (excluding  realized capital gains) forthe preceding  calendar year,  until either it has been approved,  or a30-day  waiting  period shall have passed  during which it has not beendisapproved,  by the Nebraska  Insurance  Director.  The maximum amountof  dividends  the  Insurance  Companies  may  pay  to the  Company  islimited  to  its  earned  surplus,  also  known  as  unassigned  funds.During 2002 the statutory  limitation  on dividends  from the InsuranceCompanies  to  the  Company   without  further   insurance   departmentapproval is approximately  $7.5 million.  See "Management's  Discussionand    Analysis    of    Financial    Condition    and    Results    ofOperations--Liquidity and Capital Resources". 

           Other  regulatory  and  business  considerations  mayfurther   limit  the  ability  of  the   Insurance   Companies  to  paydividends.  For  example,  the impact of  dividends  on  surplus  couldaffect an insurers' competitive  position,  the amount of premiums thatit can write and its  ability to pay  future  dividends.  Further,  theinsurance  laws and  regulations  of  Nebraska  require  the  statutorysurplus  of an  insurance  company  domiciled  therein,  following  anydividend or  distribution  by such  company,  be reasonable in relationto its outstanding liabilities and adequate for its financial needs. 

           While    the    Company's     noninsurance    companysubsidiaries  are  not  subject  directly  to the  dividend  and  otherdistribution   limitations,   insurance  holding  company   regulationsgovern  the  amount  which a  subsidiary  within  the  holding  companysystem may charge any of the Insurance  Companies  for services  (e.g.,agents' commissions). 

           The  Company's  MPCI program is  federally  regulatedand supported by the federal  government  through premium  subsidies toagricultural   producers   and   expense   reimbursement   and  federalreinsurance  pools  for  private  insurers.   Consequently,   the  MPCIprogram  is subject  to  oversight  by the  legislative  and  executivebranches  of the  federal  government,  including  the  RMA.  The  MPCIprogram  regulations  prescribe  the premiums  which may be charged andgenerally  require  compliance  with detailed  federal  guidelines withrespect  to  underwriting,   rating  and  claims  administration.   TheCompany  also  is  required  to  perform   continuous   internal  auditprocedures  and is  subject  to audit  by  several  federal  governmentagencies.  Federal  crop  insurance  reform  legislation  could  have amajor impact on the Company as a  substantial  portion of the Company'spremiums  is  generated  by MPCI.  The last change in  legislation  wasenacted in 2000. 

            The NAIC has  approved and  recommended  states adoptand  implement  several  regulatory  initiatives  designed  to  provideregulators  an early warning tool to identify  deteriorating  or weaklycapitalized   insurance   companies   and  to  decrease   the  risk  ofinsolvency  of  insurance  companies.  These  initiatives  include  theimplementation   of  Risk   Based   Capital   ("RBC")   standards   fordetermining  adequate  levels of capital  and  surplus to support  fourareas 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  collectagents'  balances  and  other  receivables);   (iii) underwriting  risk(premium   pricing  and  reserve   estimates);   and   (iv) off-balancesheet/growth   risk   (excessive    premium   growth   and   unreportedliabilities).  At  December 31,  2001 the  Insurance  Companies met theRBC  requirements  as  promulgated  by the  domiciliary  states  of theInsurance Companies and the NAIC. 

             The  NAIC  also  maintains  an  Insurance  RegulatoryInformation  System ("IRIS") to assist state  insurance  departments inidentifying  significant  changes  in the  operations  of an  insurancecompany,  such  as  changes  in  its  product  mix,  large  reinsurancetransactions,  increases or decreases in premiums  received and certainother  changes in  operations.  Such  changes  may not result  from anyproblems with an insurance  company but may merely indicate  changes incertain ratios  outside  ranges defined as normal by the NAIC.  When aninsurance  company  has four or more  ratios  falling  outside  "normalranges,"  state  regulators  may  investigate  to determine the reasonsfor the  variance  and  whether  corrective  action  is  warranted.  AtDecember 31, 2001 American  Growers had four and  Acceptance  Insurancehad five ratios falling outside "normal ranges". 

            American   Growers  ratios  falling  outside  "normalranges"  were  related to change in net  writings,  two-year  operatingresults,  investment  yield  and  liabilities  to  liquid  assets.  Thechange in net  writings  ratio was  impacted  by the  increase  in FCICprofit share  primarily  related to the  acquisition  of crop  businessfrom IGF  during  2001.  While  the  two-year  ratio  was  outside  the"normal  range" because of the inclusion of the  unfavorable  operatingresults in 2000,  the  improved  2001  results  were within the "normalrange".  The  investment  yield and  liabilities to liquid assets ratioare  primarily  impacted by the cash flows of the crop  business  whichdiffers  from  certain  aspects  of cash  flows  associated  with  moretraditional  property and casualty  lines.  This results in an inflatedaverage  investment  yield  and a  lower  than  normal  liabilities  toliquid  assets  ratio.  See  "Management's  Discussion  and Analysis ofFinancial  Condition and Results of  Operations-- Liquidity and CapitalResources"  for  additional  discussions  regarding  crop  cash  flows.Acceptance  Insurance  ratios falling  outside of "normal  ranges" wereprimarily  impacted by the  unprofitable  property and casualty segmentbusiness. 

           The Company's insurance  subsidiaries  reported totalstatutory  policyholders'  surplus of approximately  $129.1 million and$140.2 million at December 31, 2001 and 2000,  respectively,  and totalstatutory  net income  (loss) of $12.2  million,  $(20.9)  million  and$(21.1)  million for the years ended December 31, 2001,  2000 and 1999,respectively. 

            The Insurance  Companies  also may be required  underthe  solvency  or  guaranty  laws of most  states  in  which  they  arelicensed to pay assessments (up to certain  prescribed  limits) to fundpolicyholder   losses   and   other   liabilities   of   insolvent   orrehabilitated  insurance  companies.  These assessments may be deferredor  forgiven  under  most  guaranty  laws if  they  would  threaten  aninsurer's  financial strength and, in certain instances,  may be offsetagainst  future  premium  taxes.   Some  state  laws  and   regulationsfurther require  participation  by the Insurance  Companies in pools orfunds to provide  types of insurance  coverages  which they  ordinarilywould not accept.

 **Uncertainties Affecting the Insurance Business **

           In  the  crop  insurance   business,   the  Companycompetes  with other crop  insurance  companies  primarily on the basisof  service,  supplemental  products  and  commissions  to agents.  TheCompany  estimates  that there are more than 18 property  and  casualtyinsurers  that  compete  in the  MPCI  line  of  business.  Many of theCompany's   competitors   could  have  greater   financial   and  otherresources  than the Company.  The Company's  results are  significantlyimpacted by its crop business,  particularly  its MPCI line.  Since theCompany's  products  insure crop prices,  yields or both, the Company'sresults  are  subject to  numerous  factors  and events  that it cannotcontrol.  Initial  estimated  results  from  the  crop  lines  are  notrecorded  until  the  fourth  quarter  of the  year,  after  crops  areharvested  and final market  prices are  established.  Crop results areparticularly   dependent  on  events  beyond  the  Company's   control,notably  weather  conditions  during  the crop  growing  seasons in thestates   where  the  Company   writes   substantial   amounts  of  cropinsurance,  the market price of grains on various commodity  exchanges,overall  worldwide supply and demand,  the continuing  globalization ofthe  crop  industry  and its  effect  on the  export  of crops to othercountries  and the  volatility of crop prices  resulting  from domesticand  foreign  policy  decisions.   Additionally,   federal  regulationsgoverning  aspects of crop insurance are frequently  modified,  and allsuch  changes may impact the results of the  Company's  crop  insurancebusiness.  See  "Management's  Discussion  and  Analysis  of  FinancialCondition and Results of Operations--General."

          The Company's results alsomay be influenced by factors influencing the insurance industry generally andwhich are largely beyond the Company's control. Such factors include(i) weather-related catastrophes; (ii) taxation and regulatory changesat both the federal and state level; (iii) changes in industry standardsregarding rating and policy forms; (iv) significant changes in judicialattitudes towards one or more types of liability claims; (v) changes inpremium pricing and agency commission rates in the industry; (vi) changes in thereinsurance market, including pricing, availability and coverage; (vii) actionsby federal or state legislatures, regulators or courts regarding the coverage ofagricultural insurance policies for terrorist actions; and (viii) changesin the rate of inflation, interest rates and general economic conditions.
           The   Company  is   significantly   impacted  by  theresults of its MPCI  business.  The  underwriting  results for the MPCIbusiness  are  generally  comprised  of the amount of FCIC profit sharenet of amounts  ceded to private  reinsurers  and expenses in excess ofMPCI  reimbursements  from  the  FCIC.  Therefore,  the  Company  couldincur  significant  underwriting  losses  in a year in  which  the FCICprofit share is  significantly  below average  historical  levels.  Anysignificant  underwriting  loss  could  result  in a  material  adverseeffect on the Company's  liquidity and capital resources.  Furthermore,the Insurance  Companies would likely need additional  funding from itsParent or other  sources.  If the  Insurance  Companies  were unable toreceive  additional  funding  it could  result  in a  material  adverseeffect on the  Company's  business and  operations.  See  "Management'sDiscussion   and  Analysis  of  Financial   Condition  and  Results  ofOperations--Liquidity and Capital Resources." 
            On  November 29,   1999,  A.M.  Best  downgraded  therating  of  the  Insurance  Companies  from  A-  to  B++.  Some  agentsrequire  an  A-  or  better  rating  for  certain  lines  of  business,particularly  some  of the  Company's  property  and  casualty  segmentprograms.  In order to  mitigate  the  impact of the A.M.  Best  ratingchange,  the Company entered into an agreement with Clarendon  NationalInsurance  Company to provide A rated  paper for its  customers.  Whilethe Company was able to address the rating  change,  it also  increasedthe Company's  operating  expense  levels for its property and casualtysegment  business.  During  2001 the Company  discontinued  or sold allremaining   property  and  casualty  segment   business.   The  Companycontinues  to manage the  run-off of  discontinued  and sold  business.As  such,  the  Company's  requirements  for A rated  paper  are not assignificant.  See  "Management's  Discussion  and Analysis of FinancialCondition  and  Results  of  Operations--  Sale  of  Subsidiaries   andProperty and Casualty Segment Business." 

