SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

         For the Quarterly Period Ended September 30, 1998

                                       OR

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

                          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 Number)


222 South 15th St., Suite 600 N.
          Omaha, Nebraska                               68102
 (Address of principal executive offices)            (Zip Code)

       Registrants's telephone number, including area code: (402) 344-8800

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 was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                          YES   XX                  NO           

The number of shares of each class of the Registrant's common stock outstanding
on November 6, 1998 was:

         Class of Common Stock                 No. of Shares Outstanding
      Common Stock, $.40  Par Value                  14,330,850

                                 

<PAGE>
 
                       ACCEPTANCE INSURANCE COMPANIES INC.


                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                               
                                                                               
PART I. FINANCIAL INFORMATION

        Item 1.  Financial Statements:

                 Consolidated Balance Sheets (unaudited)
                 September 30, 1998 and December 31, 1997 

                 Consolidated Statements of Operations (unaudited)
                 Three Months and Nine Months Ended September 30, 1998 and 1997

                 Consolidated Statements of Cash Flows (unaudited)
                 Nine Months Ended September 30, 1998 and 1997               

                 Notes to Interim Consolidated Financial Statements (unaudited)

         Item 2.  Management's Discussion and Analysis of Financial Condition 
                 and Results of Operations                                   

PART II. OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K                             

         Signatures                                                          

                                        

<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
<TABLE>
<CAPTION>
                       ACCEPTANCE INSURANCE COMPANIES INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)
                                                                                 September 30,   December 31,
                                                                                      1998            1997      
                                                                                 
<S>                                                                             <C>              <C>  
   ASSETS
Investments:                                                                                                       
   Fixed maturities available-for-sale.....................................      $  360,783       $ 322,799
   Marketable equity securities - preferred stock..........................          29,006          53,309      
   Marketable equity securities - common stock.............................          39,034          30,847
   Mortgage loans and other investments....................................           9,823          10,248
   Real estate.............................................................           3,304           3,329
   Short-term investments, at cost, which approximates
     market................................................................          94,922          32,185      
                                                                                 -----------      ----------      
                                                                                    536,872         452,717

Cash.......................................................................             219           8,048
Investment in Major Realty Corporation.....................................             --            9,183
Receivables, net...........................................................         287,016         180,793
Reinsurance recoverable on unpaid loss and loss
  adjustment expenses......................................................         240,525         165,547
Prepaid reinsurance premiums...............................................          60,576          53,208
Property and equipment, net................................................          15,741          15,588
Deferred policy acquisition costs..........................................          32,321          30,328
Excess of cost over acquired net assets....................................          34,742          35,567
Deferred income tax........................................................           6,161          15,842
Other assets...............................................................          10,466          12,632 
                                                                                 -----------      ----------
       Total assets........................................................      $1,224,639       $ 979,453      
                                                                                 ===========      ==========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses........................................      $  505,507       $ 428,653
Unearned premiums..........................................................         165,075         157,134
Amounts payable to reinsurers..............................................         157,337          17,955
Accounts payable and accrued liabilities...................................          30,181          27,166
Bank borrowings............................................................          13,000             --
Company-obligated manditorily redeemable Preferred Securities of
   AICI Capital Trust, holding solely Junior Subordinated Debentures
   of the Company..........................................................          94,875          94,875    
                                                                                 ----------       ---------        
     Total liabilities..................................................            965,975         725,783
Contingencies..............................................................            --              --
Stockholders' equity:
   Preferred stock, no par value, 5,000,000 shares
     authorized, none issued...............................................            --              --
   Common stock, $.40 par value, 40,000,000
     shares  authorized, 15,462,066 and 15,421,247
     shares issued.........................................................           6,185           6,168
   Capital in excess of par value..........................................         198,579         198,080
   Accumulated other comprehensive income, net of tax .....................           6,085           6,885
   Retained earnings.......................................................          72,083          46,745    
                                                                                 -----------      ----------    
                                                                                    282,932         257,878
Less:
Treasury stock, at cost, 1,102,220 and 209,519 shares.....................          (24,039)         (3,979)
Contingent stock, 20,396 shares............................................            (229)           (229)
                                                                                 -----------      ----------
   Total stockholders' equity..............................................         258,664         253,670   
                                                                                 -----------      ----------  
   Total liabilities and stockholders' equity..............................      $1,224,639       $ 979,453    
                                                                                 ===========      ========== 
</TABLE>

