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

                                    FORM 10-K


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

                   For the Fiscal Year Ended December 31, 2000
                          Commission File Number 1-7461

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

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

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

                                   (Zip Code)

               Registrant's Telephone Number, Including Area Code:
                                 (402) 344-8800
                                    ________
           Securities Registered Pursuant to Section 12(b) of the Act:

  Title of Each Class               Name of Each Exchange on Which Registered
  ___________________               _________________________________________
Common Stock $.40 Par Value                  New York Stock Exchange, Inc.
Preferred Securities of AICI Capital Trust   New York Stock Exchange, Inc.


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

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

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

                  The aggregate market value of the Registrant's voting stock
held by nonaffiliates (10,380,658 shares) on March 6, 2001 was $45,155,861.

                  The number of shares of each class of the Registrant's common
stock outstanding on March 6, 2001 was:

     Class of Common Stock                       No. of Shares Outstanding
     _____________________                       __________________________
  Common Stock, $.40 Par Value                         14,319,840

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of the Proxy Statement for the Registrant's 2001
Annual Meeting of Shareholders are incorporated by reference into Part III.


<PAGE>
                           GLOSSARY OF INSURANCE TERMS

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

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

                  Case Reserve:  The estimated liability for loss established
by an insurance company for a reported claim.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                  NAIC:  The National Association of Insurance Commissioners.

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

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

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

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

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

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

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

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

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

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

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

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


                                     PART I

Item 1.  Business.

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

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

                  Acceptance Insurance Companies Inc.'s results are
significantly impacted by its crop business, particularly its MPCI line.
Estimated results from the crop lines are not recorded until the fourth quarter
of the year, after crops are harvested and final market prices are established.
Crop segment results are particularly dependent on events beyond the control of
Acceptance Insurance Companies Inc., notably weather conditions during the crop
growing seasons in the states where Acceptance Insurance Companies Inc. writes
a substantial amount of its crop insurance, the market price of grains on
various commodity exchanges and overall worldwide supply and demand, the
continuing globalization of the crop industry and its effect on the export of
crops to other countries and the volatility of crop prices resulting from
domestic and foreign policy decisions.  Additionally, federal regulations
governing aspects of crop insurance are frequently modified, and any such
changes may impact crop insurance results.

                  Forward-looking information set forth herein does not take
into account any impact from any adverse weather conditions during the 2001
crop season, or the various other factors noted above which may affect crop and
noncrop operation results.  See "Business-Uncertainties Affecting the
Insurance Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General" for additional information
regarding these events and factors.

Company Strategy

                  Acceptance Insurance Companies Inc. (the "Company")
underwrites and sells crop insurance and specialty property and casualty
insurance to serve niche markets or programs.  Within the crop insurance
industry, the Company is one of the leading writers of crop insurance products
in the United States.  The Company believes its position in the crop insurance
industry provides the ability to respond when market conditions and
opportunities are presented. The Company's goal is to achieve underwriting
profits while managing its investment portfolio to maximize after-tax earnings
and maintaining adequate liquidity to meet all cash needs.

                  During 2000 the Company continued to refine and refocus its
business strategy to achieve the goal stated above.  The Company's four-pronged
business strategy can be summarized as follows:

o        enhance and expand the crop insurance segment to achieve underwriting
         profits;

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

o        continue to manage the investment portfolio to maximize after-tax
         earnings; and

o        continue to reduce the amount of business written in the property and
         casualty insurance segment.

<PAGE>


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

                  During the past three years, the Company has discontinued a
significant portion of the property and casualty insurance business.
Additionally, in March 2001 the Company announced that it had sold a
significant portion of the remaining property and casualty lines and its
intentions to explore other opportunities to reduce the remaining property and
casualty business.   The Company believes that the continued reduction in the
amount of business written in the property and casualty segment offers
the best profitability and growth opportunities for the crop segment of the
Company.

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

                  The Company historically has managed its investment portfolio
to maximize investment earnings.   The Company has shortened the average
maturities of its investments in order to meet the liquidity needs from its
declining property and casualty business. Additionally, the Company has
decreased the amount of  tax advantaged securities in order to maximize the
Company's cash flow.

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

Organization

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

                  Collectively, the Insurance Companies are admitted in 44
states and operate on a nonadmitted basis in 46 states, the District of
Columbia, Puerto Rico and the Virgin Islands.  Each of the Insurance Companies
is rated B++(Very Good) by A.M. Best Company, Inc. ("A.M. Best").  A.M. Best
bases its ratings upon factors that concern policyholders and agents, and not
upon factors concerning investor protection.

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

Business Segments

                  The Company has organized its insurance underwriting and
marketing business by product line into two segments, crop insurance and
property and casualty insurance.

<PAGE>

         Crop Insurance

                  The principal lines of the Company's crop insurance segment
are MPCI, supplemental coverages and named peril insurance.  MPCI is a
federally subsidized insurance program designed to encourage farmers to manage
their risk through the purchase of insurance policies.  MPCI provides farmers
with yield coverage for crop damage from substantially all natural perils.  CRC
is an extension of the MPCI program which provides farmers with protection from
revenue loss caused by changes in crop prices, low yields or both.  As used
herein, the term MPCI includes CRC, unless the context indicates otherwise.
For the year ended December 31, 2000, the Company had gross MPCI premiums of
approximately $375 million and a market share of approximately 15% of MPCI
business written in the United States.  The MPCI premium volume increased
$10 million during 2000.  However, in the Company's core market areas,
MPCI premiums increased by approximately $35 million, while a reduction of
$25 million was achieved in less profitable market areas.

         Supplemental coverages are proprietary products developed and marketed
exclusively by the Company.  Supplemental coverages enhance the protection
provided by MPCI.  Unlike MPCI, however, supplemental coverages are not
subsidized or reinsured by the federal government.  During 2000 and 1999,
the Company's gross premium from supplemental coverages was approximately
$13.7 million and $31.1 million, respectively.  See "Management Discussion and
Analysis of Financial Condition and Results of Operations-Results of
Operations."

                  The largest named peril crop insurance product offered by the
Company is crop hail insurance which insures growing crops against damage
resulting from hailstorms.  The Company also sells a small volume of insurance
against damage to specific crops from other named perils.  Like the
supplemental coverages, none of the named peril products involve federal
reinsurance or price subsidy participation.  During 2000 and 1999, the
Company's gross premium from named peril crop insurance including crop hail
was approximately $45.4 million and $47.7 million, respectively.

         Property and Casualty Insurance

                  During 2000, the principle lines of the Company's property
and casualty segment were property and casualty coverages, primarily on an
admitted basis, for the "staffing" industry, fine art and personal jewelry
exposures, condominiums, surety, prize indemnifications and noncrop
agricultural risks. These lines were marketed through independent insurance
agencies.

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

                  The Company has announced several strategic decisions over
the last three years which have significantly impacted the continuation of the
property and casualty segment. During 1998 and 1999, the Company discontinued
or reduced its underwriting in several product lines of property and casualty
business. In September 1999, the Company sold its nonstandard automobile
business, including Phoenix Indemnity Insurance Company ("Phoenix Indemnity").
In the first quarter of 2000 the Company transferred the renewal rights to all
business previously produced and serviced by the Company's Scottsdale, Arizona
office and its "long haul" trucking business. The net earned premiums for all
of these lines of business were approximately $79 million, $146 million and
$200 million in 2000, 1999 and 1998, respectively. In March 2001 the Company
announced that it had sold a significant portion of its remaining lines of
property and casualty business.   The net earned premiums for the lines of
business sold were approximately $19 million, $15 million and $15 million in
2000, 1999 and 1998, respectively.

                  In March 2001 the Company also announced its intention to
explore opportunities to reduce the remaining property and casualty business.
Based upon the above, the Company expects the property and casualty segment net
premiums earned in 2001 to be significantly lower than 2000 or other previous
years.
<PAGE>

                  The following table reflects the amount of gross premium
written and net premium written for the crop and property and casualty
insurance segments for the periods set forth below:


<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                                       ________________________________________________
                                                          2000              1999                 1998
                                                       _________          ________             ________
                                                                         (in thousands)
<S>                                                    <C>                <C>                  <C>
GROSS PREMIUMS WRITTEN:
Crop Insurance(1)......................................$298,432           $272,904             $256,956
Property and Casualty Insurance.........................188,868            420,037              444,004
                                                       ________           ________             ________
   Total...............................................$487,300           $692,941             $700,960
                                                       ========           ========             ========
NET PREMIUMS WRITTEN:
Crop Insurance(1).......................................$53,674            $42,059              $61,015
Property and Casualty Insurance..........................83,407            209,607              248,477
                                                       ________           _________            ________
   Total...............................................$137,081           $251,666             $309,492
                                                       ========           =========            ========
NET PREMIUMS EARNED:
Crop Insurance(1).......................................$53,674            $42,059              $61,015
Property and Casualty Insurance.........................132,999            206,653              267,029
                                                       _________          ________             ________
   Total...............................................$186,673           $248,712             $328,044
                                                       =========          =========            ========
</TABLE>
---------------
(1)      For a discussion of the accounting treatment of MPCI premiums, see
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations-General."

Management

                  In December 1999 Michael R. McCarthy was elected Chairman of
the Company's Board of Directors and John E. Martin was elected President and
Chief Executive Officer of the Company.  Other key members of management of the
Company are Charles E. Boyle, Chief Information Officer, Kim R. Gibson,
President of American Agrisurance Inc., J. Michael Gottschalk, Chief
Administrative Officer, General Counsel and Secretary, and Dwayne D. Hallman,
Chief Financial Officer and Treasurer.

Marketing

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

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

<PAGE>

Combined Ratios

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

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                            ___________________________________
                                                              2000          1999       1998
                                                            _________     _________  ________
<S>                                                         <C>           <C>        <C>
The Company
  Loss Ratio.................................................70.5%         88.0%(2)   72.3%(3)
  Expense Ratio..............................................66.2(1)       41.3       38.9
                                                            ________      _________  _________
  Combined Ratio............................................136.7%        129.3%     111.2%
                                                            ========      =========  =========
Industry Average(4)
  Loss Ratio.................................................81.5%         78.3%      76.5%
  Expense Ratio............................................. 28.8          29.2       29.5
                                                            _______       _________  _________
  Combined Ratio............................................110.3%        107.5%     106.0%
                                                            =======       =========  =========
</TABLE>


(1)        Information relating to the increase in the Company's 2000 expenses
           is discussed in "Management Discussion and Analysis of Financial
           Condition and Results of Operations-Results of Operation."
(2)        The $44.0 million reserve increase recorded by the Company in 1999,
           for 1998 and prior years, accounts  for 17.7% of the loss ratio for
           1999.  See "Loss and Loss Adjustment Expense Reserves."
(3)        The $24.2 million reserve increase recorded by the Company in 1998,
           for 1997 and prior years, accounts for 7.4% of the loss ratio for
           1998.  See "Loss and Loss Adjustment Expense Reserves."
(4)        Source: A.M. Best's Aggregates & Averages-Property Casualty (2000
           Edition).  Ratios for 2000 are unpublished but have been provided to
           the Company by A.M. Best.

Underwriting

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

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

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

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

Claims

                  The Company's crop and property and casualty claims
departments administer all claims and direct all legal and adjustment aspects
of the claims handling process.  To assist in settling claims the Company
regularly uses independent adjusters, attorneys and investigators, as well as
third party administrators for some specialty property and casualty lines.  The
Company's claims department is organized into three parts.

                  The crop claims department manages all claims arising out of
the Company's crop insurance operations through its home office staff and a
system of regional claims offices which supervise specially trained independent
adjusters.

                  The litigation and non-litigation departments manage all
claims arising out of the Company's property and casualty insurance operations.
The litigation department, which is organized by geographic area, handles
larger litigation claims files and other complex and serious claims.  The
non-litigation department, which also is organized by geographic area, handles
the other claims files and supervises the claims handlers.  These departments
emphasize the use of internal staff rather than independent adjusters,
improving claims processing systems and rapid response mechanisms.

Loss and Loss Adjustment Expense Reserves

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

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

                  In monitoring reserve adequacy the Company reviews historical
data and other data and, as additional experience and data become available,
revises estimates of reserves.  These revisions result in increases or
decreases to reserves for insured events of prior years.  In  2000, 1999 and
1998 the Company increased its reserves through charges to earnings of $8.2
million, $44.0 million, and $24.2 million, respectively, based upon its
reestimation of liability for losses and loss adjustment expenses for prior
accident years.

                  The $8.2 million charge in 2000 was primarily a result of the
development of 1999 CRCPlus losses of approximately $5.7 million.
<PAGE>
                  In the third quarter of fiscal 1999, the Company increased
reserves for 1998 and prior accident years by approximately $44.0 million. This
increase related primarily to an unexpected increase in the number of claims
relating to general liability coverage provided in 1995 and prior years to
contractors in the State of California as a result of the California Supreme
Court decision in Montrose Chemical Corporation v. Admiral Insurance Company
("Montrose"). In that decision, the Court adopted the "continuous trigger"
theory of insurance coverage for third-party liability claims involving
continuous, progressive or deteriorating bodily injury or property damages.
Under this theory, the time of the insured's act which allegedly caused the
accident, event or condition resulting in a claim is largely immaterial.  As
long as the potential damages remain outstanding, all of the insured
contractor's or subcontractor's successive insurance policies potentially may
provide coverage. Thus, the Court's Montrose decision created a new basis for
coverage under years of previously issued policies.  Beginning in 1996, the
Company altered its underwriting criteria for construction risks and began
endorsing policies exposed to these types of continuous exposures in order to
avoid coverage for conditions which existed prior to the inception of the
Company's policies.

                  During 1998 the Company discontinued several product lines
due to the continuation of unexpected loss development and pricing that was no
longer acceptable to the Company. These lines of business included coverages
for certain specialty automobile lines, aviation and complex general liability
risks.  As a result of these developments, management modified the assumptions
used in reserving 1997 and prior accident years for these lines.  This
modification created most of the unfavorable development during 1998.

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

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

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

                                                                         Years Ended December 31,
                                                             ____________________________________________
                                                               2000             1999             1998
                                                             ________         ________          ________
                                                                             (in thousands)
<S>                                                          <C>              <C>               <C>
Gross losses and loss adjustment expense
 reserves, beginning of year   ..............................$781,377         $524,744          $428,653

Reinsurance recoverable on unpaid losses
 and loss adjustment expenses, beginning of year..............502,537          238,769           165,547
                                                             _________        _________         _________
Net losses and loss adjustment expense
 reserves, beginning of year  ................................278,840          285,975           263,106
                                                             _________        __________        _________
Net incurred losses and loss adjustment
 expenses related to:
      Current year........................................... 123,386          174,762           212,894
      Prior years............................................   8,218           44,027            24,167
                                                            __________        _________        __________
                                                              131,604          218,789           237,061
                                                            __________        _________        __________
Net payments for losses and loss adjustment
 expenses related to:
     Current year.............................................(60,028)         (76,745)         (100,968)
     Prior years............................................ (116,504)        (123,158)         (113,224)
                                                            __________       __________        __________
                                                             (176,532)        (199,903)         (214,192)
                                                            __________       __________        __________
Net decrease related to sale of Phoenix Indemnity (net of
 reinsurance recoverable) ..........................              --           (26,021)              --
                                                            __________       ___________       ___________

Net losses and loss adjustment
 expense reserves, end of year..............................  233,912          278,840           285,975

Reinsurance recoverable on unpaid losses
 and loss adjustment expenses, end of year.................   383,979          502,537           238,769
                                                            __________       __________        __________

Gross losses and loss adjustment
 expense reserves, end of year.............................. $617,891         $781,377          $524,744
                                                            ==========        =========         =========
</TABLE>

<PAGE>











                  The following table presents the development of balance sheet
net loss reserves from calendar years 1990 through 2000.  The top line of the
table shows the loss reserves at the balance sheet date for each of the
indicated years.  These amounts are the estimates of losses and loss adjustment
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Company.  The middle section of the table shows the cumulative amount paid,
expressed as a percentage of the initial reserve amount, with respect to
previously recorded reserves as of the end of each succeeding year.  The lower
section of the table shows the re-estimated amount, expressed as a percentage
of the initial reserve amount, of the previously recorded reserves based on
experience as of the end of each succeeding year.  The estimate changes as more
information becomes known about the frequency and severity of claims for
individual years.  The "Net cumulative redundancy (deficiency)" caption
represents the aggregate percentage increase (decrease) in the initial reserves
estimated.  It should be noted that the table presents the "run off" of
balance sheet reserves, rather than accident or policy year loss development.
The Company computes the cumulative redundancy (deficiency) annually on a
calendar year basis.