            The  insurance   business  is  highly  regulated  andsupervised  in the  states in which  the  Insurance  Companies  conductbusiness.  The crop  insurance  lines are  partially  subject  to stateregulation  and also are  subject  to  significant  additional  federalregulation.  The  regulations  relating to the  property  and  casualtysegment  and  agricultural  segment  business  at both  the  state  andfederal  level  are  frequently  modified  and such  modifications  mayimpact future insurance operations.  See "Business--Regulation." 

             Adverse loss  experience  for prior years resulted inan increase in loss  reserves  for the years  ended  December  31, 2001and  2000,   in  the  amounts  of  $14.7   million  and  $8.2  million,respectively.  The  establishment  of  appropriate  loss reserves is aninherently  uncertain  process  and it has been  necessary,  and may benecessary   in  the   future,   to  revise   estimated   loss   reserveliabilities.  See "Loss and Loss  Adjustment  Expense  Reserves," for afurther  discussion  of factors  which may,  in the  future,  influenceloss reserve estimates. 

            Property   and   casualty   insurance  is  a  capitalintensive  business and the Company is  obligated  to maintain  minimumlevels of  surplus  in the  Insurance  Companies  in order to  continuewriting  insurance at current  levels or to increase its writings,  andalso to meet various  operating  ratio  standards  established by stateinsurance  regulatory  authorities  and by  insurance  rating  bureaus.The Company  continually  reviews the  surplus  needs of the  InsuranceCompanies,   and   from   time   to   time   may   determine   to  seekadditional funding.  For a discussion  of the  Company's  liquidity andcapital  resources,   see  "Management's  Discussion  and  Analysis  ofFinancial  Condition  and Results of  Operations--Liquidity  and CapitalResources."

** Employees**

           At March 18, 2002 the Company had  approximately  750full  time  employees,  substantially  all  providing  services  in theagricultural  segment.  Acceptance  believes  that  relations  with itsemployees are good. 

**Item 2.  Properties **

          The following  table sets forth  certain  informationregarding the principal properties of the Company: 

**Item 3.  Legal Proceedings **

          *In re  Acceptance  Insurance  Companies  SecuritiesLitigation (USDC,  Nebraska,  Master File No.  8:99CV547).*  In December1999 the Company was sued in the United States  District  Court for theDistrict of  Nebraska.  Plaintiffs  alleged the Company  knowingly  andintentionally   understated  the  Company's  liabilities  in  order  tomaintain   the  market   price  of  the   Company's   common  stock  atartificially  high levels and made untrue  statements of material fact,and sought  compensatory  damages,  interest,  costs and attorney fees.In February 2000 other  plaintiffs  sued the Company in the same Court,alleging  the  Company  intentionally   understated  liabilities  in  aregistration   statement  filed  in  conjunction   with  the  Company'sRedeemable Preferred Securities. 

          The  Court  consolidated  these  suits in April  2000and  Plaintiffs   subsequently   filed  a  consolidated   class  actioncomplaint.  Plaintiffs  sought to represent a class  consisting  of allpersons who  purchased  either  Company  common stock between March 10,1998  and  November  16,  1999,   or  AICI  Capital   Trust   PreferredSecurities  between the July 29, 1997 public  offering and November 25,1999. In the consolidated  complaint  Plaintiffs  alleged  violation ofSection 11 of the Securities Act of 1933 through  misrepresentation  oromission  of a  material  fact in the  registration  statement  for thetrust  preferred  securities,  and  violation  of  Section  10b  of theSecurities  Exchange Act of 1934 and Rule 10b-5 of the U.S.  Securitiesand  Exchange   Commission   through   failure  to  disclose   materialinformation   between  March  10,  1998  and  November  16,  1999.  TheCompany,  three of its former  officers,  the  Company's  Directors andindependent   accountants  and  other  individuals,   as  well  as  thefinancial  underwriters for the Company's  preferred  securities,  weredefendants in the consolidated action. 

          On  March  2,  2001  the  Court   entered   an  orderdismissing  all  claims  alleging  violations  of  Section  11  of  theSecurities  Act, and  dismissing  the  Company's  Directors,  financialunderwriters,  independent  accountants  and  others as  defendants  inthis  action.   The  Court  also  ruled  that  certain  of  Plaintiffs'allegations  regarding the  remaining  defendants'  alleged  failure toproperly report  contingent  losses  attributable to Montrose failed tostate a claim  under  Section  10b and Rule  10b-5.  In two  subsequentrulings,  the Court and Magistrate  Judge  clarified the March 2 rulingto specify which of  Plaintiffs'  Montrose-related  allegations  failedto state a  Section  10b and Rule  10b-5  claim.  As a result  of thesethree  rulings,  the litigation has been reduced to a claim the Companyand three of its former  officers,  during the period  from  August 14,1997 to November 16, 1999,  failed to disclose  adequately  informationabout   various   aspects  of  the  Company's   operations,   includinginformation  relating to the Company's  exposure  after January 1, 1997to  losses  resulting  from  the  Montrose  decision.  Plaintiffs  seekcompensatory  damages,  reasonable costs and expenses  incurred in thisaction  and such  other and such  further  relief as the Court may deemproper.  On August 6, 2001 the  Magistrate  Judge  granted  Plaintiffs'Motion  for  Class  Certification.   Discovery  has  commenced  and  isproceeding in accordance  with a schedule  established  by the Court. Atentative trial date has not been scheduled. 

           The  Company  intends  to  vigorously   contest  thisaction  and  believes   Plaintiffs'   allegations  are  without  merit.Nevertheless,  the ultimate  outcome of this action cannot be predictedat this time and the  Company  currently  is unable  to  determine  thepotential  effect  of  this  litigation  on  its  financial   position,results of operations or cash flows. 

          *Acceptance  Insurance  Companies  Inc.  et al.  adv.Mutual Service Casualty Insurance Company,  (USDC, SD, Indiana;  CivilAction  IP01-0918  C -M/S)* In July 2001 the  Company  was served with aComplaint  filed in the United States  District  Court for the SouthernDistrict  of  Indiana  by Mutual  Service  Casualty  Insurance  Company("MSCI").  Other  defendants  in  this  action  include  IGF  InsuranceCompany  ("IGF"),  Symons  International  Group,  Inc.  and  several oftheir   corporate   and   individual   affiliates.   MSCI  alleges  IGFreinsured   it  in   conjunction   with  an   agricultural   productioninterruption  insurance  program (the "AgPI Program"),  that IGF failedto perform  its  obligations  and that an  arbitration  and suit in NewJersey  federal court both were pending  between MSCI and IGF regardingthe AgPI Program. 

        In  the  Indiana  suit  MSCI   contends  the  Companyfailed to pay IGF fair equivalent  value for the crop insurance  assetsthe Company  purchased  from IGF as of June 6, 2001 and assisted  otherdefendants  to  hinder,  delay  or  defraud  MSCI in  violation  of theIndiana   Fraudulent   Transfers   Act.   MSCI  sought  a   preliminaryinjunction  prohibiting  IGF and its  affiliates  from disposing of anyproceeds  received from the Company in  conjunction  with the Company'spurchase of the IGF crop insurance  assets,  and also  prohibiting  theCompany  from  disposing  of  any  of  the  crop  insurance  assets  itpurchased  from  IGF.  MSCI also  seeks a  judgment  voiding  the assetsale  and  purchase  IGF  and  the  Company  completed  June  6,  2001,declaring  all  defendants   directly   responsible  to  MSCI  for  theobligations  of IGF and awarding  any other legal or  equitable  reliefpermitted by law. 

         On  August  2  and  3,   2001  the   Court   held  anevidentiary  hearing on MSCI's  request for a  preliminary  injunction.During the hearing the Court  accepted  documentary  evidence and heardextensive  testimony from various  witnesses.  At the conclusion of thehearing  the Court  orally  denied  MSCI's  request  for a  preliminaryinjunction.  The Court  subsequently  entered a case  management  orderindicating the anticipated trial date in March 2003.

         The  Company  has and  will  continue  to  vigorouslycontest all  allegations of MSCI  concerning  the Company's  actions inconjunction  with its  purchase  of  substantially  all crop  insuranceassets of IGF and  believes  the MSCI  allegations  are without  merit.Nevertheless,  the ultimate  outcome of this action cannot be predictedat this time and the  Company  currently  is unable  to  determine  thepotential  effect  of  this  litigation  on  its  financial   position,results of operations or cash flows. 