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

                  The Company adopted Statement of Financial Accounting
Standards No. 113 ("SFAS #113"), "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," effective January 1, 1993.  The
application of SFAS #113 resulted in the reclassification of amounts ceded to
reinsurers, which amounts were previously reported as a reduction in unearned
premium and unpaid losses and loss adjustment expenses, to assets on the
consolidated balance sheet.  The table below includes a reconciliation of net
loss and loss adjustment expense reserves to amounts presented on the
consolidated balance sheet after reclassifications related to the adoption of
SFAS #113.  The gross cumulative deficiency is presented for 1992 through
1999, the only years on the table for which the Company has restated amounts
in accordance with SFAS #113.
<PAGE>



<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                     ___________________________________________________________________________________________
                                  1990     1991     1992     1993     1994     1995    1996    1997       1998     1999     2000
                                ________  _______  _______ ________ ________ _______ ________ ________  _________ _______ ________
<S>                             <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>       <C>      <C>      <C>
Net reserves for unpaid
  losses and loss
  adjustment expenses           $58,439  $66,132  $77,627 $115,714 $141,514 $201,356 $246,752 $263,106  $285,975 $278,840 $233,912
Cumulative amount of net
  liability paid through (1):
    One year later                40.6%    45.7%    36.1%    49.1%    51.0%    47.3%    44.7%    43.0%     46.7%    41.8%
    Two years later               70.8%    72.3%    73.6%    80.5%    86.1%    75.2%    71.8%    71.7%     73.7%
    Three years later             88.5%    96.6%    94.5%   100.9%   104.5%    93.1%    90.0%    89.8%
    Four years later             101.2%   108.1%   109.0%   108.8%   115.5%   102.8%   101.8%
    Five years later             107.5%   115.1%   114.9%   113.6%   121.6%   110.7%
    Six years later              109.7%   118.2%   118.2%   116.0%   127.0%
    Seven years later            111.4%   119.5%   119.4%   119.5%
    Eight years later            111.8%   120.6%   121.6%
    Nine years later             112.8%   121.8%
    Ten years later              113.2%
Net reserves reestimated as of:
    One year later               100.3%   103.5%   103.3%   104.4%   115.8%   104.7%   102.8%   109.2%    115.4%   102.9%
    Two years later              102.3%   109.9%   109.7%   114.5%   115.7%   106.6%   112.0%   119.9%   117.5%
    Three years later            107.4%   116.9%   117.9%   113.1%   120.5%   114.2%   121.7%   121.3%
    Four years later             110.7%   120.1%   117.7%   116.1%   125.9%   122.6%   123.7%
    Five years later             112.7%   119.9%   119.8%   118.2%   133.8%   125.1%
    Six years later              112.0%   120.5%   121.5%   121.3%   135.6%
    Seven years later            112.5%   121.9%   124.3%   124.2%
    Eight years later            113.4%   124.3%   125.3%
    Nine years later             114.8%   124.2%
    Ten years later              114.3%
Net cumulative redundancy
   (deficiency)                 (14.3)%  (24.2)%  (25.3)%  (24.2)%  (35.6)%  (25.1)%  (23.7)%  (21.3)%(17.5)%    (2.9)%

Gross reserves for unpaid loss and
  loss adjustment expenses                       $127,666 $211,600 $221,325 $369,244 $432,173 $428,653 $524,744  $781,377 $617,891
Reinsurance recoverable on unpaid
  loss and loss adjustment expenses                50,039   95,886   79,811  167,888  185,421  165,547  238,769   502,537  383,979
Net reserves for unpaid loss and                 ________ ________ ________ ________ ________ ________ ________  ________ ________
  loss adjustment expenses                       $ 77,627 $115,714 $141,514 $201,356 $246,752 $263,106 $285,975  $278,840 $233,912
                                                 ======== ======== ======== ======== ======== ======== ========  ======== ========
Reestimated gross reserves for unpaid
  loss and loss adjustment expenses                116.8%   123.7%   141.0%   120.8%   121.4%   130.6%   123.8%    103.2%
Reestimated reinsurance recoverable
  on unpaid loss and loss adjustment
  expenses                                         103.6%   123.2%   150.6%   115.6%   118.3%   145.5%    131.4%   103.3%

Reestimated net reserves for unpaid
  loss and loss adjustment expenses                125.3%   124.2%   135.6%   125.1%   123.7%   121.3%   117.5%    102.9%
                                                  ======   ======   =======  =======  =======  ======   ======    =======
Gross cumulative redundancy (deficiency)          (16.8)%  (23.7)%  (41.0)%  (20.8)%  (21.4)%  (30.6)%  (23.8)%   (3.2)%
                                                  =======  =======  =======  =======  =======  =======  =======   =======

</TABLE>

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

<PAGE>
Reinsurance

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

                  The Company reinsures its MPCI business with various FCIC
reinsurance pools administered by the RMA.  The Company's profit or loss from
its MPCI business is determined after the crop season ends on the basis of a
profit sharing formula established by law and the RMA.  The Company's
net exposure on MPCI business is further reduced by excess of loss reinsurance
purchased from private reinsurers.  This excess of loss reinsurance generally
provides coverage for 95% of losses in excess of a $3,000,000 deductible after
the Company's loss ratio reaches specified limits for each line of business,
ranging from 75% to 80% on crop hail and named peril business and 100% on MPCI
business.  The Company limits this coverage to an aggregate amount determined
annually consistent with the Company's anticipated premium, catastrophic loss
risk exposure and RMA regulations.  Additionally the Company's named peril,
crop hail and supplemental business is reinsured through quota share
agreements, ceding from 50% to 90% to reinsurers.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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

                  The Company generally retains the first $500,000 of risk
under its property and casualty lines of business, ceding the next $1,500,000
(on a per risk basis) on property and $5,500,000 (on an occurrence basis) on
casualty, respectively to reinsurers. To the extent individual policies
exceed reinsurance treaty limits, the Company purchases reinsurance on a
facultative (specific policy) basis.  In addition, the Company further reduces
its net exposures per risk on certain lines of business through further excess
of loss or quota share reinsurance programs.

                  The Company maintains catastrophe reinsurance for its
casualty lines which provides coverage for $14 million in excess of $6 million
of aggregate risk per occurrence, and for its property lines, which provides
coverage of 95% of $110 million in excess  of a $2.5 million retention per
occurrence.  The Company reviews the concentrations of property values in its
property lines of business continually and models possible losses for
catastrophic events through computer simulations of different levels of storm
activity, adjusting the required limit of  liability or the concentrations of
property coverage as deemed appropriate.

                  In its workers' compensation line, the Company buys excess of
loss protection on a statutory basis.  The Company's retention varies between
$100,000 and $600,000 per occurrence, depending upon the program.

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

                  At December 31, 2000, 89% of the Company's outstanding
reinsurance recoverables were from domestic reinsurance companies or the federal
government, 96% of which was from reinsurance companies rated A- (excellent)
or better by A.M. Best or from the federal government.  The balance was
primarily placed with major international reinsurers.

<PAGE>

Investments

                  The Company's investment policy is to maximize the after-tax
yield of the portfolio while emphasizing stability and preservation of the
Company's capital base.  Further, the portfolio is invested in types of
securities with average durations which reflect the Company's liabilities and
expected liquidity needs.  The Company determines the strategies and parameters
for the investment of its portfolio, and an external investment manager
executes trades consistent with the Company's strategies and parameters.  The
investment portfolio at December 31, 2000 and 1999, consisted of the
following:

<TABLE>
<CAPTION>


                                                                    December 31, 2000      December 31, 1999
                                                                   _____________________  _____________________
                                                                   Amortized   Estimated  Amortized  Estimated
                                                                     Cost      Fair Value   Cost     Fair Value
                                                                   _________   __________ ________   _________
Type of Investment                                                                (in thousands)
__________________
<S>                                                                 <C>        <C>        <C>        <C>
Fixed maturities:
  U.S. Treasury and government securities...........................$166,827   $166,509   $ 87,421   $ 85,094
  States, municipalities and political subdivisions.................. 42,415     42,349    132,805    126,195
  Mortgage-backed securities.......................................... 9,617      9,194     24,902     21,277
  Other debt securities............................................... 9,373      8,489     19,191     17,823
                                                                    ________   ________    _______   ________
       Total fixed maturities....................................... 228,232    226,541    264,319    250,389

  Marketable equity securities....................................... 22,661     17,638     30,488     25,081
  Real estate......................................................   11,455     11,455     12,096     12,096
  Short-term investments............................................  55,599     55,599    104,702    104,702
  Restricted short-term investments................................   33,050     33,050     31,350     31,350
                                                                    ________   ________   ________   ________
       Total........................................................$350,997   $344,283   $442,955   $423,618
                                                                    ========   ========   ========   ========
</TABLE>

Fixed Maturities

         Fixed maturities constituted 65.8% of the Company's investments at
December 31, 2000. The Company determines the mix of its investment in taxable
and tax-exempt securities based on its current and projected  tax position and
the relationship between taxable and tax-exempt investment yields. As of
December 31, 2000, taxable bonds accounted for approximately 81.3% of total
fixed maturities. Fixed maturity investments are classified as
available-for-sale and carried on the Company's balance sheet at estimated fair
value, with unrealized gains and losses (net of taxes) recorded in
stockholders' equity as accumulated other comprehensive income. At December 31,
2000, the pre-tax net unrealized losses on available-for-sale fixed maturities
totaled $1.7 million.  At December 31, 2000, approximately $86 million of fixed
maturities were pledged in order to secure the Company's obligations under
reinsurance agreements.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Sale of Redland Insurance Company" for
additional information.

Marketable Equity Securities

          Equity holdings comprised 5.1% of the Company's investments at
December 31, 2000, and consist of a diversified portfolio of unaffiliated
common and preferred stocks.

Real Estate

          Real estate represents investments in a mortgage loan in the amount
of $8.4 million and unimproved land of $3.1 million as of December 31, 2000.
The mortgage loan is secured by a building and land and the ultimate
collectability of the loan is evaluated continuously.

Short-Term Investments

         The Company's portfolio also includes short-term securities and other
miscellaneous investments, which in the aggregate comprised 16.2% of total
investments at December 31, 2000. Due to the short-term nature of crop
insurance and the decreasing emphasis on property and casualty lines of
business, the Company must maintain short-term investments to fund losses.
At December 31, 2000, approximately $6 million of short-term investments were
pledged in order to secure the Company's obligations under reinsurance
agreements.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Sale of Redland Insurance Company" for
additional information.

<PAGE>

Restricted Short-Term Investments

         The restricted short-term investments balance is comprised of
short-term securities deposited with a trustee for the Company's issuance of an
outstanding letter of credit.  These funds will become available to the Company
over the next six years.



         The following table sets forth, as of December 31, 2000, the
composition of the Company's fixed maturity securities portfolio by stated
maturity dates. Actual maturities may differ from stated maturities because
the borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties (dollars in thousands):

<TABLE>
<CAPTION>

                                                                          Estimated
     Maturity                                                             Fair Value      Percent
     ________                                                             __________      _______
<S>                                                                       <C>             <C>
Due in one year or less...................................................$  26,016        11.5%
Due after one year through five years...................................... 121,010        53.4%
Due after five years through ten years...................................... 27,361        12.1%
Due after ten years......................................................... 42,960        19.0%
Mortgage-backed securities................................................... 9,194         4.0%
                                                                           ________       ______
     Total.................................................................$226,541       100.0%
                                                                           ========       ======

</TABLE>


<PAGE>

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

 <TABLE>
<CAPTION>

                                                                                   Years Ended December 31,
                                                                               ________________________________
                                                                                 2000       1999        1998
                                                                               ________   ________    _________
                                                                               (in thousands, except percentages)
<S>                                                                            <C>        <C>         <C>
Net investment income..........................................................$ 24,679   $ 25,064    $ 28,320
Average investment
  portfolio(1)................................................................. 413,758    472,569     497,649
Pre-tax return on average
  investment portfolio.........................................................    6.0%       5.3%        5.7%
Net realized gains..............................................................$ 2,120   $ 10,203    $  6,825
Change in unrealized gain (loss) on available-for-sale securities ...........  $ 12,620   $(27,497)   $ (2,431)

</TABLE>

---------------
(1)      Represents the average of the beginning and ending investment
         portfolio (excluding unimproved land) computed on a quarterly basis.

Regulation

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

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

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

<PAGE>


                  Except for interest on surplus notes issued by the Insurance
Companies and payments from American Agrisurance, Inc. ("American Agrisurance")
under a profit sharing agreement, the Company is dependent for funds to pay its
operating and other expenses upon dividends and other distributions from the
Insurance Companies, the payment of which are subject to review and
authorization by state insurance regulatory authorities.  Under Nebraska law,
no domestic insurer may make a dividend or distribution which, together with
dividends or distributions paid during the preceding 12 months, exceeds the
greater of (i) 10% of such insurer's policyholders' surplus as of the
preceding December 31 or (ii) such insurer's statutory net income (excluding
realized capital gains) for the preceding calendar year, until either it has
been approved, or a 30-day waiting period shall have passed during
which it has not been disapproved, by the Nebraska Insurance Director.  The
maximum amount of dividends the Insurance Companies may pay to the Company is
limited to its earned surplus, also known as unassigned funds.  The tiered
structure of the Company's insurance subsidiaries effectively imposes two
levels of dividend restriction on the payment of dividends to the Company by
Acceptance Indemnity. During 2001 the statutory limitation on dividends from
the Insurance Companies to the Company without further insurance department
approval is approximately $5.7 million.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources-The Company-Parent Only".

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

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

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

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

<PAGE>
                  The NAIC has approved and recommended states adopt and
implement several regulatory initiatives designed to provide regulators an
early warning tool to identify deteriorating or weakly capitalized insurance
companies and to decrease the risk of insolvency of insurance companies.  These
initiatives include the implementation of Risk Based Capital ("RBC") standards
for determining adequate levels of capital and surplus to support four areas of
risk facing property and casualty insurers: (i) asset risk (default on fixed
income assets and market decline); (ii) credit risk (losses from unrecoverable
reinsurance and inability to collect agents' balances and other receivables);
(iii) underwriting risk (premium pricing and reserve estimates); and
(iv) off-balance sheet/growth risk (excessive premium growth and unreported
liabilities).  At December 31, 2000 the Insurance Companies met the RBC
requirements as promulgated by the domiciliary states of the Insurance
Companies and the NAIC.

                  The NAIC also maintains an Insurance Regulatory Information
System ("IRIS") to assist state insurance departments in identifying
significant changes in the operations of an insurance company, such as
changes in its product mix, large reinsurance transactions, increases or
decreases in premiums received and certain other changes in operations.  Such
changes may not result from any problems with an insurance company but may
merely indicate changes in certain ratios outside ranges defined as normal by
the NAIC.  When an insurance company has four or more ratios falling outside
"normal ranges," state regulators may investigate to determine the reasons for
the variance and whether corrective action is warranted.  At December 31, 2000
each of the Insurance Companies had less than four ratios falling outside
"normal ranges."

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


<PAGE>
Uncertainties Affecting the Insurance Business

                    In the crop insurance business, the Company competes with
other crop insurance companies primarily on the basis of service, supplemental
products and commissions to agents.  The Company estimates that there are more
than 18 property and casualty insurers that compete in the MPCI line of
business. Many of the Company's competitors could have greater financial and
other resources than the Company. The Company's results are significantly
impacted by its crop business, particularly its MPCI line.  Since the Company's
products insure crop prices, yields or both, the Company's results are subject
to numerous factors and events that it cannot control.  Initial estimated
results from the crop lines are not recorded until the fourth quarter of the
year, after crops are harvested and final market prices are established.  Crop
results are particularly dependent on events beyond the Company's control,
notably weather conditions during the crop growing seasons in the states where
the Company writes substantial amounts of crop insurance, the market price of
grains on various commodity exchanges, overall worldwide supply and demand, the
continuing globalization of the crop industry and its effect on the export of
crops to other countries and the volatility of crop prices resulting from
domestic and foreign policy decisions.  Additionally, federal regulations
governing aspects of crop insurance are frequently modified, and all such
changes may impact the results of the Company's crop insurance business.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-General."

                  The property and casualty insurance business is highly
competitive, with over 3,000 insurance companies in the United States, many of
which have substantially greater financial and other resources, and may offer
a broader variety of coverages than those offered by the Company.  For the past
several years there has been severe price competition in the property and
casualty insurance industry which has resulted in a reduction in the volume
of premiums written by the Company in some of its lines of business because of
its unwillingness to reduce prices to meet competition or its decision to
completely withdraw from a particular product line.

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

                  The Company's results also may be influenced by factors
influencing the insurance industry generally and which are largely beyond the
Company's control.  Such factors include (i) weather-related catastrophes;
(ii) taxation and regulatory changes at both the federal and state level;
(iii) changes in industry standards regarding rating and policy forms;
(iv) significant changes in judicial attitudes towards one or more types of
liability claims; (v) the cyclical nature of pricing in the industry; and
(vi) changes in the rate of inflation, interest rates and general economic
conditions.

                  On November 29, 1999, A.M. Best downgraded the rating of the
Insurance Companies from A- to B++.  Some agents require an A- or better rating
for certain lines of business, particularly some of the Company's property and
casualty programs.  In order to mitigate the impact of the A.M. Best rating
change, the Company entered into an agreement with Clarendon National Insurance
Company to provide A rated paper for its customers.  While the Company was able
to address the rating change, it also increased the Company's operating expense
levels. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Sale of Redland Insurance Company".


                  The insurance business is highly regulated and supervised in
the states in which the Insurance Companies conduct business.  The crop
insurance lines are partially subject to state regulation and also are subject
to significant additional federal regulation.  The regulations relating to the
property and casualty and crop insurance business at both the state and federal
level are frequently modified and such modifications may impact future
insurance operations.  See "Regulation."


<PAGE>

                  Adverse loss experience for prior years resulted in an
increase in loss reserves for the years ended December 31, 2000 and 1999, in
the amounts of $8.2 million and $44.0 million, respectively.  The establishment
of appropriate loss reserves is an inherently uncertain process and it has been
necessary, and may be necessary in the future, to revise estimated loss reserve
liabilities. See "Loss and Loss Adjustment Reserves," for a further discussion
of factors which may, in the future, influence loss reserve estimates.

                  Property and casualty insurance is a capital intensive
business and the Company is obligated to maintain minimum levels of surplus in
the Insurance Companies in order to continue writing insurance at current
levels or to increase its writings, and also to meet various operating ratio
standards established by state insurance regulatory authorities and by
insurance rating bureaus.  The Company continually reviews the surplus needs
of the Insurance Companies, and from time to time may determine to seek
additional funding.  For a discussion of the Company's liquidity and capital
resources, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

Employees

                  At March 6, 2001 the Company had 386 employees in its crop
insurance segment, 110 employees in its property and casualty insurance segment
and 280 employees that were not allocated to the two segments, for a total of
776 employees.  Acceptance believes that relations with its employees are good.

Item 2.  Properties.

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

<TABLE>
<CAPTION>

                                                General                            Leased/
Location                                        Character          Size            Owned(1)
________                                        _________      ______________      ________
<S>                                             <C>            <C>                 <C>
Omaha, NE.......................................Office          58,000 sq. ft.     Leased(2)
Council Bluffs, IA..............................Office         142,000 sq. ft.     Leased
Council Bluffs, IA..............................Office          33,000 sq. ft.     Owned
Whitsett, NC....................................Office           4,800 sq. ft.     Leased
Itasca, IL......................................Office           3,800 sq. ft.     Leased
Overland Park, KS...............................Office           1,319 sq. ft.     Leased

</TABLE>


---------------
(1)      The range of expiration dates for these leases is November 30, 2001
         (Omaha), December 31, 2001 with five-year option (Council Bluffs),
         June 30, 2001 (Whitsett), August 31, 2001 (Itasca), and December 31,
         2001 (Overland Park).
(2)      21,167 square feet are subleased to a third party.  The sublease
         expires on November 30, 2001.

<PAGE>

Item 3.  Legal Proceedings.

                  In December 1999, the Company was sued in the United States
District Court for the District of Nebraska.  Plaintiffs alleged the Company
knowingly and intentionally understated the Company's liabilities in order to
maintain the market price of the Company's common stock at artificially
high levels and made untrue statements of material fact, 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 a registration statement filed in
conjunction with the Company's Redeemable Preferred Securities.

                  The Court consolidated these suits in April 2000 as
In re Acceptance Insurance Companies Securities Litigation (USDC, Nebraska,
No. 8:99CV547).  Plaintiffs subsequently filed a consolidated class action
complaint.  Plaintiffs sought to represent a class consisting of all persons
who purchased either Company common stock between March 10, 1998 and November
16, 1999, or AICI Capital Trust Preferred Securities between the July 29, 1997
public offering and November 25, 1999.  In the consolidated complaint,
plaintiffs alleged violation of Section 11 of the Securities Act of 1933
through misrepresentation or omission of a material fact in the registration
statement for the trust preferred securities, and violation of Section 10b of
the Securities Exchange Act of 1934 and Rule 10b-5 of the U.S. Securities and
Exchange Commission through failure to disclose material information between
March 10, 1998 and November 16, 1999.  The Company, three of its former
officers, the Company's Directors and independent accountants and other
individuals, as well as the financial underwriters for the Company's
preferred securities, were defendants in the consolidated action.

                  On March 2, 2001, the Court entered an order dismissing all
claims alleging violations of Section 11 of the Securities Act, and dismissing
the Company's Directors, financial underwriters, independent accountants and
others as defendants in this action.  The Court also ruled that allegations
regarding the remaining defendants' alleged failure to properly report
contingent losses attributable to Montrose (See "Business-Loss and Loss
Adjustment Expense Reserves") failed to state a claim under the Section 10b
and Rule 10b-5.  As a result of the Court's ruling, the litigation has been
reduced to a claim the Company and three of its former officers, during the
period from July 29, 1997 to November 16, 1999, failed to disclose adequately
information about various aspects of the Company's operations other than the
exposure to losses resulting from the Montrose decision.  Claimants seek
compensatory damages, reasonable costs and expenses incurred in this action
and such other and such further relief as the Court may deem proper.

                  The Company intends to vigorously contest this action and
believes the claimants' allegations are without merit.  Nevertheless, the
ultimate outcome of this action cannot be predicted at this time and the
Company currently is unable to determine the potential 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 security holders
during the fourth quarter of the fiscal year ended December 31, 2000.

<PAGE>

PART II.

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

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

<TABLE>
<CAPTION>


                                                                              High                  Low
                                                                           _________               _______
<S>                                                                          <C>                    <C>
Year Ended December 31, 1999
  First Quarter............................................................. 20 7/16                13 5/16
  Second Quarter............................................................ 15 11/16               12 1/16
  Third Quarter............................................................. 15 15/16               11 3/4
  Fourth Quarter............................................................ 15 1/8                  4 7/8

Year Ended December 31, 2000
  First Quarter............................................................. 5 15/16                2 3/4
  Second Quarter............................................................ 5 9/16                 3 3/4
  Third Quarter............................................................. 6 15/16                4 1/16
  Fourth Quarter............................................................ 6 3/4                  4

</TABLE>
As of March 26, 2001, there were approximately 947 holders of record of the
Common Stock.

                  The Company has not paid cash dividends to its shareholders
during the periods indicated above and does not anticipate that it will pay
cash dividends in the foreseeable future.  See "Regulation" for a description
of restrictions on payment of dividends to the Company from the Insurance
Companies.

Item 6.  Selected Consolidated Financial Data.

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


<PAGE>

<TABLE>
<CAPTION>


                                                                                Years Ended December 31,
                                                        _________________________________________________________________________
                                                         2000(1)         1999(1)         1998(1)         1997(1)         1996(1)
                                                        _________       ________       _________       ________         _________
                                                                       (in thousands, except per share data and ratios)
<S>                                                     <C>             <C>            <C>             <C>              <C>
Income Statement Data:
  Revenues:
    Gross premiums written..............................$487,300        $692,941       $700,960        $665,810         $651,060
                                                        ========        ========       ========        ========         ========
    Net premiums written................................$137,081        $251,666       $309,492        $335,064         $366,949
                                                        ========        ========       ========        ========         ========
    Net premiums earned.................................$186,673        $248,712       $328,044        $335,215         $348,653
    Net investment income...............................  24,679          25,064         28,320          28,016           26,491
    Net realized capital gains..........................   2,120          10,203          6,825           7,321            5,216
    Agency income.....................................        --              --             --              --            1,035
                                                        _________       ________       _________       _________        _________
Total revenues                                           213,472         283,979        363,189         370,552          381,395

  Costs and expenses:
    Losses and loss adjustment
      expenses.......................................... 131,604         218,789        237,061         213,455          243,257
    Underwriting and other expenses...................... 98,876         108,529        104,736          97,109           95,803
    Write-off of excess of cost over acquired net assets...9,910              --             --              --               --
    Agency expenses..................................         --              --             --              --            1,024
    General and administrative expenses.................   1,919           4,592          3,502           2,063            2,015
                                                        ________        ________       _________       ________         _________
  Total expenses........................................ 242,309         331,910        345,299         312,627          342,099
                                                        ________        _________      _________       ________         _________
  Operating profit (loss)  ........................     (28,837)         (47,931)        17,890          57,925           39,296

  Other expense:
    Interest expense...................................  (8,677)          (9,058)        (8,994)         (6,569)          (4,896)
    Other expense, net..............................          --             (67)          (816)            (51)            (910)
                                                        ________         ________      _________       _________        _________
    Income (loss) before income taxes
      and cumulative effect of change
      in accounting principle ......................... (37,514)         (57,056)         8,080          51,305           33,490

  Income tax expense (benefit).........................  (8,665)         (21,436)         2,544          15,992            3,210
 Cumulative effect of change in
    accounting principle........................              --           (338)             --              --               --
                                                      __________       __________       ________       _________        _________
  Net income  ........................................$ (28,849)       $ (35,958)       $ 5,536        $ 35,313         $ 30,280
                                                      ==========       ==========       ========       =========        =========
  Net income
    per share:
      Basic...........................................$   (2.02)      $   (2.52)        $   .37        $   2.34         $   2.03
      Diluted............................................ (2.02)          (2.52)            .37            2.30             1.99

Ratios:
  Loss ratio..........................................    70.5%           88.0%           72.3%           63.7%            69.7%
  Expense ratio.......................................    53.0%           43.6%           31.9%           28.9%            27.5%
                                                      _________       ___________       _______        _________        __________
  Combined loss and expense ratio....................    123.5%          131.6%          104.2%           92.6%            97.2%
                                                      =========       ===========       =======        =========         =========

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                  Years Ended December 31,
                                                        __________________________________________________________________________
                                                          2000            1999            1998            1997            1996
                                                        _________     __________       _________        ________        ________

<S>                                                     <C>           <C>              <C>              <C>             <C>
Balance Sheet Data:
  Investments...........................................$344,283      $  423,618       $  489,397       $452,717        $405,926
  Total assets...........................................963,982       1,278,312        1,092,943        979,453         884,380
  Loss and loss adjustment
    expense reserves.....................................617,891         781,377          524,744        428,653         432,173
  Unearned premiums...................................... 34,772         127,938          162,037        157,134         140,217
  Borrowings and term debt..............................     --               --           15,000             --          69,000
  Company-obligated mandatorily
    redeemable Preferred Securities
    of AICI Capital Trust, holding
    solely Junior Subordinated
    Debentures of the Company...........................  94,875          94,875           94,875         94,875              --
  Stockholders' equity.................................. 160,481         180,958          236,154        253,670         207,820

Other Data:
  Statutory Surplus of Insurance
    Companies(2)........................................ 140,248         158,551          236,041        238,520         191,455
</TABLE>


__________________

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

(2)      Statutory data has been derived from the separate financial statements
         of the Insurance Companies prepared in accordance with SAP.  The
         decline in statutory surplus from 1999 to 2000 was primarily related
         to the net loss incurred by the Insurance Companies.  The decline in
         statutory surplus from 1998 to 1999 was partially related to the net
         loss incurred by the Insurance Companies, the repayment of a $20
         million surplus note and $6.0 million dividend payment by Redland.


<PAGE>


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

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

General

                  The principal lines of the Company's crop insurance segment
are Multi-Peril Crop Insurance (MPCI), supplemental coverages, and named peril
insurance.  MPCI is a federally subsidized risk management program designed to
encourage farmers to manage their risk through the purchase of insurance
policies. MPCI provides farmers with yield coverage for crop damage from
substantially all natural perils.  CRC is an extension of the MPCI program
which provides farmers with protection from revenue loss caused by changes in
crop prices, low yields or both.  As used herein, the term MPCI includes CRC,
unless the context indicates otherwise.  For the year ended December 31, 2000,
the Company had a market share of approximately 15% of MPCI business written
in the United States.

                  The accounting treatment for MPCI is different than the more
traditional property and casualty insurance lines.  For income statement
purposes, gross premiums written consist of the aggregate amount of MPCI
premiums paid by farmers, and does not include any related federal premium
subsidies. The Company's profit or loss from its MPCI business is determined
after the crop season ends on the basis of a profit sharing formula established
by law and the RMA.  For income statement purposes, any such profit share
earned by the Company, net of the cost of third party reinsurance, is shown as
net premiums written, which equals net premiums earned for MPCI business;
whereas, any share of losses payable by the Company is charged to losses and
loss adjustment expenses.  Due to various factors, including timing and
severity of losses from storms and other natural perils and crop production
cycles, the profit or loss on MPCI premiums was primarily recognized in the
second half of the calendar year for 1999 and prior years.  Due to the nature
of the CRC product whereby results are influenced by changes in the market
prices of various commodities in the fourth quarter and the increasing
significance of CRC as a percentage of MPCI, the Company recorded its initial
estimate of the profit or loss for the 2000 crop results in the fourth quarter
of 2000.   The Company relies on loss information from the field to determine
(utilizing a formula established by the RMA) the level of losses that should be
considered in estimating the profit or loss during this period.

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

                  In its property and casualty segment, the Company sold its
nonstandard automobile business including Phoenix Indemnity in 1999,
transferred its general agency business produced by its Scottsdale office and
its transportation business to other carriers in 2000, and in 2001 announced it
had sold a significant portion of its remaining property and casualty business.
These transactions are part of the Company's strategy in this segment.  See
"Business-Company Strategy" and "-Business Segments."



<PAGE>

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

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

                  The Company's results are significantly impacted by its crop
business, particularly its MPCI line.  Initial estimated results from the crop
lines are not generally recorded until the fourth quarter of the year, after
crops are harvested and final market prices are established.  Crop segment
results are particularly dependent on events beyond the Company's control,
notably weather conditions during the crop growing seasons in the states where
the Company writes a substantial amount of its crop insurance, the market price
of grains on various commodity exchanges and overall worldwide supply and
demand, the continuing globalization of the crop industry and its effect on the
export of crops to other countries and the volatility of crop prices resulting
from domestic and foreign policy decisions.  Additionally, federal regulations
governing aspects of crop insurance are frequently modified, and any such
changes may impact crop insurance results.

                  Forward-looking information set forth herein does not take
into account any impact from any adverse weather conditions during the 2001
crop season, or the various other factors noted above which may affect crop
and noncrop operation results.  See "Business-Uncertainties Affecting the
Insurance Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General" above for additional information
regarding these events and factors.

Results of Operations

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

                  The Company's net loss decreased from $36.0 million for the
year ended December 31, 1999 to a net loss of $28.8 million for the year ended
December 31, 2000.  The reduction in net loss was primarily a result of the
strengthening of reserves for loss and loss adjustment expenses in 1999,
charges in 1999 associated primarily with the divestitures of various lines of
property and casualty business, and the increase in 1999 MPCI profit share
recorded in 2000.  Partially offsetting these effects was a decrease
in net realized capital gains, a write-off of excess of costs over acquired
net assets, development of 1999 CRCPlus losses in 2000, and a charge related
to the settlement of the class action suit by rice producers in 2000.