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

        No  matters  were  submitted  to a vote  of  securityholders  during the fourth  quarter of the fiscal  year ended  December31, 2001. 

**PART II.**

 **Item  5.  Market  for  Registrant's   Equity  and  Related  StockholderMatters** 

            The  Common  Stock is  listed  and  traded on the NewYork  Stock  Exchange  ("NYSE").  The  following  table  sets forth thehigh and low sales  prices  per share of Common  Stock as  reported  onthe NYSE Composite Tape for the fiscal quarters indicated. 

            As of March 18,  2002, there were  approximately  918holders of record of the Common Stock. 

            The  Company  has  not  paid  cash  dividends  to itsshareholders   during  the  periods   indicated   above  and  does  notanticipate   that  it  will  pay  cash  dividends  in  the  foreseeablefuture.  See  "Business--Regulation"  for a description of  restrictionson payment of dividends to the Company from the Insurance Companies. 

**Recent Sales of Unregistered Securities **

            During  2001,  options  for  93,000  shares of commonstock were exercised by two former  officers of the Company,  for whichthe Company  received  proceeds of  approximately  $440,000,  in a saleexempt from  registration  under Section 4(2) of the  Securities Act of1933 as amended or Regulation D. 

**Item 6.  Selected Consolidated Financial Data** 

           The  following  table  sets  forth  certain  selectedconsolidated  financial  data and should be read in  conjunction  with,and is  qualified  in  its  entirety  by,  the  Consolidated  FinancialStatements  and the notes  thereto  and  "Management's  Discussion  andAnalysis of Financial  Condition and Results of  Operations"  appearingelsewhere herein.  This selected  consolidated  financial data has beenderived  from the  audited  Consolidated  Financial  Statements  of theCompany and its subsidiaries. 

 

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

            The  following  discussion  and analysis of financialcondition   and   results  of   operations   of  the  Company  and  itsconsolidated  subsidiaries  should  be read  in  conjunction  with  theCompany's  Consolidated  Financial  Statements  and the  notes  theretoincluded elsewhere herein. 

**General **

             The  principal  lines of the  Company's  agriculturalsegment are MPCI,  supplemental  coverages,  and named peril insurance.MPCI is a federally  subsidized  risk  management  program  designed toencourage  agricultural  producers  to manage  their risk  through  thepurchase  of  insurance   policies.   MPCI  provides  the  agriculturalproducers  with yield coverage for crop damage from  substantially  allnatural  perils.   CRC  is  an  extension  of  the  MPCI  program  thatprovides  a  producer  of  crops  with  varying   levels  of  insuranceprotection  against loss of revenues  caused by changes in crop prices,low  yields,  or a  combination  of the two. As used  herein,  the termMPCI  includes CRC,  unless the context  indicates  otherwise.  For theyears  ended  December  31,  2001 and 2000,  the Company had MPCI GrossPremiums   of   approximately    $698   million   and   $375   million,respectively,  which  represents  a market share of  approximately  24%and  15%,  respectively,   of  MPCI  business  written  in  the  UnitedStates. 

             A critical  accounting  policy of the Company relatesto the  accounting  treatment for MPCI business which is different thanmore  traditional  property and casualty  insurance  lines. The Companyissues  and   administers   MPCI   policies,   for  which  it  receivesadministrative  fees, and the Company  participates in a profit sharingarrangement  in which it receives from the  government a portion of theaggregate  profit,  or  pays a  portion  of the  aggregate  loss,  withrespect to the  business it writes.  The  Company's  share of profit orloss from its MPCI  business is  determined  after the crop season endson the basis of a profit  sharing  formula  established  by law and theRMA.  Due  to  the  nature  of  several  of the  CRC  products  wherebyresults are based on the market  prices of various  commodities  in thefourth  quarter,  as well as yields,  and the  significance of CRC as apercentage  of MPCI,  the  Company  records  its  initial  estimate  ofprofit or loss for MPCI and  related  products  in the fourth  quarter.Any changes in such  estimates  will  typically  occur during the firsttwo quarters of the following year after the claim  adjustment  processis  substantially  complete.  The Company  receives its profit share incash,  with 60% of the amount in excess of 17.5% of its MPCI  Retention(as  defined  in the  profit  sharing  agreement)  in any year  carriedforward  to  future  years,  or it must pay its  share of  losses.  Forstatement of operations  purposes,  gross premiums  written  consist ofthe aggregate  amount of MPCI premiums paid by agricultural  producers,and  do  not   include   any   related   federal   premium   subsidies.Additionally,  any profit share earned by the Company,  net of the costof third party  excess of loss  reinsurance,  is shown as net  premiumswritten,  which equals net premiums earned for MPCI business;  whereas,any share of losses  payable  by the  Company  is charged to losses andloss  adjustment  expenses.  MPCI  premiums  received  during  the yearwhich  correspond  to next year's crop  season are  deferred  until thenext  year.  Insurance  underwriting  expenses  are  presented  net  ofadministrative  fees received from the RMA for  reimbursement  of costsincurred by the Company.

            The  Company's  other  critical  accounting  policiesare disclosed in the Notes to the  Consolidated  Financial  Statements.These  policies  have  been   consistently   applied  in  all  materialrespects.

            Certain   characteristics   of  the  Company's   cropbusiness may affect  comparisons,  including:  (i) the seasonal  natureof the  business  whereby  profits or losses are  generally  recognizedpredominately  in the fourth  quarter  of the year;  (ii) the nature ofcrop business  whereby  losses are known within a one year period;  and(iii) the limited  amount of  investment  income  associated  with cropbusiness.  In  addition,  cash flows  from such  business  differ  fromcash flows from certain more  traditional  lines.  See  "Liquidity  andCapital  Resources"  below.  The  Company's  increased  emphasis in itsagricultural  segment  may produce  more  volatility  in the  operatingresults  on  a  quarter-to-quarter   or  year-to-year  basis  than  hashistorically  been the case due to the seasonal and  short-term  natureof the  Company's  crop  business,  as well as the  impact  on the cropbusiness of weather and other natural perils. 

           In its agricultural  segment,  the Company  completedthe  acquisition of  substantially  all crop  insurance  assets and theassumption of certain crop  insurance and  reinsurance  liabilities  ofSymons   International   Group,  Inc.  and  affiliates   including  IGFInsurance  Company  (collectively  referred  to as  "IGF")  on  June 6,2001.   See   "Management's   Discussion   and  Analysis  of  FinancialCondition and Results of  Operations--Acquisition  of IGF Crop InsuranceAssets." In its  property and  casualty  segment,  the Company sold itsnonstandard  automobile  business  including Phoenix Indemnity in 1999,transferred  its general  agency  business  produced by its  Scottsdaleoffice and its  transportation  business to other carriers in 2000, andduring 2001  discontinued  or sold all remaining  property and casualtysegment  business.  The  Company  continues  to manage  the  run-off ofdiscontinued  and sold  business.  These  transactions  are part of theCompany's    strategy.    See    "Business--Company     Strategy"    and"Business--Business Segments." 

**Forward-Looking Information **

           Except for the  historical  information  contained inthis  Annual  Report  on  Form  10-K,   matters  discussed  herein  mayconstitute  forward-looking  information,  within  the  meaning  of thePrivate    Securities    Litigation    Reform   Act   of   1995.   Suchforward-looking   information   reflects  the  Company's  current  bestestimates  regarding  future  operations,  but,  since  these  are onlyestimates, actual results may differ materially from such estimates. 

           A variety of events,  most of which are  outside  thecontrol of Acceptance  Insurance  Companies Inc.,  cannot be accuratelypredicted and may  materially  impact  estimates of future  operations.Important   among  such   factors  are  weather   conditions,   naturaldisasters,  changes in commodity  prices,  changes in state and federalregulations,  changes in premium  pricing and agency  commission  ratesin  the  industry,   changes  in  the  reinsurance  market,   includingpricing,  availability  and  coverage,  changes in tax laws,  financialmarket  performance,  changes in federal  policies  or court  decisionsaffecting   coverages,   actions  by  federal  or  state  legislatures,regulators or courts  regarding the coverage of agricultural  insurancepolicies  for  terrorist  actions,  changes  in the rate of  inflation,interest rates and general economic conditions. 

          The Company's results are  significantly  impacted byits crop  business,  particularly  its  MPCI  line.  Estimated  resultsfrom MPCI  business  are not recorded  until the fourth  quarter of theyear,   after  crops  are   harvested   and  final  market  prices  areestablished.  Agricultural  segment results are particularly  dependenton events beyond the control of Acceptance  Insurance  Companies  Inc.,notably  weather  conditions  during  the crop  growing  seasons in thestates where Acceptance  Insurance  Companies Inc. writes a substantialamount of its crop  insurance,  the  market  price of grains on variouscommodity  exchanges  and  overall  worldwide  supply and  demand,  thecontinuing  globalization  of the crop  industry  and its effect on theexport of crops to other  countries  and the  volatility of crop pricesresulting  from domestic and foreign  policy  decisions.  Additionally,federal   regulations   governing   aspects  of  crop   insurance   arefrequently  modified,  and any such  changes may impact crop  insuranceresults.