<PAGE>

                  The underwriting loss from the Company's crop segment
increased from $3.7 million in 1999 to $22.6 million in 2000.   The MPCI
premium volume increased from $365 million in 1999 to $375 million in 2000.
The Company's core markets areas increased by approximately $35 million while a
reduction of $25 million was achieved in less profitable areas.  During 2000
the Company earned a profit share of $40.0 million on its MPCI retained pool of
approximately $232.0 million while in 1999 the Company earned a profit share of
$40.1 million on approximately $246.1 million retained premium pool. In 2000
and 1999, the Company recorded additional profit share relating to previous
years of approximately $11.0 million and $.8 million, respectively. As a
percent of premium, the Company experienced a reduction in the 2000 crop year
profit share due to drought conditions, particularly in Nebraska and Iowa. The
Company utilizes both the FCIC reinsurance program and third party reinsurance
in order to manage volatility in loss exposure. During 2000 the Company
increased its utilization of the FCIC reinsurance program and increased third
party reinsurance protection. The Company ceded a portion of the profit share
related to approximately $66 million and $35 million of its retained premium
under the MPCI program for 2000 and 1999, respectively, to reinsurers
participating in its overall crop reinsurance programs which resulted in an
additional cost to the Company of $5.1 million in 2000 as compared to 1999. The
Company expects to continue to cede portions of its premiums under MPCI
programs in the future in order to secure the required reinsurance capacity for
its crop programs.  Additionally, the Company expects $7.5 million of the
reinsurance costs to continue each year for up to six years in the future. The
Company has obtained a letter of credit to secure the expected future ceded
premiums.

                  The results for 2000 reflect an increase of approximately
$12.5 million in MPCI operating expenses primarily related to higher commission
costs and an increase in the amount of corporate expenses allocated to the crop
segment. The Company continued to be negatively impacted by the decrease in the
reimbursement rate used for reimbursement of expenses related to operating its
MPCI program. The year 2000 also includes an increase of $4.0 million in
settlement and legal expenses related to the settlement of a class action suit
by rice producers, $6.7 million in underwriting charges for adverse loss
development resulting from higher than expected payments on 1999 CRCPlus
losses, and $3.1 million of underwriting losses for crop hail resulting from
late season storms in the Midwest.

                  The Company's property and casualty segment was impacted in
2000 by the sale of its nonstandard automobile business in the third quarter of
1999 and by the transfer in the first quarter of 2000 of the renewal rights for
all business previously produced and serviced by the Company's Scottsdale,
Arizona office and for its "long haul" trucking business.  Accordingly, gross
written premiums and net earned premiums decreased by approximately 45% and
38%, respectively, during 2000 compared to 1999.  The Company expects further
reductions in property and casualty segment premiums due to 74% of the net
earned premiums for 2000 being from lines of business discontinued during the
past three years or included the Company's sale of property and casualty lines
announced in March 2001.  The Company is exploring opportunities to reduce the
remaining property and casualty business.

                  As a result of the sale of a significant portion of its
property and casualty business and based upon estimated future discounted cash
flows, the Company concluded that the excess of cost over acquired net assets
was partially impaired by approximately $9.9 million.  As such, the Company
recorded a $9.9 million charge for the write-off of cost over acquired net
assets in the fourth quarter of 2000.

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

                  The Company's net investment income declined from
approximately $25.1 million in 1999 to $24.7 million in 2000.  This decrease
in investment income was primarily affected by a decline in the size of the
average outstanding portfolio of the Company from approximately $473 million
in 1999 to $414 million in 2000.  Partially offsetting this was an increase in
the yield on the portfolio to 6.0% for 2000 compared to 5.3% for 1999. During
the fourth quarter of 2000 and continuing into 2001 the Company has liquidated
a substantial portion of the municipal securities. The Company anticipates that
the municipal security holdings will represent less than 5% of the portfolio.


<PAGE>


Year ended December 31, 1999
Compared to Year Ended December 31, 1998

                  The Company's net income decreased from $5.5 million for the
year ended December 31, 1998 to a net loss of $36.0 million for the year ended
December 31, 1999.  The results for 1999 were impacted by a strengthening of
the Company's reserves for loss and loss adjustment expense, a reduction in net
premiums written in the Company's property and casualty segment, an increase in
net operating expenses as well as an increase in reinsurance costs in the
Company's crop segment, a decline in MPCI profit share, and a decline in
investment income.  Additionally, certain charges affected the comparison
of results from 1998 to 1999. Results in 1999 were negatively impacted by
charges associated primarily with the divestitures of various lines of property
and casualty business. They include severance costs, charges relating to
discontinued software development, reduction of certain deferred policy
acquisition costs and an increased allowance for doubtful accounts.  Also
included in 1999 results were charges associated with the Company's disputes
with state regulatory authorities regarding its crop insurance business and the
evaluation of strategic and capital alternatives.

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

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

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

                  The Company experienced increased demand for its crop segment
products during 1999 as compared to 1998, particularly products sold under the
federally subsidized MPCI program and the Company's proprietary CRCPlus
product.  During 1999, the Company's MPCI premiums increased to approximately
$365 million from $274 million in 1998.  In 1999 the Company's net expenses as
a percentage of written premiums increased from 1998 to 1999 due to a decrease
in the rate at which the Company is reimbursed by the federal government for
the expenses of operating its MPCI program. In 1998 the Company's reimbursement
rate was approximately 24.7%, while in 1999 this reimbursement rate fell to
21.6%.  Due to competitive pressures, the Company was unable to pass any of
this expense reduction along to its agents as agents' commissions remained
relatively constant.

<PAGE>

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

                  The Company ceded a portion of the profit share related to
approximately $35.0 million of its retained premiums under the MPCI program for
1999 to reinsurers participating in its overall crop reinsurance programs.
Additionally, in order to maintain its aggregate retained risk near historic
levels, the Company's excess reinsurance costs increased by $8.2 million during
1999 as compared to 1998.

                  During 1999 the Company earned a profit share of $40.1
million on its MPCI retained pool of approximately $246.1 million while in
1998 the Company earned a profit share of $49.1 million on $196.5 million
retained premium pool. Also, in 1999 and 1998, the Company recorded additional
profit share relating to previous years of approximately $.8 million and $4.0
million, respectively.

                  The decrease in operating profits from $33.9 million in 1998
to $0.8 million in 1999 was primarily attributable to the decrease in
reimbursement rate, increase in reinsurance costs, the higher operating costs
and less profit share.

                  The Company's net investment income declined from
approximately $28.3 million for the year ended December 31, 1998 to  $25.1
million for 1999.  This decline in the investment income of the Company was
affected by a decline in the size of the average outstanding portfolio of the
Company from $498 million during the year ended December 31, 1998 to $473
million for 1999.  In addition, the yield on the portfolio declined from 5.7%
during the year ended December 31, 1998 to 5.3% for 1999.  This decrease in
yield primarily resulted from several of the Company's higher yielding
preferred stock investments being called and a decrease in the Company's
mortgage backed security portfolio. The mortgage backed securities were on
average, $23 million less for 1999 versus 1998 as the Company reduced
both the interest rate risk and the investment yield on its mortgage backed
portfolio through the elimination of substantially all of its inverse floating
rate collateralized mortgage obligations. Net realized gains approximated $10.2
million for the year ended December 31, 1999 as compared to $6.8 million in
1998.

Liquidity and Capital Resources

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

The Company - Parent Only

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


                  At December 31, 2000, the Company has $9.2 million in cash,
short-term investments and fixed maturity securities.  Additionally, the
Company has $33.1 million of restricted short-term investments.  The
restricted short-term investments is comprised of investments deposited with a
trustee for the Company's issuance of an outstanding letter of credit relating
to reinsurance coverage on certain crop insurance products.  These funds will
become available to the Company over the next six years.  The Company also
holds two surplus notes, each in the amount of $20 million, issued by two of
its insurance company subsidiaries, bearing interest at the rate of 9% per
annum payable quarterly. Although repayment of all or part of the principal of
these surplus notes requires prior insurance department approval, no prior
approval of interest payment is currently required.

                  Under the American Agrisurance profit sharing agreement,
American Agrisurance receives up to 50% of the crop insurance profit after
certain expenses and a margin retained by the Insurance Companies based upon a
formula established by the Company and approved by the Nebraska Department of
Insurance. If the calculated profit share is negative, such negative amounts
are carried forward and offset future profit sharing payments. These amounts
are distributed from time to time in the form of a dividend to the Company.
In 2000 and 1999 there was no profit sharing distribution.

                  Dividends from the Insurance Companies are regulated by the
regulatory authorities of the states in which each subsidiary is domiciled.
The laws of such states generally restrict dividends from insurance companies
to parent companies to certain statutorily approved limits.  In 2001, the
statutory limitation on dividends from the Insurance Companies to the Company
without further insurance departmental approval is approximately $5.7 million.
See "Business-Regulation."

                  The Company is currently a party to a tax sharing agreement
with its subsidiaries, under which such subsidiaries pay the Company amounts
in general equal to the federal income tax that would be payable by such
subsidiaries on a stand-alone basis.

                  In 1997, AICI Capital Trust, a Delaware business trust
organized by the Company (the "Issuer Trust") issued 3.795 million shares or
$94.875 million aggregate liquidation amount of its 9% Preferred Securities
(liquidation amount $25 per Preferred Security).  The Company owns all of the
common securities (the "Common Securities") of the Issuer Trust.  The Preferred
Securities represent preferred undivided beneficial interests in the Issuer
Trust's assets.  The assets of the Issuer Trust consist solely of the Company's
9% Junior Subordinated Debentures due 2027 which were issued in 1997 in
an amount equal to the Preferred Securities and the Common Securities.
Distributions on the Preferred Securities and Junior Subordinated Debentures
are cumulative, accrue from the date of issuance and are payable quarterly in
arrears.  The Junior Subordinated Debentures are subordinate and junior in
right of payment to all senior indebtedness of the Company and are subject to
certain events of default and redemptive provisions, all described in the
Junior Debenture Indenture.  At December 31, 2000, the Company had $94.875
million outstanding at a weighted average interest cost of 9.1%.

                  At December 31, 1999, the Company had a Revolving Credit
Facility for $31.4 million. The entire facility was reserved for an outstanding
letter of credit and, accordingly, no borrowings were permitted under such
facility. During the first quarter of 2000, the Company replaced this facility
with a Security and Letter Loan Agreement ("Loan") for the same amount. As with
the previous facility, the entire amount of the Loan was used as security for
an existing outstanding letter of credit. Under this Loan, the Company was not
required to pledge stock of Redland Insurance Company and Acceptance Insurance
Company, restrict payments of dividends, or maintain certain financial
covenants, all of which were required by the Revolving Credit Facility.  In
December 2000, the Loan and related outstanding letter of credit were
increased to $33.1 million.

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

<PAGE>


Insurance Companies

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

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

                  The Company's profit or loss from its MPCI business is
determined after the crop season ends on the basis of a profit sharing formula
established by law and the RMA.  The Company receives a profit share in cash,
with 60% of the amount in excess of 17.5% of its MPCI Retention (as defined in
the profit sharing agreement) in any year carried forward to future years, or
it must pay its share of losses.  The Company received $62.5 million in net
payments under the MPCI program in March of 2000. The Company received a net
payment of approximately $50.6 million under the MPCI program in first
quarter of 2001.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General" above for additional information
regarding the effects of the seasonal nature of the crop business on the
Company's cash flow.

Changes in Financial Condition

                  The Company's stockholders' equity decreased by approximately
$20.5 million at December 31, 2000 as compared to December 31, 1999.  The
principal components of this decrease were a net loss of $28.8 million during
2000 partially offset by a decrease in unrealized loss on available-for-sale
securities, net of tax, from $12.6 million at December 31, 1999 to a $4.4
million at December 31, 2000.

Consolidated Cash Flows

                  Cash used by operating activities was $85.9 million for the
year ended December 31, 2000 compared to cash used from operations for the
same period in 1999 of $20.9 million.  This decrease in cash flow from period
to period is primarily related to the decline in operations under the Company's
property and casualty segment.  The Company expects negative cash flow from its
property and casualty segment due to a decline in new business and  the
settlement of losses and loss adjustment expense reserves.  The Company has
positioned its portfolio to be able to meet these liquidity needs.

Inflation

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

<PAGE>

Quantitative and Qualitative Disclosure about Market Risk

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

                  At December 31, 2000 and 1999, the Company had $234.9 million
and $259.3 million, respectively, of fixed maturity investments and mortgage
loans and $17.6 million and $25.1 million, respectively, of marketable equity
securities that were subject to market risk. The Company's investment
strategy is to manage the duration of the portfolio relative to the duration of
the liabilities while managing interest rate risk. In addition, the Company has
the ability to hold its fixed maturity investments until maturity and therefore
would not expect to realize a material adverse impact on income or cash flows.

                  The Company's Preferred Securities of $94.875 million at
December 31, 2000 and 1999 mature in August 2027 and are redeemable at the
Company's option in September 2002. The Company will continue to monitor the
interest rate environment and evaluate refinancing opportunities as the
redemption and maturity date approaches.

                  The Company uses two models to analyze the sensitivity of its
market risk assets and liabilities. For its fixed maturity securities,
mortgage loans and mandatorily redeemable Preferred Securities, the Company
uses duration modeling to calculate changes in fair value. For its marketable
equity securities, the Company uses a hypothetical 20% decrease in the fair
value of these securities. Actual results may differ from the hypothetical
results assumed in this disclosure due to possible actions taken by management
to mitigate adverse changes in fair value and because fair values of
securities may be affected by credit concerns of the issuer, prepayment speeds,
liquidity of the security and other general market conditions. The sensitivity
analysis duration model used by the Company produces a loss in fair value of
$5.9 million and $13.6 million on its fixed maturity securities and mortgage
loan and a gain in fair value of $5.8 million and $6.3 million on its
mandatorily redeemable Preferred Securities as of December 31, 2000 and 1999,
respectively, based on a 100 basis point increase in interest rates. The
hypothetical 20% decrease in fair value of the Company's marketable equity
securities produces a loss in fair value of $3.5 million and $5.0 million as of
December 31, 2000 and 1999, respectively.  The overall decrease in market risk
from December 31, 1999 to December 31, 2000 is primarily a result of a decrease
in the average maturities of the fixed maturity securities and a reduction in
the amount of marketable equity securities.

Sale of Redland Insurance Company

                  In April 2000, the Company signed a definitive agreement to
sell Redland Insurance Company ("Redland") to Clarendon National Insurance
Company ("Clarendon").  This sale closed effective as of July 1, 2000. The
transaction included the appointment of other Company subsidiaries as the
exclusive producer and administrator of Redland for the business the Company
writes through Redland. The Company also reinsures certain portions of the
business written by Redland. The sale was a cash transaction of approximately
$10.9 million based upon the market value of Redland after the divestiture
of various assets, including the Redland subsidiaries to a wholly-owned
subsidiary of Acceptance Insurance Companies Inc.  At closing, the Company
pledged approximately $87 million of investments to Clarendon to secure the
Company's obligations under reinsurance agreements. At December 31, 2000,
approximately $86 million of fixed maturities available-for-sale and $6 million
of short-term investments were pledged to Clarendon. The Company is obligated
for any of Redland's uncollectible amounts from reinsurers and agents for the
business under these reinsurance agreements. The Company recorded a loss on
the sale of approximately $200,000.

Subsequent Event

                  In March 2001, the Company announced that it had sold a
significant portion of its property and casualty business to Insurance
Corporation of Hannover ("ICH"). The terms of the agreement included the sale
of selected lines of business, a reinsurance treaty whereby the unearned
premium and any additional premiums for these selected lines would be
reinsured by ICH, and the transfer of certain employees to ICH. Additionally,
the Company's right to repurchase Redland under the agreement between the
Company and Clarendon, an affiliate of ICH, was waived.

                  As a result of the sale of a significant portion of its
property and casualty business and based upon estimated future discounted cash
flows, the Company concluded that the excess of cost over acquired net assets
was partially impaired by approximately $9.9 million. As such, the Company
recorded a $9.9 million charge for the write-off of excess of cost over
acquired net assets in the fourth quarter of 2000.
<PAGE>

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 for Hedging Activities,"
requires companies to recognize all derivatives as either assets or liabilities
in the statement of financial condition and to measure all derivatives at
fair value. SFAS No. 133 requires that changes in fair value of a derivative be
recognized currently in earnings unless specific hedge accounting criteria are
met. Upon implementation of SFAS No. 133, hedging relationships may be
redesignated,  and securities held to maturity may be transferred to
available-for-sale or trading. SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133,"  deferred the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" amended the accounting
and reporting standards of SFAS No. 133 for certain derivative instruments,
hedging activities, and decisions made by the Derivatives Implementation Group.
The impact on the Company's financial statements related to the adoption of
SFAS No. 133, SFAS No. 137 and SFAS No. 138 will not be significant.

Codification of Statutory Accounting Principles

                  In March 1998, the National Association of Insurance
Commissioners adopted the Codification of Statutory Accounting Principles
(Codification). The Codification, which is intended to standardize regulatory
accounting and reporting to state insurance departments, is effective January
1, 2001. However, statutory accounting principles will continue to be
established by individual state laws and permitted practices.  The Company
adopted the Codification effective January 1, 2001. The adoption of
Codification will increase statutory capital and surplus as of January 1,
2001 by approximately $9.4 million.

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

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

Item 8.  Financial Statements and Supplementary Data.

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

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

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


<PAGE>

                                    PART III.


Item 10.  Directors and Executive Officers of the Registrant.

                  The information required by Item 10 with respect to the
Registrant's executive officers and directors will be set forth in the
Company's 2001 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.

Item 11.  Executive Compensation

                  The information required by Item 11 will be set forth in the
Company's 2001 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.

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

                  The information required by Item 12 will be set forth in the
Company's 2001 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

                  The information required by Item 13 will be set forth in the
Company's 2001 Proxy Statement which will be filed within 120 days of the
Company's year end and is incorporated herein by reference.


<PAGE>

                                    PART IV.

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

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

                         1.  Financial Statements.  The Company's audited
          Consolidated Financial Statements for the years ended December 31,
          2000 and 1999 consisting of the following:

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

                         2.  Financial Statement Schedules

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

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

                  (b) The following Current Reports on Form 8-K have been filed
during the last fiscal quarter of the period covered by this Report:



                             Financial Statements           Date of
        Item                       Filed                    Report
        _____                ____________________           ________
Item 5. Other Events.                No                  October 27, 2000

Item 5. Other Events.                No                  November 7, 2000







<PAGE>




INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Acceptance
Insurance Companies Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Acceptance Insurance
Companies Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

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


/s/ Deloitte & Touche LLP

Omaha, Nebraska
March 9, 2001


<PAGE>



<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)
DECEMBER 31, 2000 AND 1999
------------------------------------------------------------------------------
<S>                                                                                                      <C>           <C>
ASSETS                                                                                                      2000          1999

Investments:
  Fixed maturities available-for-sale, at fair value (Note 2)                                            $ 226,541     $250,389
  Marketable equity securities available-for-sale, at fair value (Note 2)                                   17,638       25,081
  Mortgage loan                                                                                              8,400        8,914
  Real estate                                                                                                3,055        3,182
  Short-term investments, at cost, which approximates market                                                55,599      104,702
  Restricted short-term investments, at cost, which approximates market (Note 1)                            33,050       31,350
                                                                                                         __________    _________
                                                                                                           344,283      423,618
Cash                                                                                                        10,700        2,579
Receivables, net (Note 4)                                                                                  130,631      177,296
Income tax receivable                                                                                          -         14,177
Reinsurance recoverable on unpaid losses and loss adjustment expenses                                      383,979      502,537
Prepaid reinsurance premiums                                                                                11,314       54,888
Property and equipment, net of accumulated depreciation of $16,093 and $15,242                              16,458       18,723
Deferred policy acquisition costs                                                                            7,219       17,495
Excess of cost over acquired net assets                                                                     17,661       28,515
Deferred income tax (Note 5)                                                                                31,003       27,387
Other assets                                                                                                10,734       11,097
                                                                                                         __________  ____________
                                                                                                          $963,982   $1,278,312
                                                                                                         ==========  ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Losses and loss adjustment expenses (Note 6)                                                              $617,891   $  781,377
Unearned premiums                                                                                           34,772      127,938
Amounts payable to reinsurers                                                                               15,418       49,224
Accounts payable and accrued liabilities                                                                    37,957       41,400
Company-obligated mandatorily redeemable Preferred Securities of AICI Capital
  Trust, holding solely Junior Subordinated Debentures of the Company (Note 8)                              94,875       94,875
                                                                                                         __________   ___________
           Total liabilities                                                                               800,913    1,094,814

Common stock subject to redemption (Note 10)                                                                 2,588        2,540

Commitments and contingencies (Note 19)

Stockholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized, none issued                                      -             -
  Common stock, $.40 par value, 40,000,000 shares authorized;
    15,547,853 and 15,494,334 shares issued                                                                  6,219        6,198
  Capital in excess of par value                                                                           199,112      198,932
  Accumulated other comprehensive income (loss), net of tax                                                 (4,365)     (12,568)
  Retained earnings (accumulated deficit)                                                                  (11,621)      17,212
  Common stock subject to redemption (Note 10)                                                              (2,588)      (2,540)
  Treasury stock, at cost, 1,209,520 shares (Note 9)                                                       (26,047)     (26,047)
  Contingent stock, 20,396 shares                                                                             (229)        (229)
                                                                                                          __________ _____________
           Total stockholders' equity                                                                      160,481      180,958
                                                                                                          __________ _____________
                                                                                                          $963,982   $1,278,312
                                                                                                          ========== =============
 </TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.





<PAGE>


<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>            <C>
                                                                               2000          1999         1998
Revenues:
  Insurance premiums earned (Note 6)                                       $186,673       $248,712       $328,044
  Net investment income (Note 2)                                             24,679         25,064         28,320
  Net realized capital gains                                                  2,120         10,203          6,825
                                                                           _________      ________       ________
                                                                            213,472        283,979        363,189
                                                                           _________      ________       ________
Costs and expenses:
  Insurance losses and loss adjustment expenses (Note 6)                    131,604        218,789        237,061
  Insurance underwriting expenses                                            98,876        108,529        104,736
  Write-off of excess of cost over acquired net assets (Note 18)              9,910             -              -
  General and administrative expenses                                         1,919          4,592          3,502
                                                                           _________      ________       _________
                                                                            242,309        331,910        345,299
                                                                           _________      ________       _________
           Operating profit (loss)                                          (28,837)       (47,931)        17,890
                                                                           _________      ________       _________

Other income (expense):
  Interest expense                                                           (8,677)        (9,058)        (8,994)
  Loss on investee                                                              -               -            (704)
  Other, net                                                                    -              (67)          (112)
                                                                           _________      _________      __________
                                                                             (8,677)        (9,125)        (9,810)
                                                                           _________      _________      __________
           Income (loss) before income taxes and cumulative effect
             of change in accounting principle                              (37,514)       (57,056)         8,080

Income tax expense (benefit) (Note 5):
  Current                                                                      (649)       (11,645)        (7,248)
  Deferred                                                                   (8,016)        (9,791)         9,792
                                                                           _________      _________      __________
                                                                             (8,665)       (21,436)         2,544
                                                                           _________      _________      _________

Income (loss) before cumulative effect of change in accounting principle    (28,849)       (35,620)         5,536

Cumulative effect of change in accounting principle (Note 1)                    -             (338)            -
                                                                           _________     ___________     __________
           Net income (loss)                                               $(28,849)     $ (35,958)       $ 5,536
                                                                           =========     ===========     ==========
Income (loss) per share:
  Basic:
    Income (loss) before cumulative effect of change in accounting
    principle                                                              $  (2.02)     $   (2.50)       $  0.37
    Cumulative effect of change in accounting principle                         -            (0.02)             -
    Net income (loss)                                                         (2.02)         (2.52)          0.37
  Diluted:
    Income (loss) before cumulative effect of change in accounting
    principle                                                                 (2.02)         (2.50)          0.37
    Cumulative effect of change in accounting principle                         -            (0.02)            -
    Net income (loss)                                                         (2.02)         (2.52)          0.37

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.




<PAGE>
<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------------------------------------------------------------------------------------

                                                                                           Accumulated
                                                                                             Other         Retained
                                                              Common           Capital in  Comprehensive   Earnings
                                                              Shares  Common   Excess of   Income/(Loss),  (Accumulated
                                                              Issued  Stock    Par Value   Net of Tax      Deficit)
<S>                                                           <C>     <C>      <C>         <C>             <C>

Balance at January 1, 1998                                    15,421  $6,168   $198,080    $  6,885        $  46,745

  Net income                                                       -       -          -           -            5,536
  Change in unrealized gains (losses) on available-for-sale
    securities, net of income taxes of $851 (Note 15)              -       -          -      (1,580)               -
        Total comprehensive income
  Issuance of common stock under employee benefit plans           46      19        577           -                -
  Purchase of treasury stock                                       -       -          -           -                -
                                                              ______  ______   ________    __________      __________
Balance at December 31, 1998                                  15,467   6,187    198,657       5,305           52,281

  Net loss                                                         -       -          -           -          (35,958)
  Change in unrealized gains (losses) on available-for-sale
    securities, net of income taxes of $9,624 (Note 15)            -       -          -     (17,873)               -
           Total comprehensive income
  Issuance of common stock under employee benefit plans           27      11        275           -                -
  Common stock subject to redemption                               -       -          -           -              889
                                                              ______  ______   ________    __________      __________
Balance at December 31, 1999                                  15,494   6,198    198,932     (12,568)          17,212

  Net loss                                                         -       -          -           -          (28,849)
  Change in unrealized gains (losses) on available-for-sale
      securities, net of income taxes of $(4,417) (Note 15)        -       -          -       8,203                -
             Total comprehensive income
  Issuance of common stock under employee benefit plans           54      21        180           -                -
  Common stock subject to redemption                               -       -          -           -               16
                                                              ______  ______   ________    ________        _________

Balance at December 31, 2000                                  15,548  $6,219   $199,112    $ (4,365)       $ (11,621)
                                                              ======  ======   ========    =========       ==========
</TABLE>




<PAGE>


<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------------------------------------------------------------------------------------
                                                                 Common
                                                                 Stock                                                Total
                                                                 Subject to           Treasury       Contingent        Stockholders
                                                                 Redemption           Stock          Stock             Equity
<S>                                                              <C>                  <C>            <C>               <C>

Balance at January 1, 1998                                       $     0              $(3,979)       $(229)            $253,670

  Net income                                                           -                    -            -                5,536
  Change in unrealized gains (losses) on available-for-sale
    securities, net of income taxes of $851 (Note 15)                  -                    -            -               (1,580)
                                                                                                                       _________
       Total comprehensive income                                                                                         3,956
                                                                                                                       _________

  Issuance of common stock under employee benefit plans                -                    -            -                  596
  Purchase of treasury stock                                           -              (22,068)           -              (22,068)
                                                                 _______              _________      ______            _________

Balance at December 31, 1998                                           -              (26,047)        (229)             236,154

  Net loss                                                             -                    -            -              (35,958)
  Change in unrealized gains (losses) on available-for-sale
    securities, net of income taxes of $9,624 (Note 15)                -                    -            -              (17,873)
                                                                                                                       _________
       Total comprehensive income                                                                                       (53,831)
                                                                                                                       _________

  Issuance of common stock under employee benefit plans                -                    -            -                  286
  Common stock subject to redemption                              (2,540)                   -            -               (1,651)
                                                                 ________             _________      ______            _________

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

  Net loss                                                             -                    -            -              (28,849)
  Change in unrealized gains (losses) on available-for-sale
    securities, net of income taxes of $(4,417) (Note 15)              -                    -            -                8,203
                                                                                                                       _________
       Total comprehensive income                                                                                       (20,646)
                                                                                                                       _________

  Issuance of common stock under employee benefit plans                -                    -            -                  201
  Common stock subject to redemption                                 (48)                   -            -                  (32)
                                                                 ________             _________      ______            __________

Balance at December 31, 2000                                     $(2,588)             $(26,047)      $(229)            $160,481
                                                                 ========             =========      ======            =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>


<TABLE>
<CAPTION>


ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>            <C>
                                                                                   2000         1999          1998
Cash flows from operating activities:
  Net income (loss)                                                             $(28,849)    $(35,958)      $  5,536
  Adjustments to reconcile net income (loss) to net cash from operating
      activities:
    Depreciation and amortization                                                  6,472        5,868          5,554
    Write-off of excess of cost over acquired net assets                           9,910            -              -
    Deferred tax expense                                                          (8,016)      (9,791)         9,792
    Loss on investee                                                                   -           -             704
    Policy acquisition costs incurred                                            (30,849)     (73,060)       (85,106)
    Amortization of deferred policy acquisition costs                             41,125       76,558         90,001
    Realized capital gains                                                        (2,120)     (10,203)        (6,825)
    Increase (decrease) in cash attributable to changes in assets and
    liabilities:
      Receivables                                                                 46,665      (31,419)         7,189
      Income tax receivable                                                       14,177        2,703        (12,347)
      Reinsurance recoverable on unpaid losses and loss adjustment expenses      118,558     (263,768)       (73,222)
      Prepaid reinsurance premiums                                                43,574       21,775        (23,455)
      Losses and loss adjustment expenses                                       (163,486)     282,650         96,091
      Unearned premiums                                                          (93,166)     (18,820)         4,903
      Amounts payable to reinsurers                                              (33,806)      13,384         17,885
      Accounts payable and accrued liabilities                                    (3,443)      17,937         (2,873)
    Other, net                                                                    (2,668)       1,293            131
                                                                                _________    _________      _________
           Net cash from operating activities                                    (85,922)     (20,851)        33,958
                                                                                _________    _________      _________

Cash flows from investing activities:
  Proceeds from sales of investments available-for-sale                          168,503      234,287        163,064
  Proceeds from sales of short-term investments                                   73,521       19,882              -
  Proceeds from maturities of investments available-for-sale                      18,779       46,085        113,157
  Proceeds from maturities of short-term investments                               1,357        8,274          5,344
  Proceeds from sale of subsidiaries, net of cash sold                             8,998       21,591          8,479
  Purchases of investments available-for-sale                                   (148,695)    (196,101)      (273,338)
  Purchases of short-term investments                                            (99,516)     (27,375)        (5,258)
  Increase in restricted short-term investments                                   (1,700)     (31,350)             -
  Other, net                                                                      (2,455)      (6,826)        (4,428)
                                                                                _________    _________      _________
           Net cash from investing activities                                     18,792       68,467          7,020
                                                                                _________    _________      _________

Cash flows from financing activities:
  Proceeds from bank borrowings                                                        -            -         15,000
  Repayments of bank borrowings                                                        -      (15,000)             -
  Proceeds from issuance of common stock                                             201          286            596
  Purchase of treasury stock                                                           -            -        (22,068)
                                                                                _________    _________      _________
           Net cash from financing activities                                        201      (14,714)        (6,472)
                                                                                _________    _________      _________

Net increase (decrease) in cash and short-term investments                       (66,929)      32,902         34,506

Cash and short-term investments at beginning of year                             105,724       72,822         38,316
                                                                                _________    _________      _________

Cash and short-term investments at end of year                                  $ 38,795     $105,724       $ 72,822
                                                                                =========    =========      =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>


ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Columnar Amounts in Thousands Except Per Share Data)
______________________________________________________________________________


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      The Company's results may be influenced by factors influencing the
      insurance industry generally and which are largely beyond the Company's
      control.  Such factors include (a) weather-related catastrophes;
      (b) taxation and regulatory changes at both the federal and state
      level; (c) changes in industry standards regarding rating and policy
      forms;  (d) significant changes in judicial attitudes towards one or
      more types of liability claims;  (e) the cyclical nature of pricing in
      the industry;  and (f) changes in the rate of inflation, interest rates
      and general economic conditions.  The Company's crop insurance results
      are particularly subject to wide fluctuations because of weather factors
      influencing crop harvests and commodity prices.