           Forward-looking  information  set forth  herein  doesnot take into  account any impact from any adverse  weather  conditionsduring the 2002 crop season,  or the various  other factors noted abovewhich   may   affect   crop  and   noncrop   operation   results.   See"Business--Uncertainties   Affecting   the   Insurance   Business"   and"Management's  Discussion  and  Analysis  of  Financial  Condition  andResults  of   Operations--General"   above  for  additional  informationregarding these events and factors.

**Results of Operations **

**Year ended December 31, 2001 Compared to Year Ended December 31, 2000 **

           The Company's net loss  decreased  from $28.8 millionfor the year  ended  December  31,  2000 to a net loss of $9.1  millionfor the year ended  December  31, 2001.  The  reduction in net loss wasprimarily  a  result  of  improved  agricultural  segment  underwritingearnings.  Partially  offsetting  this  improvement  was a decrease  ininvestment  income and  increased  underwriting  losses in the propertyand casualty segment from 2000 to 2001. 

           The   underwriting   earnings   from  the   Company'sagricultural  segment  improved  from a $22.6  million  loss in 2000 to$10.1  million in earnings in 2001.  Within the  agricultural  segment,MPCI  underwriting  results  improved  from a $7.0 million loss for theyear ended  December  31,  2000 to  earnings  of $11.0  million for thesame  period in 2001.  The  underwriting  loss  related  to crop  hail,other  named  peril and  supplemental  coverages  decreased  from $15.5million in 2000 to $900,000 in 2001. 

           The  underwriting  earnings for the MPCI  business isgenerally  comprised of the FCIC profit share net of the amounts  cededto private  reinsurers,  expenses in excess of MPCI reimbursements fromthe FCIC, and amortization  expense for non-competition  agreements andgoodwill.   Additionally,   MPCI  underwriting   earnings  include  anyadjustments to prior year MPCI results. 

          MPCI Gross  Premiums  increased  from $375 million in2000 to $698  million in 2001.  The MPCI  premium  volume  increase  in2001 was  primarily a result of the  Company's  acquisition  on June 6,2001 of the crop insurance  business from Symons  International  Group,Inc. and  affiliates  including  IGF  Insurance  Company  (collectivelyreferred to as "IGF")  which  accounted  for $269  million of 2001 MPCIGross Premiums.  During 2001 the Company  recorded an estimated  profitshare  of $86.2  million  on its MPCI  retained  pool of  approximately$499.4  million,  or  17.3%,  while in 2000  the  Company  recorded  anestimated  profit share of $40.0  million on its MPCI  retained pool ofapproximately  $232.0  million,  or  17.2%.  During  2001,  the  profitshare  relating  to  the  2000  crop  year  was  reestimated  at  $35.2million,  or 15.2% of the MPCI  retained  pool.  The Company  expects adecline  in MPCI  Gross  Premiums  for 2002  partially  due to  plannedreductions in certain  territories  and generally lower base prices forseveral crops. 

          In  addition  to the FCIC  reinsurance  program,  theCompany  utilizes  third  party  reinsurance  to manage  volatility  inloss  exposure.  The  Company  ceded  approximately  $78 million of its2001 crop year MPCI Retained  Premiums under quota share  agreements toprivate  reinsurers  participating  in  its  overall  crop  reinsuranceprograms.  Based upon the  estimated  profit  share  recorded  in 2001,this  reduced  MPCI  underwriting   earnings  by  approximately   $12.7million  and was  recorded as  additional  underwriting  expenses.  Thenet  exposure  was  further  reduced  by  excess  of  loss  reinsurancepurchased  from  private  carriers  with a total cost of  approximately$22.4  million  for  the  2001  crop  year.   The  Company  has  futureobligations  under  certain  multi-year  excess of loss and quota sharereinsurance  agreements in its  agricultural  segment.  The cost of themulti-year  excess of loss  coverage is $7.5  million per year  through2006. 

         For the year ended  December  31,  2001 the amount ofdirect and  allocated  expenses in excess of MPCI  reimbursements  fromthe   FCIC   totaled   approximately   $37.6   million.   Additionally,non-competition  and  goodwill  amortization  costs for the year  endedDecember  31,  2001  totaled  $2.7  million.   The  MPCI   underwritingearnings  for 2001  included  approximately  $1.9  million from partialreimbursement of research and development  costs previously  associatedwith the  development of the CRC product.  This one-time  reimbursementfrom the FCIC was  recorded as a reduction  to  underwriting  expenses.The  underwriting  earnings  for the year ended  December 31, 2001 alsoincluded  negative  adjustments of  approximately  $1.6 million relatedto 2000 crop year  results.  These  adjustments  included a decrease inthe  estimated  2000  year  MPCI  profit  share of  approximately  $4.8million  partially  offset  by  approximately  $3.2  million  in  loweroperating   costs   primarily   comprised  of  a  decrease  in  relatedreinsurance costs and agency contingent commissions.

        Gross and net earnedpremiums for the Company’s crop hail, other named peril and supplementalcoverages (“non-MPCI”) increased from $59.1 million and $14.9 million,respectively, during the year ended December 31, 2000 to $82.6 million and $21.6million, respectively, during the same period in 2001. Approximately $36.9million and $3.8 million of the gross and net earned premiums, respectively, for2001 relate to the crop business acquired in the IGF transaction. The Companyexpects that non-MPCI gross earned premium for 2002 will decline primarily as aresult of a planned reduction in supplemental coverages. The crop hail quotashare cessions for 2001 included a 100% quota share with an affiliate of IGF forthe crop hail business acquired from IGF, specifically for all policieseffective prior to June 6, 2001. This agreement will not continue and thereforethe Company expects its retention of crop hail business will increase in 2002.As a result the Company expects that non-MPCI net earned premium for 2002 willbe higher than 2001. The 2001 crop year results on the Company’s non-MPCIbusiness improved from 2000 primarily as a result of the improved loss ratio.For the years ended December 31, 2001 and 2000 the Company’s crop year netloss ratios for non-MPCI were approximately 79.7% and 111.5%, respectively.
         Additionally,   the  Company's  agricultural  segmentresults for the year ended  December  31, 2000  included a $4.0 millioncharge  related  to the  settlement  of the class  action  suit by riceproducers  and $6.7  million in  underwriting  charges  related to lossdevelopment  resulting  from  higher  than  expected  payments  on  thesettlement   of  1999  CRCPlus   losses.   The  2000  results  for  theagricultural  segment  also  included  approximately  $9.5  million  inunderwriting  earnings  primarily  related to an  increase  in the 1999MPCI profit share. 
          During   the   past   three   years,    the   Companydiscontinued  or sold  all  remaining  property  and  casualty  segmentbusiness.  In March 2001,  the Company  sold a  significant  portion ofits  property  and  casualty  business  to  Insurance   Corporation  ofHannover and in May 2001,  the Company  sold  several of the  remaininglines  of  business  to  McM  Corporation  and  to  American   ReliableInsurance  Company  (See  "Management's   Discussion  and  Analysis  ofFinancial  Condition  and Results of  Operations--Sale  of  Subsidiariesand Property  and  Casualty  Segment  Business".  Accordingly,  the netpremiums  earned in the property and casualty  segment  decreased  fromapproximately  $133.0  million for the year ended  December 31, 2000 to$31.1  million for the same period in 2001.  The Company  expects  thatany  property and  casualty  segment net  premiums  earned in 2002 willrelate to the run-off of discontinued  business.  The Company continuesto manage the run-off of this discontinued and sold business. 

          The Company's  property and casualty  segment resultsfor the year ended  December 31, 2001 included a reserve  strengtheningof  approximately   $14.8  million.   The  reserve   strengthening  wasconcentrated  primarily in the general  liability lines of business foraccident   years   1999  and  prior.   The   Company   recorded   otheradjustments  in the property and casualty  segment that  contributed tothe  underwriting  loss in  2001.  These  included  severance  costs ofapproximately   $1.3  million   associated  with  the  run-off  of  theproperty   and   casualty   segment   business.   Additionally,   cededreinsurance  premium for certain  property  insurance  lines were belowminimum  levels  established in  reinsurance  contracts,  requiring theCompany  to  recognize  a  contractually  established  minimum  premiumresulting  in  additional   reinsurance  costs  of  approximately  $1.4million.

          While   the   Company   discontinued   or  sold   allremaining  property  and casualty  segment  business  during 2001,  itsoperating  results  may  continue to be  significantly  impacted by theproperty  and  casualty  segment.  Significant  factors that may impactfuture results  include the adequacy of the Company's  estimate of lossand  loss  adjustment  expense  reserves,  the  recoverability  of  theCompany's  reinsurance  recoverables and the  recoverability of certainreinsurance  recoverables of previously  owned  subsidiaries  for whichthe  Company  is  contingently  liable.  See  "Business--Loss  and  LossAdjustment    Expense    Reserves",     "Business--Reinsurance",     and"Management's  Discussion  and  Analysis  of  Financial  Condition  andResults of  Operations--Sale  of Subsidiaries  and Property and CasualtySegment Business." 