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

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

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

      Unearned premiums represent the portion of premiums written which relates
      to the unexpired term of policies and is calculated generally using the
      pro rata method.  The Company also records a liability for policy claims
      based on its review of individual claim cases and the estimated ultimate
      settlement amounts.  This liability also includes estimates of claims
      incurred but not reported based on Company and industry paid and reported
      claim and settlement expense experience. Differences which arise between
      the ultimate liability for claims incurred and the liability established,
      which may be material are reflected in the statement of operations.
<PAGE>


      Certain costs of acquiring new insurance business, principally
      commissions, premium taxes, and other underwriting expenses, have been
      deferred.  Such costs are being amortized as related premiums are earned.
      The recovery of deferred acquisition costs considers anticipated
      investment income and is reviewed periodically during the year.  In the
      fourth quarter of fiscal 1999, the Company amortized $3.3 million of
      previously deferred policy acquisition costs in conjunction with its
      review of recoverability.

      Statements of Cash Flows - The Company aggregates cash and short-term
      investments with maturity dates of three months or less from the date of
      purchase for purposes of reporting cash flows.  As of December 31, 2000
      and 1999, approximately $27,504,000 and $1,557,000 of short-term
      investments had maturity dates at acquisition of greater than three
      months.  Restricted short-term investments are not considered a cash
      equivalent.

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

      Investments - Investments in fixed maturities include bonds, notes and
      redemptive preferred stocks and investments in marketable equity
      securities include common and nonredemptive preferred stocks.  All
      investments in fixed maturities and marketable equity securities have
      been classified as available-for-sale and certain marketable equity
      securities do not pay dividends. Available-for-sale securities are
      stated at fair value with the unrealized gains and losses reported as a
      separate component of other comprehensive income (loss), net of tax.
      Realized investment gains and losses on sales of securities are
      determined on the specific identification method.

      The mortgage loan is a floating rate security with a maturity date of
      September 2006 and is carried at its unpaid principal balance.  Real
      estate is stated at the lower of cost or estimated net realizable value
      and is non-income producing.

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

      Excess of Cost Over Acquired Net Assets - The excess of cost over equity
      in acquired net assets is being amortized principally using the
      straight-line method over periods not exceeding 40 years. Accumulated
      amortization approximated $4,573,000 and $8,211,000 at December 31, 2000
      and 1999, respectively.

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

      Use of Estimates - The preparation of financial statements in conformity
      with accounting principles generally accepted in the United States of
      America requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      period.  Actual results may differ from those estimates.

      Stock-Based Compensation - The Financial Accounting Standards Board
      (FASB) issued Statement of Financial Accounting Standards No. 123
      (SFAS No. 123), Accounting for Stock-Based Compensation, establishing
      financial accounting and reporting standards for stock-based compensation
      plans.  As permitted by SFAS No. 123, the Company will continue to use
      the method prescribed by the Accounting Principles Board Opinion No. 25
      (APB 25), Accounting for Stock Issued to Employees. Companies using APB
      25 are required to make pro forma footnote disclosures of net income and
      earnings per share as if the fair value method of accounting, as defined
      in SFAS No. 123, had been applied.
<PAGE>


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

      Recent Statements of Financial Accounting Standards - Statement of
      Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for
      Derivative Instruments and for Hedging Activities, requires companies
      to recognize all derivatives as either assets or liabilities in the
      statement of financial condition and to measure all derivatives at fair
      value. SFAS No. 133 requires that changes in fair value of a derivative
      be recognized currently in earnings unless specific hedge accounting
      criteria are met.  Upon implementation of SFAS No. 133, hedging
      relationships may be redesignated, and securities held to maturity may be
      transferred to available-for-sale or trading.  SFAS No. 137, Accounting
      for Derivative Instruments and Hedging Activities-Deferral of the
      Effective Date of FASB Statement No. 133, deferred the effective date of
      SFAS No. 133 to fiscal years beginning after June 15, 2000.  SFAS No.
      138, Accounting for Certain Derivative Instruments and Certain Hedging
      Activities amended the accounting and reporting standards of SFAS No. 133
      for certain derivative instruments, hedging activities, and decisions
      made by the Derivatives Implementation Group.  The impact on the
      Company's financial statements related to the adoption of SFAS No. 133,
      SFAS No. 137 and SFAS No. 138 will not be significant.

      Codification of Statutory Accounting Principles - In March 1998, the
      National Association of Insurance Commissioners adopted the Codification
      of Statutory Accounting Principles (Codification).  The Codification,
      which is intended to standardize regulatory accounting and reporting to
      state insurance departments, is effective January 1, 2001.  However,
      statutory accounting principles will continue to be established by
      individual state laws and permitted practices.  The Company adopted the
      Codification effective January 1, 2001.  The adoption of Codification
      will increase statutory capital and surplus as of January 1, 2001 by
      approximately $9.4 million.

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

<PAGE>


2.    INVESTMENTS

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

<TABLE>
<CAPTION>
<S>                                                                <C>           <C>           <C>
                                                                      2000          1999          1998

Interest on fixed maturities                                       $  14,294     $  17,989     $  19,991
Interest and dividends on short-term and equity investments            9,644         6,596         7,256
Other                                                                  1,178         1,314         1,871
                                                                   __________    __________    __________
                                                                      25,116        25,899        29,118
Investment expenses                                                     (437)         (835)         (798)
                                                                   __________    __________    __________

Net investment income                                              $  24,679     $  25,064     $  28,320
                                                                   ==========    ==========    ==========
</TABLE>




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




<TABLE>
<CAPTION>

                                                                Gross        Gross      Estimated
                                                 Amortized    Unrealized   Unrealized     Fair
                                                   Cost         Gains        Losses       Value
<S>                                              <C>          <C>           <C>         <C>
December 31, 2000:
  Fixed maturities available-for-sale:
    U.S. Treasury and government securities      $166,827     $1,126        $ 1,444     $166,509
    States, municipalities and political
      subdivisions                                 42,415        181            247       42,349
    Mortgage-backed securities                      9,617          -            423        9,194
    Other debt securities                           9,373          9            893        8,489
                                                 _________    _______       ________    ________
                                                 $228,232     $1,316        $ 3,007     $226,541
                                                 =========    =======       ========    ========
  Marketable equity securities - preferred
  stock                                          $ 14,450     $    -        $ 1,647     $ 12,803
                                                 =========    =======       =======     =========
  Marketable equity securities - common stock    $  8,211     $  206        $ 3,582     $  4,835
                                                 =========    =======       =======     =========
December 31, 1999:
  Fixed maturities available-for-sale:
    U.S. Treasury and government securities      $ 87,421     $   31        $ 2,358     $ 85,094
    States, municipalities and political
      subdivisions                                132,805        323          6,933      126,195
    Mortgage-backed securities                     19,191          -          1,368       17,823
    Other debt securities                          24,902          -          3,625       21,277
                                                 _________    _______       ________    _________
                                                 $264,319     $  354        $14,284     $250,389
                                                 =========    =======       ========    ========
  Marketable equity securities - preferred stock $ 15,111     $   87        $ 1,020     $ 14,178
                                                 =========    =======       ========    ========
  Marketable equity securities - common stock    $ 15,377     $1,241        $ 5,715     $ 10,903
                                                 =========    =======       ========    ========

</TABLE>

<PAGE>


The amortized cost and related estimated fair values of the fixed maturity
securities as of December 31, 2000 are shown below by stated maturity dates.
Actual maturities may differ from stated maturities because the borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.


<TABLE>
<CAPTION>

                                                  Amortized      Estimated
                                                     Cost        Fair Value
<S>                                               <C>            <C>
Fixed maturities available-for-sale:
  Due in one year or less                         $  26,067      $  26,016
  Due after one year through five years             120,751        121,010
  Due after five years through ten years             28,393         27,361
  Due after ten years                                43,404         42,960
                                                  __________     __________
                                                    218,615        217,347
  Mortgage-backed securities                          9,617          9,194
                                                  __________     ___________
                                                  $ 228,232      $ 226,541
                                                  ==========     ===========
</TABLE>



     Proceeds from sales of fixed maturity securities during the years ended
     December 31, 2000, 1999 and 1998 were approximately $156,607,000,
     $167,742,000 and $111,131,000, respectively.  Gross realized gains on
     sales of fixed maturity securities were approximately $974,000,
     $2,246,000 and $2,073,000 and gross realized losses on sales of fixed
     maturity securities were approximately $594,000, $1,462,000 and $197,000
     during the years ended December 31, 2000, 1999 and 1998, respectively.
     Gross realized gains on sales of equity securities were approximately
     $2,378,000, $14,950,000 and $7,665,000 and gross realized losses on sales
     of equity securities were approximately $462,000, $5,661,000 and
     $2,620,000 during the years ended December 31, 2000, 1999 and 1998,
     respectively.

     As required by insurance regulatory laws, certain bonds with an amortized
     cost of approximately $19,034,000 and short-term investments of
     approximately $298,000 at December 31, 2000 were deposited in trust with
     regulatory agencies.

3.    FAIR VALUES OF FINANCIAL INSTRUMENTS

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

      The estimates presented herein are not necessarily indicative of the
      amounts the Company could realize in a current market exchange.  The use
      of different market assumptions and/or estimation methodologies may have
      a material effect on the estimated fair value.
<PAGE>


      The carrying values of cash and short-term investments, receivables and
      accounts payable, and accruals are deemed to be reasonable estimates of
      their fair values due to their short-term nature.  The estimated fair
      values of the Company's other financial instruments as of December 31,
      2000 and 1999, are as follows:


<TABLE>
<CAPTION>

                                                        Carrying Value         Estimated Fair Value
                                                      2000         1999         2000         1999
<S>                                                 <C>          <C>          <C>           <C>
Investments in fixed maturity securities            $226,541     $250,389     $226,541      $250,389
Investments in marketable equity securities           17,638       25,081       17,638        25,081
Mortgage loan                                          8,400        8,914        8,400         8,914
Company-obligated mandatorily redeemable Preferred
  Securities of AICI Capital Trust, holding solely
  Junior Subordinated Debentures of the Company       94,875       94,875       48,386        52,656

</TABLE>

4.    RECEIVABLES

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


<TABLE>
<CAPTION>

                                                     2000           1999
<S>                                               <C>            <C>
Insurance premiums and agents' balances due       $ 34,859       $ 68,441
Amounts recoverable from reinsurers                 43,083         43,999
Profit sharing gain due from the RMA                51,032         61,580
Accrued interest                                     4,763          4,389
Installment notes receivable                         3,175          5,924
Less allowance for doubtful accounts                (6,281)        (7,037)
                                                  _________      _________
                                                  $130,631       $177,296
                                                  =========      =========
</TABLE>


5.    INCOME TAXES

      The Company provides for income taxes on its statements of operations
      pursuant to Statement of Financial Accounting Standards No. 109
      (SFAS No. 109), Accounting for Income Taxes.  The primary components of
      the Company's deferred tax assets and liabilities and the related
      valuation allowance as of December 31, 2000 and 1999, respectively,
      follow:

<TABLE>
<CAPTION>
                                                          2000           1999
<S>                                                    <C>            <C>
Losses and loss adjustment expenses                    $ 8,353        $11,075
Unearned premiums                                        1,642          5,113
Allowance for doubtful accounts                          2,198          2,463
Net operating loss carryforward                         18,733          6,109
Unrealized loss on investments available-for-sale        2,350          6,768
Other                                                    4,615          5,389
                                                       ________       ________
           Deferred tax asset                           37,891         36,917
                                                       ________       ________

Deferred policy acquisition costs                       (2,527)        (6,123)
Other                                                   (4,361)        (3,332)
                                                       ________       ________
           Deferred tax liability                       (6,888)        (9,455)
                                                       ________       ________
                                                        31,003         27,462
Valuation allowance                                          -            (75)
                                                       ________       ________
Net deferred tax asset                                 $31,003        $27,387
                                                       ========       ========
</TABLE>


<PAGE>




      The realization of the net deferred tax asset is dependent upon the
      Company's ability to generate sufficient taxable income in future
      periods.  The net deferred tax asset is net of valuation allowances of
      $-0- and $75,000 as of December 31, 2000 and 1999, respectively.  The
      valuation allowance as of December 31, 1999 was related to capital loss
      items.  For tax purposes, the Company had net operating loss
      carryforwards that expire, if unused, beginning in 2019.  Based upon the
      Company's anticipated future earnings, projected reversal of temporary
      differences, tax planning strategies available if required and all other
      available evidence, both positive and negative, management has concluded
      it is more likely than not that the deferred tax asset will be realized.
      Adjustments to the valuation allowance will be made if there is a change
      in management's assessment of the amount of the deferred tax asset that
      is realizable.

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

<TABLE>
<CAPTION>

                                                                               December 31,
                                                                    2000           1999           1998
<S>                                                              <C>            <C>             <C>
Computed U.S. federal income taxes                               $(13,130)      $(19,970)       $ 2,828
Nondeductible amortization of goodwill and other
  intangibles                                                         385            398            445
Tax-exempt interest income                                         (1,458)        (2,346)        (2,301)
Dividends received deduction                                         (350)          (597)          (885)
Write-off of excess of cost over acquired net assets                5,184              -              -
Recognition of a portion of the deferred tax asset                      -              -         (1,037)
Unrealized gain on consolidated subsidiary held for sale                -              -          1,869
State income tax                                                     (649)           414            698
Other                                                               1,353            665            927
                                                                 _________      _________       ________
          Income tax expense (benefit)                           $ (8,665)      $(21,436)       $ 2,544
                                                                 =========      =========       ========
</TABLE>




      Cash payments (receipts) for income taxes were approximately
      $(15,172,000), $(14,348,000) and $5,099,000 during the years ended
      December 31, 2000, 1999 and 1998, respectively.

6.    INSURANCE PREMIUMS AND CLAIMS

      Insurance premiums written and earned by the Company's insurance
      subsidiaries for the years ended December 31, 2000, 1999 and 1998 are
      as follows:

<TABLE>
<CAPTION>

                                     2000          1999          1998
<S>                               <C>           <C>           <C>
Direct premiums written           $ 407,515     $ 628,299     $ 605,504
Assumed premiums written             79,785        64,642        95,456
Ceded premiums written             (350,219)     (441,275)     (391,468)
                                  __________    __________    __________
  Net premiums written            $ 137,081     $ 251,666     $ 309,492
                                  ==========    ==========    ==========

Direct premiums earned            $ 455,033     $ 643,879     $ 606,105
Assumed premiums earned              88,960        70,424        89,952
Ceded premiums earned              (357,320)     (465,591)     (368,013)
                                  __________    __________    __________
  Net premiums earned             $ 186,673     $ 248,712     $ 328,044
                                  ==========    ==========    ==========
</TABLE>


<PAGE>


      Included in ceded premiums written and earned is $188.1 million, $156.1
      million and $141.4 million of MPCI premiums ceded to the RMA for the
      years ended December 31, 2000, 1999 and 1998, respectively.  Included in
      assumed premiums written and earned in 2000, 1999 and 1998 is $51.2
      million, $37.9 million and $55.0 million of MPCI profit share.

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

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

<TABLE>
<CAPTION>

                                                                      2000         1999         1998
<S>                                                                 <C>         <C>            <C>
Gross losses and loss adjustment expense reserves,
  beginning of year                                                 $ 781,377   $ 524,744      $ 428,653

Reinsurance recoverable on unpaid losses and loss adjustment
  expenses, beginning of year                                         502,537     238,769        165,547
                                                                     ________   __________     _________
Net losses and loss adjustment expense reserves, beginning of year    278,840     285,975        263,106
                                                                     ________   __________     _________
Net incurred losses and loss adjustment expenses related to:
  Current year                                                        123,386     174,762        212,894
  Prior years                                                           8,218      44,027         24,167
                                                                     _________  __________     _________
                                                                      131,604     218,789        237,061
                                                                     _________  __________     _________
Net payments for losses and loss adjustment expenses related to:
  Current year                                                        (60,028)    (76,745)      (100,968)
  Prior years                                                        (116,504)   (123,158)      (113,224)
                                                                     _________  __________      _________
                                                                     (176,532)   (199,903)      (214,192)
                                                                     _________  __________      _________
Net decrease related to sale of Phoenix Indemnity (net of
  reinsurance recoverable)                                                  -     (26,021)             -
                                                                     _________  __________      _________
Net losses and loss adjustment expense reserves, end of year          233,912     278,840        285,975
Reinsurance recoverable on unpaid losses and loss
  adjustment expenses, end of year                                    383,979     502,537        238,769
                                                                     _________  __________      _________

Gross losses and loss adjustment expense reserves, end of year      $ 617,891   $ 781,377      $ 524,744
                                                                    ==========  ==========     ==========

</TABLE>






      Insurance losses and loss adjustment expenses have been reduced by
      recoveries recognized under reinsurance contracts of $526.4 million,
      $725.9 million and $424.1 million for the years ended December 31, 2000,
      1999 and 1998, respectively, of which approximately $365.5 million,
      $270.0 million and $213.8 million, respectively, relate to recoveries on
      the MPCI business from the RMA.


<PAGE>


      The liability for losses and loss adjustment expenses is determined by
      management based on historical patterns and expectations of claims
      reported and paid, trends in claim experience, information available on
      an industry-wide basis, as well as changes in the Company's claim
      handling procedures and premium rates.  In the third quarter of fiscal
      1999, the Company increased reserves for 1998 and prior accident years
      by approximately $44 million.  This increase related primarily to an
      unexpected increase in the number of claims relating to general liability
      coverage provided in 1995 and prior years to contractors in the State of
      California as a result of the California Supreme Court decision in
      Montrose Chemical Corporation vs. Admiral Insurance Company (Montrose).
      In that decision, the Court adopted the "continuous trigger" theory of
      insurance coverage for third-party liability claims involving continuous,
      progressive or deteriorating bodily injury or property damages.  Under
      this theory, the time of the insured's act which allegedly caused the
      accident, event or condition resulting in a claim is largely immaterial.
      As long as the potential damages remain outstanding, all of the insured
      contractor's or subcontractor's successive insurance policies potentially
      may provide coverage.  Thus, the Court's Montrose decision created a new
      basis for coverage under years of previously issued policies. Beginning
      in 1996, the Company altered its underwriting criteria for construction
      risks and began endorsing policies exposed to these types of continuous
      exposures in order to avoid coverage for conditions which existed prior
      to the inception of the Company's policies.

      During 1998, the Company discontinued several product lines due to the
      continuation of unexpected development and pricing that was no longer
      acceptable to the Company.  These lines of business included coverages
      for certain specialty automobile lines, aviation, and complex general
      liability risks.  As a result of these developments, management modified
      the assumptions used in reserving 1997 and prior accident years for these
      lines.  This modification created most of the unfavorable development
      during 1998.

7.    BANK BORROWINGS

      As of December 31, 2000, the Company has a Security and Letter Loan
      Agreement for $33.1 million. The entire facility was reserved for an
      outstanding letter of credit and, accordingly, no borrowings were
      permitted under such facility.

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

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

      Distributions on the Preferred Securities and Junior Subordinated
      Debentures are cumulative, accrue from the date of issuance and are
      payable quarterly in arrears.  The Junior Subordinated Debentures are
      subordinate and junior in right of payment to all senior indebtedness of
      the Company and are subject to certain events of default and can be
      called at par value after September 30, 2002, all as described in the
      Junior Debenture Indenture.  At December 31, 2000 and 1999, the Company
      had Preferred Securities of $94.875 million outstanding at a weighted
      average interest cost of 9.1% and 9.2%, respectively.

      Cash payments for interest related to the Junior Subordinated Debentures
      were approximately $8.5 million during the years ended December 31, 2000
      and 1999.

9.    STOCK REPURCHASE

      On June 1, 1998, the Company's Board of Directors authorized the
      repurchase of up to one million shares of the Company's common stock.
      Purchases were made from time to time in the open market and in private
      transactions.  During 1998, the Company repurchased one million shares of
      its common stock at an average cost of $22.07 per share.

<PAGE>

10.   STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

      The Company's 2000 incentive stock option plan provides for a maximum of
      1,000,000 options to be granted to employees and directors.  The 2000
      incentive stock option plan provides for options to vest in three years
      unless the agreement with the participant specifically calls for a
      different vesting schedule.  All options expire no later than ten years
      from the date of grant and the exercise price will not be less than 100%
      of the market value at the date of grant.  At December 31, 2000, the 2000
      incentive stock option plan had 104,500 options available for granting.

      The 1996 incentive stock plan was terminated as to future grants upon
      approval of the 2000 incentive stock option plan.  The 1996 incentive
      stock option plan provided for options granted to employees which vest
      in not less than five annual installments and options granted to
      non-employee directors which vest at the expiration of the directors'
      current term.  All options expire no later than ten years from the date
      of grant and the exercise price will not be less than 100% of the market
      value at the date of grant.

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

      Under the Company's employee stock purchase plan, the Company is
      authorized to issue up to 500,000 shares of common stock to its full-time
      employees.  Under the terms of the plan, each year employees can choose
      to purchase up to 10% of their annual compensation.  The purchases may be
      made during six month phases generally commencing at the beginning of
      January and July.  The purchase price of the stock is equal to the lower
      of 85% of the market price on the termination date of the phase or when
      the subscription is paid in full, whichever occurs first; or 85% of the
      average of the market price on the commencement date of the phase and the
      market price on the termination date of the phase or when the
      subscription is paid in full, whichever occurs first. Under the plan, the
      Company sold 53,519 shares, 25,974 shares and 19,113 shares during 2000,
      1999 and 1998, respectively, to employees.

      The Company has adopted the pro forma footnote disclosure only provisions
      under SFAS No. 123.  Had compensation cost for the Company's stock-based
      compensation plans been determined based on the fair value at the grant
      dates for awards under those plans consistent with the method of SFAS
      No. 123, the Company's net income (loss) and net income (loss) per share
      would have been as indicated below:

<TABLE>
<CAPTION>

                                    2000           1999           1998
<S>                               <C>            <C>             <C>
Net income (loss):
  As reported                     $(28,849)      $(35,958)       $5,536
  Pro forma                        (31,079)       (36,673)        4,508

Net income (loss) per share:
  Basic:
    As reported                   $  (2.02)      $  (2.52)       $ 0.37
    Pro forma                        (2.17)         (2.57)         0.30

  Diluted:
    As reported                   $  (2.02)      $  (2.52)       $ 0.37
    Pro forma                        (2.17)         (2.57)         0.30
</TABLE>



      The fair value of the options at the date of grant under the incentive
      stock option plans and the fair value of the employees' purchase rights
      under the employee stock purchase plan were estimated using a
      Black-Scholes option-pricing model with the following weighted-average
      assumptions for 2000, 1999 and 1998, respectively:  risk-free interest
      rates of 6.4%, 5.4% and 5.7%; expected volatility of 67%, 26% and 24%;
      weighted-average expected lives of options of approximately 7 years and
      an expected life of employees' purchase rights of one year; and no
      dividend yield.
<PAGE>


      A summary of the status of the Company's stock option plans as of
      December 31, 2000, 1999 and 1998 and changes during the years ended on
      those dates is presented below:

<TABLE>
<CAPTION>


                                     2000                         1999                         1998
                             ______________________      _______________________     ________________________
                                          Weighted                     Weighted                     Weighted
                                           Average                      Average                      Average
                                          Exercise                     Exercise                     Exercise
                             Options        Price         Options        Price         Options        Price

<S>                         <C>           <C>            <C>            <C>           <C>            <C>
Outstanding at beginning
  of year                   1,326,750     $23.24         1,335,250      $22.97        1,292,500      $22.16
Granted                     1,095,500       4.57            25,500       23.29           70,500       32.62
Exercised                           -          -             1,500       12.50           26,500        8.99
Forfeited                     645,000      24.98            32,500       12.84            1,250       22.00
                            _________                    _________                    _________

Outstanding at end of year  1,777,250     $11.10         1,326,750      $23.24        1,335,250      $22.97
                            =========     ======         =========      ======        =========      ======
Options exercisable at
  year end                    909,300                      900,250                      697,000
Weighted-average fair value
  per share of options
  granted during the year   $    3.08                    $    5.35                    $    5.92

</TABLE>


      The following table summarizes information about stock options
      outstanding at December 31, 2000:


<TABLE>
<CAPTION>

                                                  Options Outstanding                   Options Exercisable
                                       -------------------------------------------   ---------------------------
                                                        Weighted-
                                                         Average      Weighted-                     Weighted-
                                                        Remaining      Average                       Average
                                           Number      Contractual    Exercise           Number      Exercise
       Range of Exercise Prices          Outstanding       Life         Price         Exercisable     Price
            <S>                          <C>            <C>           <C>              <C>           <C>
             3.56 to 6.25                1,095,500      9.4 years     $  4.57          332,050       $ 3.88
            11.38 to 15.96                 277,125      3.1 years       13.25          277,125        13.25
                17.13                       10,500      5.4 years       17.13           10,500        17.13
            19.69 to 21.35                  73,000      4.4 years       19.95           73,000        19.95
            22.00 to 22.94                  70,000      4.4 years       22.69           70,000        22.69
            24.54 to 29.95                 149,625      4.2 years       27.83          146,625        27.82
            32.46 to 44.50                 101,500      4.5 years       36.07                -            -
                                         __________                                    _______
            $3.56 to 44.50               1,777,250      7.3 years     $ 11.10          909,300       $13.49
                                         ==========                   =======          =======       ======
</TABLE>


      The Company has a defined contribution plan for which all employees are
      eligible to participate.  The Company's contributions are restricted to
      amounts authorized annually by the board of directors. Employees, at
      their option, may contribute a portion of their eligible earnings to the
      plan.  The Company's net contributions to the plan for 2000, 1999 and
      1998 were approximately $1,123,000, $1,360,000 and $1,486,000,
      respectively.
<PAGE>


      In fiscal 1999, the Company entered into compensation agreements with
      certain individuals related to their retirement or termination of
      employment with the Company.  In connection with the agreements, the
      Company recorded severance and other related charges for 42 employees of
      $4.2 million in insurance underwriting expenses.  At December 31, 2000,
      approximately $700,000 remained unpaid and is included in accounts
      payable and accrued liabilities.

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

11.   RELATED PARTY TRANSACTIONS

      The Company contracts with a related party, a director, to administer
      health insurance benefits for its employees and to place property and
      casualty coverage on behalf of the Company whereby the related party
      receives commissions from the insurance providers which totaled $370,000,
      $381,000 and $327,000 in 2000, 1999 and 1998, respectively.  In addition,
      the Company pays commissions and fees to the related party in connection
      with insurance written and loss control activities, which totaled
      $136,000, $286,000 and $357,000 in 2000, 1999 and 1998, respectively.
      This related party reimburses the Company for an allocable share of
      certain office occupancy expenses, $3,000 and $9,000 in 1999 and 1998,
      respectively.

      The Company made payments during 2000, 1999 and 1998 totaling
      approximately $301,000, $356,000 and $380,000, respectively, to a related
      party, a director, to provide investment related services.

12.   REINSURANCE

      The Company's insurance subsidiaries cede insurance to other companies
      under quota share, excess of loss and facultative treaties.  The
      insurance subsidiaries also maintain catastrophe reinsurance to protect
      against catastrophic occurrences where claims can arise under numerous
      policies due to a single event.  The reinsurance agreements are tailored
      to the various programs offered by the insurance subsidiaries.  The
      largest amount retained in any one risk by the insurance subsidiaries
      during 2000 was $500,000.  The methods used for recognizing income and
      expenses related to reinsurance contracts have been applied in a manner
      consistent with the recognition of income and expense on the underlying
      direct and assumed business (See Note 1).

      At December 31, 2000, 89% of the Company's outstanding reinsurance
      recoverables and prepaid reinsurance premiums were from domestic
      reinsurance companies or the federal government, 96% of which was from
      reinsurance companies rated A- (excellent) or better by A.M. Best or from
      the federal government.  Three reinsurers, who have an A.M. Best rating
      of A- (excellent) or better, accounted for approximately 30% and 27% of
      the reinsurance recoverables and prepaid reinsurance premiums at December
      31, 2000 and 1999, respectively.  No other reinsurer, except for the RMA,
      accounted for more than 5% of these balances.

13.   DIVIDEND RESTRICTIONS AND REGULATORY MATTERS

      Dividends from the insurance subsidiaries of the Company are regulated by
      the state regulatory authorities of the states in which each subsidiary
      is domiciled.  The laws of such states generally restrict dividends from
      insurance companies to certain statutorily approved limits. During 2001,
      dividends from insurance subsidiaries to the Company without further
      insurance department approval are limited to approximately $5.7 million.

      The Company's insurance subsidiaries reported total statutory
      policyholders' surplus of approximately $140,248,000 and $158,551,000 at
      December 31, 2000 and 1999, respectively, and total statutory net income
      (loss) of $(20,882,000), $(21,068,000) and $1,068,000 for the years ended
      December 31, 2000, 1999 and 1998, respectively.

<PAGE>


14.   NET INCOME (LOSS) PER SHARE

      The net income (loss) per share for both basic and diluted for the years
      ended December 31, 2000, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>

                                                                    2000           1999           1998
<S>                                                               <C>           <C>             <C>
Income (loss) before cumulative effect of change in
  accounting principle                                            $(28,849)     $(35,620)       $ 5,536
Cumulative effect of change in accounting principle                      -          (338)             -
                                                                  _________     __________      ________
Net income (loss)                                                 $(28,849)     $(35,958)       $ 5,536
                                                                  =========     =========       ========
Weighted average common shares outstanding                          14,301        14,249         14,843
  Dilutive effect of contingent shares                                   -             -             20
  Dilutive effect of stock options                                       -             -            176
                                                                  ________      ________        ________
Diluted weighted average common and equivalent
  shares outstanding                                                14,301        14,249         15,039
                                                                  ========      ========        ========

Income (loss) per share:
  Basic:
    Income (loss) before cumulative effect of change in
      accounting principle                                        $  (2.02)     $  (2.50)       $  0.37
    Cumulative effect of change in accounting principle                  -         (0.02)             -
    Net income (loss)                                                (2.02)        (2.52)          0.37
  Diluted:
    Income (loss) before cumulative effect of change in
      accounting principle                                           (2.02)        (2.50)          0.37
    Cumulative effect of change in accounting principle                  -         (0.02)            -
    Net income (loss)                                                (2.02)        (2.52)          0.37


</TABLE>


      Contingent stock and stock options were not included in the above
      calculations for the years ended December 31, 2000 and 1999 due to their
      antidilutive nature.
<PAGE>


15.   OTHER COMPREHENSIVE INCOME

      Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
      Comprehensive Income. Other comprehensive income (loss) determined in
      accordance with SFAS No. 130 for the years ended December 31 are as
      follows:


<TABLE>
<CAPTION>

                                                                      2000          1999           1998
<S>                                                                  <C>         <C>             <C>
Unrealized holding gains (losses) arising during the year            $14,740     $  (17,294)     $ 4,394
Income tax expense (benefit)                                           5,159         (6,053)       1,538
                                                                     _______     ___________     ________
Unrealized holding gains (losses) arising during the year,
  net of tax                                                           9,581        (11,241)       2,856
                                                                     _______     ___________     ________

Reclassification adjustment for gains realized in net income           2,120         10,203        6,825
Income tax expense                                                       742          3,571        2,389
                                                                     ________    ___________     ________
Reclassification adjustment for gains realized in net
  income, net of tax                                                   1,378          6,632        4,436
                                                                     ________    ___________     ________

Other comprehensive income (loss)                                    $ 8,203     $  (17,873)     $(1,580)
                                                                     ========    ===========     ========

</TABLE>



16.   BUSINESS SEGMENTS

      The Company is engaged in the crop and specialty property and casualty
      insurance business.  The principal lines of the Crop Insurance segment
      are MPCI, supplemental coverages and named peril insurance.  The Property
      and Casualty Insurance segment primarily consists of commercial property,
      commercial casualty, inland marine and workers' compensation.

      The accounting policies of the segments are the same as those described
      in the summary of significant accounting policies (see Note 1).
      Management evaluates the performance of and allocates its resources to
      its operating segments based on underwriting income (loss).  Under a
      stop loss reinsurance treaty, the Property and Casualty Insurance segment
      assumed premiums of $3.5 million for the year ended December 31, 1998
      from the Crop Insurance segment, utilizing the excess capacity of the
      Property and Casualty Insurance segment.  There were no assumed premiums
      under this treaty during 2000 and 1999.  Depreciation and amortization
      totaled $3.7 million, $2.8 million and $2.5 million for the Crop segment
      and $2.7 million, $3.1 million and $3.1 million for the Property and
      Casualty Insurance segment for the years ended December 31, 2000, 1999
      and 1998, respectively.  Management does not utilize assets as a
      significant measurement tool for evaluating segments.