         The Company's  net  investment  income  declined fromapproximately  $24.7  million for the year ended  December  31, 2000 toapproximately   $16.7  million  for  the  same  period  in  2001.  Thisdecrease   in   investment   income  was   primarily   a  result  of  asignificantly  lower  interest  rate  environment  during 2001  coupledwith  a  decline  in  the  size  of  the  investment   portfolio.   TheCompany's average  outstanding  portfolio  decreased from approximately$414  million for the year ended  December 31, 2000 to $333 million forthe same period in 2001. 

**Year ended December 31, 2000 Compared to Year Ended December 31, 1999**

          The Company's net loss  decreased  from $36.0 millionfor the year ended  December  31,  1999 to a net loss of $28.8  millionfor the year ended  December  31, 2000.  The  reduction in net loss wasprimarily  a result of the  strengthening  of  reserves  for losses andloss   adjustment   expenses  in  1999,   charges  in  1999  associatedprimarily  with the  divestitures  of  various  lines of  property  andcasualty segment  business,  and the increase in 1999 MPCI profit sharerecorded in 2000.  Partially  offsetting  these  effects was a decreasein net  realized  capital  gains,  a write-off  of excess of costs overacquired net assets,  development  of 1999 CRCPlus  losses in 2000, anda charge  related to the  settlement  of the class  action suit by riceproducers in 2000. 

          The    underwriting    loss   from   the    Company'sagricultural  segment  increased  from  $3.7  million  in 1999 to $22.6million  in  2000.  The  MPCI  premium   volume   increased  from  $365million in 1999 to $375  million in 2000.  The  Company's  core marketsareas increased by  approximately  $35 million while a reduction of $25million  was  achieved  in  less  profitable  areas.  During  2000  theCompany  recorded an  estimated  profit  share of $40.0  million on itsMPCI retained pool of  approximately  $232.0  million while in 1999 theCompany  recorded  an  estimated  profit  share  of  $40.1  million  onapproximately  $246.1 million  retained premium pool. In 2000 and 1999,the  Company  recorded  additional  profit  share  relating to previousyears of  approximately  $11.0  million and $.8 million,  respectively.As a percent of premium,  the Company  experienced  a reduction  in the2000 crop year  profit  share due to drought  conditions,  particularlyin Nebraska and Iowa.  The Company  utilizes both the FCIC  reinsuranceprogram and third party  reinsurance  in order to manage  volatility inloss  exposure.  During 2000 the Company  increased its  utilization ofthe FCIC  reinsurance  program and  increased  third party  reinsuranceprotection.  The Company  ceded a portion of the profit  share  relatedto  approximately  $66 million and $35 million of its retained  premiumunder the MPCI program for 2000 and 1999,  respectively,  to reinsurersparticipating in its overall crop  reinsurance  programs which resultedin an  additional  cost  to the  Company  of  $5.1  million  in 2000 ascompared to 1999. 

          The   results   for  2000   reflect  an  increase  ofapproximately  $12.5  million  in  MPCI  operating  expenses  primarilyrelated to higher  commission  costs and an  increase  in the amount ofcorporate expenses allocated to the agricultural  segment.  The Companycontinued   to  be   negatively   impacted  by  the   decrease  in  thereimbursement  rate  used for  reimbursement  of  expenses  related  tooperating  its MPCI  program.  The year 2000 also  includes an increaseof $4.0  million  in  settlement  and  legal  expenses  related  to thesettlement  of a class action suit by rice  producers,  $6.7 million inunderwriting  charges  for  adverse  loss  development  resulting  fromhigher  than  expected  payments  on  1999  CRCPlus  losses,  and  $3.1million  of  underwriting  losses  for crop  hail  resulting  from lateseason storms in the Midwest. 

          The  Company's  property  and  casualty  segment  wasimpacted  in 2000 by the sale of its  nonstandard  automobile  businessin the third  quarter of 1999 and by the transfer in the first  quarterof 2000 of the  renewal  rights for all  business  previously  producedand serviced by the Company's  Scottsdale,  Arizona  office and for its"long haul"  trucking  business.  Accordingly,  gross written  premiumsand net  earned  premiums  decreased  by  approximately  45%  and  38%,respectively, during 2000 compared to 1999. 

          As a result of the sale of a  significant  portion ofits  property and casualty  segment  business and based upon  estimatedfuture  discounted  cash flows,  the Company  concluded that the excessof  cost  over   acquired   net  assets  was   partially   impaired  byapproximately  $9.9  million.  As such,  the  Company  recorded  a $9.9million  charge for the  write-off of cost over  acquired net assets inthe fourth quarter of 2000. 

         The  underwriting  loss for the property and casualtysegment  decreased  from  $74.9  million  in 1999 to $21.2  million  in2000.  This  was  primarily   related  to  the  $44.0  million  reservestrengthening  that was  recorded  in 1999  related  to losses for 1998and prior  years  compared  to  approximately  $2.4  million of reservestrengthening  recorded  in 2000 for years 1999 and prior.  The reserveincrease  recorded  in  1999  resulted  from a  significant  unexpectedincrease in the number of claims reported,  principally  under policiescovering the 1990 through 1995 accident  years,  and primarily  relatedto  construction   defect  claims  under  general  liability   policiesinsuring  contractors in the State of  California.  To a lessor extent,the  Company  also  experienced  an increase in the IBNR claims for the1998 year in its commercial  automobile  lines.  Additionally,  resultsfor 1999  were  negatively  impacted  by costs  totaling  approximately$9.0 million  related  primarily to the  divestitures  of various linesof property and casualty segment business. 

           The Company's  net  investment  income  declined fromapproximately  $25.1  million in 1999 to $24.7  million  in 2000.  Thisdecrease in investment  income was  primarily  affected by a decline inthe size of the  average  outstanding  portfolio  of the  Company  fromapproximately   $473   million  in  1999  to  $414   million  in  2000.Partially  offsetting  this  was  an  increase  in  the  yield  on  theportfolio  to 6.0%  for 2000  compared  to 5.3% for  1999.  During  thefourth  quarter of 2000 the Company  liquidated a  substantial  portionof the municipal securities.

 **Liquidity and Capital Resources**

          TheCompany has included a discussion of the liquidity and capital resourcesrequirement of the Company and the Company’s insurance subsidiaries.
**The Company - Parent Only **
       As  an  insurance  holding  company,   the  Company'sassets consist  primarily of the capital stock of its  subsidiaries,  asurplus note issued by one of its insurance  company  subsidiaries  andinvestments  held at the holding company level.  The Company's  primarysources of liquidity are receipts  from interest  payments on a surplusnote,   payments  from  the  profit  sharing  agreement  with  AmericanAgrisurance,  the Company's  wholly owned  subsidiary which operates asthe  general  agent for the  Company's  crop  insurance  programs,  taxsharing  payments from its  subsidiaries,  investment  income from, andproceeds from the sale of, holding company  investments,  and dividendsand  other   distributions  from  subsidiaries  of  the  Company.   TheCompany's  liquidity needs are primarily to service debt, pay operatingexpenses and taxes and make investments in subsidiaries. 

       At December  31,  2001 the Company has $11.8  millionin  cash,   short-term   investments  and  fixed  maturity  securities.Additionally,  the Company has $27.9 million of  restricted  short-terminvestments.  The restricted  short-term  investments  are comprised ofinvestments  deposited with a trustee for the Company's  issuance of anoutstanding  letter of credit relating to reinsurance  coverage.  Thesefunds will become  available  to the Company  over the next five years.The  Company  also  holds a  surplus  note for $20  million  issued  byAcceptance  Insurance  Company,  bearing interest at the rate of 9% perannum  payable  quarterly.  Although  repayment  of all or  part of theprincipal  of the surplus  note  requires  prior  insurance  departmentapproval, no prior approval of interest payment is currently required. 

         Under  the  American   Agrisurance   profit   sharingagreement,  American  Agrisurance  receives  up  to  50%  of  the  cropinsurance  profit after certain  expenses and a margin  retained by theInsurance  Companies  based upon a formula  established  by the Companyand  approved  by  the  Nebraska   Department  of  Insurance.   If  thecalculated  profit  share  is  negative,   such  negative  amounts  arecarried  forward  and offset  future  profit  sharing  payments.  Theseamounts  are  distributed  from time to time in the form of a  dividendto  the  Company.  In  2001  and  2000  there  was  no  profit  sharingdistribution.

         Dividends   from   the   Insurance    Companies   areregulated  by the  regulatory  authorities  of the states in which eachsubsidiary is  domiciled.  The laws of such states  generally  restrictdividends  from  insurance  companies  to parent  companies  to certainstatutorily  approved  limits.  In 2002,  the  statutory  limitation ondividends from the Insurance  Companies to the Company  without furtherinsurance  departmental  approval is  approximately  $7.5 million.  See"Business--Regulation." 

         The  Company is  currently  a party to a tax  sharingagreement  with its  subsidiaries,  under which such  subsidiaries  paythe Company  amounts in general  equal to the  federal  income tax thatwould be payable by such subsidiaries on a stand-alone basis. 