      During 1998, the Company discontinued writing certain product lines.
      Additionally, the Company reached agreements to transfer various lines of
      business to other carriers in 2000.  Net earned premiums for these
      discontinued product lines were approximately $79 million, $114 million
      and $168 million in 2000, 1999 and 1998, respectively.

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

<PAGE>

      Segment insurance premiums earned and segment underwriting income (loss)
      for the years ended December 31, are as follows:


<TABLE>
<CAPTION>

                                                           Property and
                                                Crop         Casualty
                            2000              Insurance      Insurance        Total
<S>                                            <C>          <C>              <C>
Insurance premiums earned                      $ 53,674     $132,999         $186,673
                                               =========    =========        =========
Underwriting earnings (loss)                   $(22,563)    $(21,244)        $(43,807)
                                               =========    =========        =========
                            1999

Insurance premiums earned                      $ 42,059     $206,653         $248,712
                                               =========    =========        =========
Underwriting earnings (loss)                   $ (3,687)    $(74,919)        $(78,606)
                                               =========    =========        =========
                            1998

Insurance premiums earned                      $ 61,015     $267,029         $328,044
                                               ========     =========        =========
Underwriting earnings (loss)                   $ 30,019     $(43,772)        $(13,753)
                                               ========     =========        =========

</TABLE>

17.   SALE OF REDLAND INSURANCE COMPANY

      In April 2000, the Company signed a definitive agreement to sell Redland
      Insurance Company ("Redland") to Clarendon National Insurance Company
      ("Clarendon").  This sale closed effective as of July 1, 2000.  The
      transaction included the appointment of other Company subsidiaries as the
      exclusive producer and administrator of Redland for the business the
      Company writes through Redland.  The Company also reinsures certain
      portions of the business written by Redland.  The sale was a cash
      transaction of approximately $10.9 million based upon the market value
      of Redland after the divestiture of various assets, including the
      Redland subsidiaries to a wholly-owned subsidiary of Acceptance Insurance
      Companies Inc.  At closing, the Company pledged approximately $87 million
      of investments to Clarendon to secure the Company's obligations under
      reinsurance agreements.  At December 31, 2000, approximately $86 million
      of fixed maturities available-for-sale and $6 million of short-term
      investments were pledged to Clarendon.  The Company is obligated for any
      of Redland's uncollectible amounts from reinsurers and agents for the
      business under these reinsurance agreements.  The Company recorded a loss
      on the sale of approximately $200,000.

18.   SUBSEQUENT EVENT

      In March 2001, the Company announced that it had sold a significant
      portion of its property and casualty business to Insurance Corporation of
      Hannover ("ICH").  The terms of the agreement included the sale of
      selected lines of business, a reinsurance treaty whereby the unearned
      premium and any additional premiums for these selected lines would be
      reinsured by ICH, and the transfer of certain employees to ICH.
      Additionally, the Company's right to repurchase Redland under the
      agreement between the Company and Clarendon, an affiliate of ICH, was
      waived (see Note 17).

      As a result of the sale of a significant portion of its property and
      casualty business and based upon estimated future discounted cash flows,
      the Company concluded that the excess of cost over acquired net assets
      was partially impaired by approximately $9.9 million.  As such, the
      Company recorded a $9.9 million charge for the write-off of excess of
      cost over acquired net assets in the fourth quarter of 2000.

19.   COMMITMENTS AND CONTINGENCIES

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

      In December 1999, the Company was sued in the United States District
      Court for the District of Nebraska.  Plaintiffs alleged the Company
      knowingly and intentionally understated the Company's liabilities in
      order to maintain the market price of the Company's common stock at
      artificially high levels and made untrue statements of material fact,
      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 a
      registration statement filed in conjunction with the Company's Redeemable
      Preferred Securities.

<PAGE>

      The Court consolidated these suits in April 2000 and plaintiffs
      subsequently filed a consolidated class action complaint.  Plaintiffs
      sought to represent a class consisting of all persons who purchased
      either Company common stock between March 10, 1998 and November 16, 1999,
      or AICI Capital Trust Preferred Securities between the July 29, 1997
      public offering and November 25, 1999.  In the consolidated complaint,
      plaintiffs alleged violation of Section 11 of the Securities Act of 1933
      through misrepresentation or omission of a material fact in the
      registration statement for the trust preferred securities, and violation
      of Section 10b of the Securities Exchange Act of 1934 and Rule 10b-5 of
      the U.S. Securities and Exchange Commission through failure to disclose
      material information between March 10, 1998 and November 16, 1999.  The
      Company, three of its former officers, the Company's Directors and
      independent accountants and other individuals, as well as the financial
      underwriters for the Company's preferred securities, were defendants in
      the consolidated action.

      On March 2, 2001, the Court entered an order dismissing all claims
      alleging violations of Section 11 of the Securities Act, and dismissing
      the Company's Directors, financial underwriters, independent accountants
      and others as defendants in this action.  The Court also ruled that
      allegations regarding the remaining defendants' alleged failure to
      properly report contingent losses attributable to Montrose failed to
      state a claim under the Section 10b and Rule 10b-5.  As a result of the
      Court's ruling, the litigation has been reduced to a claim the Company
      and three of its former officers, during the period from July 29, 1997
      to November 16, 1999, failed to disclose adequately information about
      various aspects of the Company's operations other than the exposure to
      losses resulting from the Montrose decision.  Claimants seek compensatory
      damages, reasonable costs and expenses incurred in this action and such
      other and such further relief as the Court may deem proper.

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

      Leases - At December 31, 2000, the Company was obligated under
      noncancelable operating leases, expiring on various dates through 2003,
      principally for office space and furniture.  Future aggregate minimum
      obligations under these noncancelable operating leases are approximately
      $2,230,000 in 2001, $288,000 in 2002 and $102,000 in 2003.

      Rental expense totaled approximately $2,290,000, $3,734,000 and
      $4,418,000 for the years ended December 31, 2000, 1999 and 1998,
      respectively.

<PAGE>
20.   INTERIM FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

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

                                                (In thousands, except per share data)
<S>                                <C>          <C>          <C>           <C>           <C>
2000:
  December 31                      $ 64,827     $(23,973)    $(24,148)     $(1.69)       $(1.69)
  September 30                       41,197       (7,658)      (2,291)      (0.16)        (0.16)
  June 30                            48,069       (4,560)        (520)      (0.04)        (0.04)
  March 31                           59,379       (7,616)      (1,890)      (0.13)        (0.13)
                                   ________     _________    _________
                                   $213,472     $(43,807)    $(28,849)     $(2.02)       $(2.02)
                                   ========     =========    =========     =======       =======
1999:
  December 31                      $ 48,387     $(32,320)    $(17,680)     $(1.24)       $(1.24)
  September 30 (2)                  106,040      (43,770)     (25,203)      (1.77)        (1.77)
  June 30                            67,257       (1,043)       3,901        0.27          0.27
  March 31                           62,295       (1,473)       3,024        0.21          0.21
                                   _________    _________    _________
                                   $283,979     $(78,606)    $(35,958)     $(2.52)       $(2.52)
                                   =========    =========    =========     =======       =======

</TABLE>



          (1)The Company is significantly involved in crop insurance programs.
             The Company's operating results from its crop program can vary
             substantially from quarter to quarter as a result of various
             factors, including timing and severity of losses from storms and
             other natural perils and crop production cycles.  Therefore, the
             results for any quarter are not necessarily indicative of results
             for any future period.  Beginning in 2000, the results of the crop
             program business are substantially recognized in the fourth
             quarter of the calendar year.

          (2)Underwriting income (loss) was affected in the quarter ended
             September 30, 1999 by the approximately $44.0 million increase in
             loss and loss adjustment expense reserves, respectively.

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

<PAGE>






<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 2000 AND 1999
BALANCE SHEETS (Parent Company Only)
(In Thousands)
______________________________________________________________________________

ASSETS                                                                                  2000           1999
<S>                                                                                <C>              <C>
Fixed maturities available-for-sale, at fair value                                 $   4,008        $       -
Cash and short-term investments                                                        5,212            4,475
Restricted short-term investments                                                     33,050           31,350
Receivables, net                                                                         654            3,876
Intercompany receivables                                                                 252                -
Surplus note receivables from subsidiaries                                            40,000           40,000
Investments in subsidiaries                                                          167,924          193,130
Other assets                                                                           8,264            7,425
                                                                                   __________       __________
                                                                                   $ 259,364        $ 280,256
                                                                                   ==========       =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                                           $   1,420        $     593
Intercompany payable                                                                       -            1,290
Company-obligated mandatorily redeemable Preferred Securities of
  AICI Capital Trust, holding solely Junior Subordinated Debentures of
  the Company                                                                         94,875           94,875
                                                                                    _________        _________
           Total liabilities                                                          96,295           96,758

Common stock subject to redemption                                                     2,588            2,540

Stockholders' equity:

  Preferred stock, no par value, 5,000,000 shares authorized, none issued                  -               -
  Common stock, $.40 par value, 40,000,000 shares authorized; 15,547,853
    and 15,494,334 shares issued                                                       6,219           6,198
  Capital in excess of par value                                                     199,112         198,932
  Accumulated other comprehensive income (loss), net of tax                           (4,365)        (12,568)
  Retained earnings (accumulated deficit)                                            (11,621)         17,212
  Common stock subject to redemption                                                  (2,588)         (2,540)
  Treasury stock, at cost, 1,209,520 shares                                          (26,047)        (26,047)
  Contingent stock, 20,396 shares                                                       (229)           (229)
                                                                                    __________      _________
           Total stockholders' equity                                                160,481         180,958
                                                                                   __________       __________
                                                                                   $ 259,364        $280,256
                                                                                   ==========       ==========
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
STATEMENTS OF OPERATIONS  (Parent Company Only)
(In Thousands)
______________________________________________________________________________

                                                                         2000         1999        1998
<S>                                                                    <C>          <C>         <C>
Revenues:
    Net investment income                                              $  5,986     $  6,262    $ 6,114

Costs and expenses:
  General and administrative expenses                                     2,517        4,594      2,502
                                                                       _________     _______    ________
           Operating profit                                               3,469        1,668      3,612

Other income (expense):
  Interest expense                                                       (8,677)      (9,058)    (8,994)
  Undistributed share of net income (loss) of subsidiaries              (31,856)     (44,151)    (3,933)
  Dividend income from subsidiaries                                       6,472       12,989     13,199
                                                                       _________    _________   ________
                                                                        (34,061)     (40,220)       272
                                                                       _________    _________   ________
          Income (loss) before income taxes                             (30,592)     (38,552)     3,884

Income tax benefit (expense):
  Current                                                                   180        2,148      1,834
  Deferred                                                                1,563          446       (182)
                                                                        ________     _________   ________

Net income (loss)                                                      $(28,849)    $(35,958)   $ 5,536
                                                                       =========    =========   =========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
STATEMENTS OF CASH FLOWS (Parent Company Only)
(In Thousands)
______________________________________________________________________________

                                                                         2000         1999         1998
<S>                                                                    <C>         <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                                    $(28,849)   $(35,958)     $  5,536

  Adjustments to reconcile net income from continuing
    operations to net cash used for operating activities:
      Deferred tax expense (benefit)                                     (1,563)       (446)          182
      Undistributed share of net loss (income) of subsidiaries           31,856      44,151         3,933
      Increase (decrease) in cash attributable to changes in
        assets and liabilities:
          Receivables                                                     2,970       1,979        13,647
          Payables                                                         (463)      1,410          (138)
  Other, net                                                              2,245       1,512           508
                                                                       _________   ________      _________
           Net cash used for operating activities                         6,196      12,648        23,668

Cash flows from investing activities:
  Purchases of investments available-for-sale                            (3,960)          -             -
  Contributions to investments in subsidiaries                                -         (15)         (250)
  Proceeds from repayment of surplus note                                     -      20,000             -
  Increase in restricted short-term investments                          (1,700)    (31,350)            -
                                                                       _________   _________     _________
           Net cash used for investing activities                        (5,660)    (11,365)         (250)

Cash flows from financing activities:
  Proceeds from bank borrowings                                               -           -        15,000
  Repayments of bank borrowings                                               -     (15,000)            -
  Proceeds from issuance of common stock                                    201         286           596
  Purchase of treasury stock                                                  -           -       (22,068)
                                                                       _________   _________     _________
           Net cash provided by financing activities                        201     (14,714)       (6,472)
                                                                       _________   _________     __________

Net increase (decrease) in cash and short-term investments                  737     (13,431)       16,946

Cash and short-term investments at beginning of year                      4,475      17,906           960
                                                                       _________    ________      ________

Cash and short-term investments at end of year                         $  5,212    $  4,475      $ 17,906
                                                                       =========   =========     ==========
</TABLE>


<PAGE>

ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE II - (Continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
_______________________________________________________________________________


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

Included in the Net Investment Income is $3.6 million, $5.4 million and $5.4
million of interest income on surplus notes from subsidiaries for the years
ended December 31, 2000, 1999 and 1998, respectively.

Cash payments for interest were $8.5 million, $9.0 million and $8.7 million
during the years ended December 31, 2000, 1999 and 1998, respectively.


<PAGE>

<TABLE>
<CAPTION>



ACCEPTANCE INSURANCE COMPANIES INC.

SCHEDULE V
VALUATION ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands)
______________________________________________________________________________

                           Column A                             Column B     Column C      Column D       Column E

                                                                 Balance
                                                                   at                                     Balance
                                                                Beginning                                    at
                                                                   of                                      End of
                                                                 Period     Additions     Deductions       Period
<S>                                                            <C>           <C>          <C>
Allowance for doubtful accounts:
  Year ended December 31, 2000                                 $ 7,037       $ 1,195      $  1,951        $ 6,281

  Year ended December 31, 1999                                 $ 5,205       $ 2,942      $  1,110        $ 7,037

  Year ended December 31, 1998                                 $ 4,985       $ 2,147      $  1,927        $ 5,205

</TABLE>




<PAGE>




                                   SIGNATURES

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

ACCEPTANCE INSURANCE COMPANIES INC.

By  /s/ John E. Martin                                  Dated: March 30, 2001
     John E. Martin
     President and Chief Executive Officer

By  /s/ Dwayne D. Hallman                               Dated: March 30, 2001
   Dwayne D. Hallman
   Chief Financial Officer and Treasurer

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


Dated:  March 30, 2001                /s/ Myron L. Edleman
                                      Myron L. Edleman, Director

Dated:  March 30, 2001                 /s/ Edward W. Elliott, Jr.
                                      Edward W. Elliott, Jr., Director

Dated:  March 30, 2001                 /s/ John E. Martin
                                      John E. Martin, Director

Dated:  March 30, 2001                /s/ Michael R. McCarthy
                                     Michael R. McCarthy, Chairman and Director

Dated:  March 30, 2001                 /s/ John P. Nelson
                                      John P. Nelson, Director

Dated:  March 30, 2001                 /s/ R. L. Richards
                                      R. L. Richards, Director

Dated:  March 30, 2001                 /s/ David L. Treadwell
                                      David L. Treadwell, Director

Dated:  March 30, 2001                 /s/ Doug T. Valassis
                                      Doug T. Valassis, Director

<PAGE>


                       ACCEPTANCE INSURANCE COMPANIES INC.
                           ANNUAL REPORT ON FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 31, 2000

                                  EXHIBIT INDEX


NUMBER         EXHIBIT DESCRIPTION

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

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

3.3            Amendment to Restated Bylaws of Acceptance Insurance Companies
               Inc.  Incorporated by reference to Registrant's Annual Report on
               Form 10-K for the fiscal year ended December 31, 1999.

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

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

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

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

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

4.8            Form of Amended and Restated Trust Agreement among Acceptance
               Insurance Companies Inc., Bankers Trust Company and Bankers
               Trust (Delaware).  Incorporated by reference to Form S-3
               Registration No. 33-28749, filed July 29, 1997.

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

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

10.2           Employment Agreement dated 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.
<PAGE>

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

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

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

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

10.7           The 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.

10.9           Security 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.

10.10          Employment 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.

21             Subsidiaries of the Registrant.

23.1           Consent of Deloitte & Touche LLP.

23.2           Report on schedules of Deloitte & Touche LLP.