          In 1997,  AICI  Capital  Trust,  a Delaware  businesstrust  organized  by the Company  (the  "Issuer  Trust")  issued  3.795million shares or $94.875 million aggregate  liquidation  amount of its9%  Preferred   Securities   (liquidation   amount  $25  per  PreferredSecurity).   The  Company  owns  all  of  the  common  securities  (the"Common  Securities")  of the Issuer Trust.  The  Preferred  Securitiesrepresent  preferred  undivided  beneficial  interests  in  the  IssuerTrust's  assets.  The assets of the Issuer Trust consist  solely of theCompany's  9%  Junior  Subordinated  Debentures  due  2027  which  wereissued in 1997 in an amount equal to the Preferred  Securities  and theCommon  Securities.  Distributions  on  the  Preferred  Securities  andJunior  Subordinated  Debentures are  cumulative,  accrue from the dateof  issuance  and  are  payable   quarterly  in  arrears.   The  JuniorSubordinated   Debentures  are  subordinate  and  junior  in  right  ofpayment to all senior  indebtedness  of the  Company and are subject tocertain events of default and redemptive  provisions,  all described inthe Junior  Debenture  Indenture.  At December  31,  2001,  the Companyhad $94.875  million  outstanding at a weighted  average  interest costof  9.2%.  During  the  year  ended  December  31,  2001  and  2000 theCompany paid $8.5 million of interest on the Preferred Securities. 

          As of December 31,  2001,  the Company has a Securityand Letter Loan  Agreement for $27.9 million.  The entire  facility wasreserved  for an  outstanding  letter of credit  and,  accordingly,  noborrowings were permitted under such facility. 

          During the second  quarter of 2001 and in  connectionwith the sale of Acceptance  Casualty  Insurance  Company  ("ACIC") theCompany's  $20 million  surplus  note with ACIC was  forgiven  and ACICissued a dividend  to the Company of  approximately  $9.1  million.  Atclosing  in the  third  quarter  of 2001  the  Company  received  $10.2million  in cash from the sale of ACIC.  See  "Management's  Discussionand Analysis of Financial  Condition and Results of  Operations--Sale ofSubsidiaries  and  Property  and  Casualty  Segment   Business."  Theseproceeds were used in the  acquisition  of IGF crop  insurance  assets.See  "Management's  Discussion and Analysis of Financial  Condition andResults of Operations--Acquisition of IGF Crop Insurance Assets." 

          The   Company   believes   it  has  the   cash   andshort-term   investments  available  to  meet  its  short-term  capitalneeds.  However,  the  Company  continues  to be  dependent  on fundingfrom its  subsidiaries.  If the  Company  does not  continue to receivesufficient  funding from its  subsidiaries  or access other funds,  itsability  to  meet  its  obligations  may be  negatively  impacted.  TheCompany  continually  reviews its capital  needs and the surplus  needsof the Insurance  Companies  and from time to time may seek  additionalfunding which may include,  among other things,  an account  receivablefinancing at the Insurance  Companies level,  arranging a new bank lineof credit,  or a placement  of equity or debt  securities.  The Companyhas  various  uncertainties  which may  affect  its  ability  to accessadditional  funds at acceptable  terms.  See  "Business-- UncertaintiesAffecting  the  Insurance   Business"   and   "Liquidity   and  CapitalResources - Insurance Companies." 

**Insurance Companies **

            The  principal   liquidity  needs  of  the  InsuranceCompanies are to fund losses and loss adjustment  expense  payments andto  pay  underwriting   expenses,   including   commissions  and  otherexpenses.  The  available  sources to fund these  requirements  are netpremiums  received  and,  to a  lesser  extent,  cash  flows  from  theCompany's investment  activities,  which together have been adequate tomeet such  requirements  on a timely  basis.  The Company  monitors thecash  flows  of  the  Insurance  Companies  and  attempts  to  maintainsufficient cash to meet current  operating  expenses,  and to structureits  investment   portfolio  at  a  duration  which   approximates  theestimated  cash  requirements  for the  payments  of  losses  and  lossadjustment expenses.

              TheCompany’s investment portfolio is primarily comprised of fixed maturitiesand short-term investments. The composition of the fixed maturities changedduring 2001 as the municipal securities and mortgage-backed securities wereliquidated and proceeds invested primarily in U.S. Treasury securities andshort-term investments. The effective duration of the investment portfolio,including preferred stocks, is approximately 1.0 years as of December 31, 2001.At December 31, 2001, approximately $111 million of fixed maturity securitiesand short-term investments were pledged in order to secure the Company’sobligations under reinsurance agreements. The agreements provide for the releaseof the pledged securities as the obligations under the reinsurance agreementsdecrease. However, if the Company is unsuccessful in obtaining the release ofpledged securities, its liquidity may be negatively impacted. See“Management’s Discussion and Analysis of Financial Condition andResults of Operations—Sale of Subsidiaries and Property and CasualtySegment Business” for additional information.
            Cash flows from the Company's  crop business  differsin certain  respects from cash flows  associated with more  traditionalproperty  and casualty  lines.  MPCI  premiums  are not  received  fromagricultural  producers  until the  covered  crops are  harvested,  andwhen received are remitted within  approximately  30 days of receipt bythe  Company  in full to the  government.  Covered  losses  are paid bythe  Company  during  the  growing   season  as  incurred,   with  suchexpenditures   reimbursed  by  the  government  within  three  businessdays. Policy  acquisition and  administration  expenses are paid by theCompany  as  incurred   during  the  year.  The  Company   periodicallythroughout the year receives a payment in  reimbursement  of its policyacquisition and administration expenses. 
             The  Company's  profit or loss from its MPCI businessis  determined  after  the crop  season  ends on the  basis of a profitsharing  formula  established by law and the RMA. The Company  receivesa profit  share in cash,  with 60% of the  amount in excess of 17.5% ofits MPCI  Retention  (as defined in the profit  sharing  agreement)  inany year carried  forward to future years,  or it must pay its share oflosses.  The Company  received  $46.0 million in net payments under theMPCI  program  during  the year  ended  December  31,  2001  and  $61.8million  for  the  same  period  in  2000.  The  Company  received  itspreliminary  2001  crop  year  FCIC  profit  share in March  2002.  See"Management's  Discussion  and  Analysis  of  Financial  Condition  andResults  of   Operations--General"   above  for  additional  informationregarding  the effects of the seasonal  nature of the crop  business onthe Company's cash flow. 

            The   Company  is   significantly   impacted  by  theresults of its MPCI  business.  The  underwriting  results for the MPCIbusiness  are  generally  comprised  of the amount of FCIC profit sharenet of amounts  ceded to private  reinsurers  and expenses in excess ofMPCI  reimbursements  from  the  FCIC.  Therefore,  the  Company  couldincur  significant  underwriting  losses  in a year in  which  the FCICprofit share is  significantly  below average  historical  levels.  Anysignificant  underwriting  loss  could  result  in a  material  adverseeffect on the Company's  liquidity and capital resources.  Furthermore,the Insurance  Companies would likely need additional  funding from itsParent.  If the Insurance  Companies were unable to receive  additionalfunding it could result in a material  adverse  effect on the Company'sbusiness and  operations.  See "Liquidity  and Capital  Resources - TheCompany - Parent Only." 

**Changes in Financial Condition **

         The Company's  stockholders' equitydecreased by approximately$5.2 million from December 31, 2000 to December 31, 2001. The principalcomponents of this decrease was a net loss of $9.1 million for the year endedDecember 31, 2001 partially offset by a decrease in the unrealized loss onavailable-for-sale securities, net of tax, from $4.4 million at December 31,2000 to an unrealized loss of $1.0 million at December 31, 2001.
**Consolidated Cash Flows **
         Cash  used  by   operating   activities   was  $110.2million  and $85.9  million  during the years ended  December  31, 2001and 2000,  respectively.  The Company  received net payments  under theMPCI  program  of $46.0  million  and $61.8  million  during  the yearsended  December 31, 2001 and 2000,  respectively.  During these periodsthe  Company's  cash flows were  affected  by the  negative  cash flowsfrom the  property  and  casualty  segment  related  to the  run-off ofoperations.  The  Company  expects  the  negative  cash  flow  from itsproperty and casualty  segment will continue as the operations  run-offand the loss and loss  adjustment  expense  reserves are  settled.  TheCompany  believes it has  positioned  its  investment  portfolio  to beable to meet these liquidity needs. 

**Inflation **

         The Company does not believe that  inflation  has hada  material  impact  on  its  financial  condition  or the  results  ofoperations.

**Quantitativeand Qualitative Disclosure about Market Risk **

         The Company’s balance sheetincludes a significantamount of assets andliabilities whose fair value are subject to market risk. Market risk is the riskof loss arising from adverse changes in market interest rates or prices. TheCompany currently has interest rate risk as it relates to its fixed maturitysecurities and equity price risk as it relates to its marketable equitysecurities. In addition, the Company is also subject to interest rate risk atthe time of refinancing as it relates to its mandatorily redeemable PreferredSecurities. The Company’s market risk sensitive instruments are enteredinto for purposes other than trading.
           At December  31,  2001 the Company had $91.0  millionof fixed  maturity  investments  and at  December  31, 2000 the Companyhad $234.9  million of fixed  maturity  investments  and mortgage  loanthat were  subject to market  risk.  At December  31, 2001 and 2000 theCompany  had  $5.1  million  and  $17.6   million,   respectively,   ofmarketable  equity  securities  that were subject to market  risk.  TheCompany's  investment  strategy  is  to  manage  the  duration  of  theportfolio  relative to the duration of the  liabilities  while managinginterest  rate risk.  In addition,  the Company has the ability to holdits fixed maturity  investments  until maturity and therefore would notexpect to realize a material adverse impact on income or cash flows. 
          The   Company's   Preferred   Securities  of  $94.875million at  December  31,  2001 and 2000  mature in August 2027 and areredeemable  at the  Company's  option in  September  2002.  The Companywill  continue to monitor the interest  rate  environment  and evaluaterefinancing   opportunities   as  the   redemption  and  maturity  dateapproaches. 

           The   Company   uses  two  models  to   analyze   thesensitivity  of its market risk assets and  liabilities.  For its fixedmaturity   securities,   mortgage  loan  and   mandatorily   redeemablePreferred  Securities,  the Company uses duration modeling to calculatechanges  in fair  value.  For its  marketable  equity  securities,  theCompany  uses a  hypothetical  20%  decrease in the fair value of thesesecurities.  Actual  results may differ from the  hypothetical  resultsassumed  in  this   disclosure   due  to  possible   actions  taken  bymanagement to mitigate  adverse  changes in fair value and because fairvalues  of  securities  may  be  affected  by  credit  concerns  of theissuer,   prepayment  speeds,  liquidity  of  the  security  and  othergeneral market  conditions.  The  sensitivity  analysis  duration modelused by the  Company  produces a loss in fair value of $1.0  million onits fixed  maturity  securities  and $5.9 million on its fixed maturitysecurities  and mortgage  loan and a gain in fair value of $8.4 millionand $5.8 million on its  mandatorily  redeemable  Preferred  Securitiesas of December  31, 2001 and 2000,  respectively,  based on a 100 basispoint  increase in interest  rates.  The  hypothetical  20% decrease infair value of the Company's  marketable  equity  securities  produces aloss in fair value of $1.0  million  and $3.5  million  as of  December31, 2001 and 2000, respectively.

 **Acquisition of IGF Crop Insurance Assets **

           On  June  6,   2001   the   Company   completed   theacquisition  of  substantially   all  crop  insurance  assets  and  theassumption of certain crop  insurance and  reinsurance  liabilities  ofSymons   International   Group,  Inc.  and  affiliates   including  IGFInsurance  Company  (collectively  referred  to as "IGF").  The Companypaid  approximately  $27.4  million  at  closing  and  agreed  to  makedeferred  payments of up to an additional $9.0 million,  which includedamounts  for  non-competition   agreements,   prospective   reinsuranceagreements,  and  property  and  equipment.  Additionally,  the Companyreimbursed  IGF for  certain  costs  related  to the 2001 crop  season.The  Company  funded  the   acquisition   with   internally   generatedresources,  including  proceeds  from the sale of certain  property andcasualty  assets.  During 2000,  IGF's gross crop  insurance  premiums,including MPCI subsidies,  totaled  approximately  $241 million and theCompany's  gross crop  insurance  premiums for the same period  totaledapproximately $434 million. 

          The  acquisition  was  accounted  for by the purchasemethod of accounting  and,  accordingly,  the  statements of operationsinclude the acquired crop results  beginning  June 6, 2001.  The assetsacquired  and  recognition  of  liabilities  directly  related  to  theacquisition  of $35.6  million  and $8.2  million,  respectively,  wererecorded  at  estimated  fair  values as  determined  by the  Company'smanagement  based on  information  currently  available  and on currentassumptions  as  to  future  operations.   The  Company's   preliminarypurchase  price  allocation  included  $19.7  million of  goodwill  and$10.2  million of  intangible  assets.  The  allocation of the purchaseprice is subject to  revision  based upon final  determination  of fairvalues. 

           Goodwill   is   being   amortized   over  15   years.However,  upon  adoption  of  SFAS  No.  142 on  January  1,  2002  thegoodwill  will no  longer be  amortized.  In  accordance  with SFAS No.142 the goodwill will be tested for impairment at least annually. 

**Sale of Subsidiaries and Property and Casualty Segment Business **

           In  April  2000,  the  Company  signed  a  definitiveagreement to sell Redland  Insurance  Company  ("Redland") to ClarendonNational  Insurance Company  ("Clarendon").  This sale closed effectiveas of July 1, 2000. The sale was a cash  transaction  of  approximately$10.9  million  based  upon the  market  value  of  Redland  after  thedivestiture of various assets,  including the Redland subsidiaries,  toa wholly owned  subsidiary of Acceptance  Insurance  Companies Inc. Thetransaction  included the appointment of other Company  subsidiaries asa producer  and  administrator  for the  business  the  Company  writesthrough  Clarendon  and  Redland.  The Company also  reinsures  certainportions  of  the  business  written  by  Clarendon  and  Redland.   AtDecember  31, 2001,  approximately  $58.9  million of fixed  maturitiesavailable-for-sale  and $40.5  million of short-term  investments  werepledged  to  Clarendon  to  secure  the  Company's   obligations  underreinsurance  agreements.   Under  these  reinsurance  agreements,   theCompany  assumes  business from Clarendon and Redland after cessions tooutside   reinsurers   ("Clarendon   Reinsurers").   The   Company   iscontingently  liable for any  uncollectible  amounts due from ClarendonReinsurers  related to this business.  At December 31, 2001,  Clarendonand  Redland   reinsurance   recoverables  from  Clarendon   Reinsurerstotaled  approximately  $137 million,  of which  approximately 92% werefrom  reinsurance  companies  rated A-  (excellent)  or  better by A.M.Best. 

            In  March  2001,   the  Company  sold  a  significantportion of its  property  and  casualty  segment  business to InsuranceCorporation of Hannover  ("ICH").  The terms of the agreement  includedthe sale of selected  lines of business,  a reinsurance  treaty wherebythe unearned  premium and any  additional  premiums for these  selectedlines  would  be   reinsured  by  ICH,  and  the  transfer  of  certainemployees  to ICH.  Additionally,  the  Company's  right to  repurchaseRedland  under the  agreement  between the Company  and  Clarendon,  anaffiliate of ICH, was waived. 

          In May 2001 the  Company  agreed  to sell two  whollyowned  insurance  companies  to  McM  Corporation,   a  Raleigh,  NorthCarolina based insurance  holding company  ("McM").  The two companies,Acceptance   Indemnity   Insurance   Company  ("AIIC")  and  AcceptanceCasualty  Insurance Company  ("ACIC"),  underwrote  primarily  propertyand  casualty  segment  insurance.  This sale  closed  effective  as ofJuly 1,  2001. The sale was a cash transaction of  approximately  $20.6million that  resulted in a realized  gain in the third quarter of 2001of  approximately   $375,000.   The  Company  also  reinsures   certainportions  of the  business  written  by AIIC and ACIC.  As of  December31,   2001   approximately    $11.1   million   of   fixed   maturitiesavailable-for-sale  were  pledged  to McM to secure the  Company's  netobligations   under   the   reinsurance    agreements.    Under   thesereinsurance  agreements,  the Company  assumes  business  from AIIC andACIC after  cessions to outside  reinsurers  ("AIIC  Reinsurers").  TheCompany is contingently  liable for any uncollectible  amounts due fromAIIC  Reinsurers  related to this business.  At December 31, 2001, AIICand  ACIC  reinsurance   recoverables  from  AIIC  Reinsurers   totaledapproximately  $39  million,  of  which  approximately  89%  were  fromreinsurance companies rated A- (excellent) or better by A.M. Best. 

             In  addition,  effective  as  of  May  1,  2001,  McMpurchased a selected  portfolio of the Company's  property and casualtysegment  insurance  programs.  Also  effective May 1, 2001, the Companysold its Farm and  Ranch  and  Flood  insurance  programs  to  AmericanReliable  Insurance  Company.  The terms of these  agreements  includedthe sale of these  selected  lines of business,  a  reinsurance  treatywhereby the  unearned  premium and any  additional  premiums  for theseselected  lines would be reinsured  by the buyers,  and the transfer ofcertain employees to the buyers. 

            As of May 1, 2001 the Company  engaged  Berkley  RiskAdministrators   Company   ("BRAC")  to  manage  the   adjustment   andcompletion  of all  remaining  property  and casualty  segment  claims.BRAC has employed certain persons previously employed by the Company.

            As a result  of the  Company's  strategy  to exit itsproperty  and  casualty  segment  business  and  based  upon  estimatedfuture  discounted  cash flows,  the Company  concluded that the excessof  cost  over   acquired   net  assets  was   partially   impaired  byapproximately  $9.9  million.  As such,  the  Company  recorded  a $9.9million  charge for the  write-off of excess of cost over  acquired netassets in the fourth quarter of 2000.

**Legal Proceedings**

Information  relating  to this item is set forth under Item 3. Legal Proceedings. 

**Recent Statement of Financial Accounting Standards **

            Statement of Financial  Accounting  Standards No. 133("SFAS  No.  133"), *Accounting  for  Derivative  Instruments  and  forHedging  Activities,*  requires  companies to recognize all  derivativesas  either  assets  or   liabilities  in  the  statement  of  financialcondition and to measure all  derivatives  at fair value.  SFAS No. 133requires  that  changes in fair  value of a  derivative  be  recognizedcurrently in earnings  unless  specific hedge  accounting  criteria aremet. Upon  implementation  of SFAS No. 133, hedging  relationships  maybe  redesignated,  and  securities  held to maturity may be transferredto   available-for-sale  or  trading.  SFAS  No.  137, *Accounting  forDerivative   Instruments   and  Hedging   Activities-Deferral   of  theEffective Date of FASB  Statement No. 133*,  deferred the effective dateof SFAS No. 133 to fiscal years  beginning  after June 15,  2000.  SFASNo. 138, *Accounting  for Certain  Derivative  Instruments  and CertainHedging  Activities*  amended the accounting and reporting  standards ofSFAS No. 133 for certain derivative  instruments,  hedging  activities,and  decisions  made  by  the  Derivatives  Implementation  Group.  Theadoption of SFAS No.  133,  SFAS No. 137 and SFAS No. 138 had no impacton the Company's financial statements. 

          In July  2001,  the  Financial  Accounting  StandardsBoard  issued  Statement  of  Financial  Accounting  Standards  No. 141(SFAS No. 141), *Business Combinations*,  and  Statement No. 142 ("SFASNo.  142"), *Goodwill  and  Other  Intangible  Assets.*  SFAS  No.  141requires  business  combinations  initiated  after June 30,  2001 to beaccounted  for using the purchase  method of  accounting  and specifiesthe criteria for  recognition  of  intangible  assets  separately  fromgoodwill.

           SFAS No. 142 requires  that  goodwill and  intangibleassets  with  indefinite  useful  lives no  longer  be  amortized,  butinstead  tested for  impairment at least  annually.  Intangible  assetswith a  determinable  useful life will  continue to be  amortized  overthat  period.  The  Company  is  required  to  implement  SFAS No.  142effective  January 1, 2002 and has not  determined the full impact thatthis  statement  will have on its  consolidated  financial  position orresults of operations. 

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

       Information  relating  to  this  item  is  set  forthunder the caption“Quantitative and Qualitative Disclosure About Market Risk” in Item 7,Management’s Discussion and Analysis of Financial Condition and Results ofOperation. Such information is incorporated herein.
**Item 8.  Financial Statements and Supplementary Data **
        See Item 14  hereof  and the  Consolidated  FinancialStatements attached hereto. 

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

        There   have   been   no   disagreements   with   theRegistrant's   independent   accountants  of  the  nature  calling  fordisclosure under Item 9. 

**PART III.** 

**Item 10.  Directors and Executive Officers of the Registrant **

        The  information  required by Item 10 with respect tothe Registrant's executiveofficers and directors will be set forth in the Company's 2002 Proxy Statementwhich will be filed within 120 days of the Company’s year end and isincorporated herein by reference.
**Item 11.  Executive Compensation **
         The  information  required  by  Item  11  will be setforth  in the  Company's  2002  Proxy  Statement  which  will be  filedwithin 120 days of the Company's  year end and is  incorporated  hereinby reference.

**Item 12.  Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters **

          Securities authorized for issuance under equitycompensation plans as of December 31, 2001, are as follows: 

         The  other  information  required  by Item 12 will beset forth in the  Company's  2002 Proxy  Statement  which will be filedwithin 120 days of the Company's  year end and is  incorporated  hereinby reference. 

**Item 13.  Certain Relationships and Related Transactions **

            The  information  required  by  Item  13  will be setforth  in the  Company's  2002  Proxy  Statement  which  will be  filedwithin 120 days of the Company's  year end and is  incorporated  hereinby reference. 

**PART IV. **

**Item 14.  Exhibits, Financial Statement Schedules, and Reports onForm 8-K **

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

                   1.   Financial   Statements.   The   Company's         audited  Consolidated   Financial  Statements  for  the  years         ended December 31, 2001 and 2000 consisting of the following: 

                                 Independent Auditors' Report                                 Consolidated Balance Sheets                                 Consolidated Statements ofOperations                                 Consolidated Statements ofStockholders' Equity                                 Consolidated Statements of CashFlows                                 Notes to Consolidated FinancialStatements

                  2.  Financial Statement Schedules 

                                Schedule II.  Condensed FinancialInformation of Registrant                                   Schedule III. SupplementaryInsurance Information                                 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 havebeen filed  during  the last  fiscal  quarter of the period  covered bythis Report: 
             Item                                                                   Financial Statement Filed                                                 Date of  Report  Item 5. Other Events                                                   No                                                   October 16, 2001 Item 5. Other Events                                                 No                                                  October 31, 2001
                                                                                                           

                                                     SIGNATURES

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.
ACCEPTANCE INSURANCE COMPANIES INC. 
By  /s/ John E. Martin                                 Dated:    March27, 2002      John E. Martin      President and Chief Executive Officer 

By   /s/ Dwayne D. Hallman                          Dated:    March27, 2002    Dwayne D. Hallman    Chief Financial Officer and Treasurer

Pursuant to therequirements of the Securities Exchange Act of 1934, this Report has been signedbelow by the following persons on behalf of the Registrant and in the capacitiesand on the dates indicated.
Dated:  March 27, 2002                /s/ Myron L. Edleman                                                     Myron L. Edleman, Director 
Dated:  March 27, 2002               /s/ Edward W. Elliott, Jr.                                                    Edward W. Elliott, Jr., Director 

Dated:  March 27, 2002               /s/ John E. Martin                                                    John E. Martin, Director 

Dated:  March 27, 2002               /s/ Michael R. McCarthy                                                    Michael R. McCarthy, Chairmanand Director 

Dated:  March 27, 2002               /s/ R. L. Richards                                                    R. L. Richards, Director 

Dated:  March 27, 2002               /s/ David L. Treadwell                                                    David L. Treadwell, Director 

Dated:  March 27, 2002               /s/ Doug T. Valassis                                                    Doug T. Valassis, Director 

Dated:  March 27, 2002               /s/ Richard L. Weill                                                   Richard L. Weill, Director 

                         

**ACCEPTANCE INSURANCE COMPANIES INC.                                              ANNUAL REPORT ON FORM 10-K                                          FISCAL YEAR ENDED DECEMBER 31, 2001                                                     EXHIBIT INDEX **

**       **

        
**NUMBER****EXHIBIT DESCRIPTION**3.1  Registrant's Restated Certificate of Incorporation. Incorporated by reference toRegistrant's Annual Report of Form 10-K for the period ending December 31, 1993,and Amendment thereto, incorporated by reference to Registrant's QuarterlyReport on Form 10-Q for the period ended June 30, 1995.3.2Restated  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.    Incorporated    by   reference   to               Registrant's  Annual  Report on Form 10-K for the fiscal               year ended December 31, 1999.  4.3Form 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.  4.5Form   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. 4.7Trust 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, 1997.4.9Form of Stock Certificate representing shares of Acceptance Insurance CompaniesInc., Common Stock, $.40 par value. Incorporated by reference to Exhibit 4.1 toRegistrant's Annual Report on Form 10-K for the fiscal year ended December 31,1992. 10.1Intercompany  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. 10.2Employment  Agreement  dated  December  14, 1999 between               the  Registrant  and  John E.  Martin.  Incorporated  by               reference  to  Registrant's  Annual  Report on Form 10-K               for the fiscal year ended December 31, 1999. 10.3The  Registrant's  1997 Employee  Stock  Purchase  Plan.               Incorporated  by  reference  to the  Registrant's  Proxy               Statement filed on or about April 29, 1997.10.4The Registrant's Employee Stock Ownership and Tax Deferred Savings Plan asmerged, amended and restated effective October 1, 1990. Incorporated byreference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q forthe quarter ended November 30, 1990.10.5First Amendment to the Registrant's Employee Stock Ownership and Tax DeferredSavings Plan. Incorporated by reference to Exhibit 99.4 to the Registrant'sAnnual Report on Form 10-K for the fiscal year ended December 31, 1993.10.6Second Amendment to the Registrant's Employee Stock Ownership and Tax DeferredSavings Plan. Incorporated by reference to Exhibit 99.5 to the Registrant'sAnnual Report on Form 10-K for the fiscal year ended December 31, 1993. 10.7The  Registrant's  1996  Incentive  Stock  Option  Plan.               Incorporated  by  reference  to the  Registrant's  Proxy               Statement filed on or about May 3, 1996. 10.8 The  Registrant's  2000  Incentive  Stock  Option  Plan.               Incorporated  by  reference  to the  Registrant's  Proxy               Statement filed on or about May 1, 2000.  10.9Security  Agreement  and Letter Loan  Agreement  between               Acceptance   Insurance   Companies   Inc.  and  Comerica               Bank.  Incorporated  by  reference  to  Exhibit  10.9 to               the  Registrant's  Quarterly  Report  on Form  10-Q  for               the Quarter Ended March 31, 2000. 10.10Employment  Agreement  dated as of  September  5, 2000 between                the  Company  and Dwayne D.  Hallman.  Incorporated  by                reference   to   Exhibit   10.1  to  the   Registrant's                Quarterly  Report on Form 10-Q/A for the Quarter  Ended                September 30, 2000.10.11The Registrant's 401(k) Tax Deferred Savings Plan, as amended and restatedeffective January 1, 2001 (formally known as the Acceptance Insurance CompaniesInc. Employee Stock Ownership and Tax Deferred Savings Plan and formally knownas the Stoneridge Resources, Inc. Employee Stock Ownership and Tax DeferredSavings Plan). 21 Subsidiaries of the Registrant.  23.1Consent of Deloitte & Touche LLP. 23.2 
Report on schedules of Deloitte & Touche      LLP.