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

                                        
<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
      for the three months and nine months ended September 30, 1998 and 1997
                      (in thousands, except per share data)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                      Three Months                      Nine Months           
                                                                    ---------------                   --------------   
                                                                  1998                1997         1998                1997   
                                                                 -----               ------
<S>                                                           <C>                 <C>           <C>                <C>           
Revenues:
   Insurance premiums earned...............................    $  117,240          $112,742      $ 258,327          $ 256,748
   Net investment income...................................         7,217             7,308         21,349             20,619
   Net realized capital gains (losses).....................          (129)            2,042          5,354              5,373 
                                                              ------------        ---------     ----------          ---------    
                                                                  124,328           122,092        285,030            282,740  
                                                              ------------        ---------     ----------          ---------   
Costs and expenses:
   Costs of revenues:
     Insurance losses and loss adjustment expenses.........        60,450            58,974        158,233            161,369
     Insurance underwriting expenses.......................        38,970            32,459         81,835             75,962
   General and administrative expenses                                624               525          1,842              1,622  
                                                              ------------         --------       --------           --------  
                                                                  100,044            91,958        241,910            238,953  
                                                              ------------         --------       --------           -------- 
Operating profit...........................................        24,284            30,134         43,120             43,787  
                                                              ------------         --------       --------           -------- 
Other income (expense):
   Interest expense........................................        (2,278)           (1,960)        (6,608)            (4,364)
   Loss on investee........................................          --                 (54)          (704)              (171)
   Other, net..............................................             1                61            (56)                73  
                                                               -----------          --------      ---------          ---------  
                                                                   (2,277)           (1,953)        (7,368)            (4,462) 
                                                               -----------          --------      ---------          ---------
Income before income taxes ................................        22,007            28,181         35,752             39,325
Income tax expense (benefit):
     Current...............................................         7,317            13,618            303             14,587
     Deferred..............................................           (88)           (4,245)        10,111             (2,226) 
                                                              ------------         ---------    -----------        ----------- 
Net income.................................................    $   14,778          $ 18,808      $  25,338          $  26,964  
                                                              ============         =========    ===========        ===========  
Net income per share:
   Basic  .................................................    $     1.01          $   1.25      $    1.69          $    1.79 
                                                              ============         =========    ===========        ===========
   Diluted.................................................    $     1.00          $   1.23      $    1.66          $    1.76  
                                                              ============         =========    ===========        ===========
</TABLE>

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

                                        

<PAGE>      
                       ACCEPTANCE INSURANCE COMPANIES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              for the nine months ended September 30, 1998 and 1997
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                              1998              1997     
                                                                                        -------------       ----------            
<S>                                                                                      <C>               <C>                   
Cash flows from operating activities:
   Net income........................................................................     $   25,338        $  26,964
   Net adjustment to reconcile net income to net cash provided by
     operating activities............................................................         56,494           33,631    
                                                                                        -------------        --------- 
       Net cash provided by operating activities.....................................         81,832           60,595    
                                                                                        -------------        ---------  
Cash flows from investing activities:
   Proceeds from sales of investments available-for-sale.............................        122,798          148,526
   Proceeds from maturities of investments ..........................................          5,125            8,080
   Proceeds from maturities of investments available-for-sale........................         78,501           66,756
   Purchases of investments..........................................................         (4,676)         (20,004)
   Purchases of investments available-for-sale.......................................       (218,719)        (263,918)
   Purchases of property and equipment...............................................         (3,320)          (8,226)   
                                                                                        --------------       ---------- 
        Net cash used for investing activities.......................................        (20,291)         (68,786)   
                                                                                        --------------       ---------- 
 
Cash flows from financing activities:
   Proceeds from bank borrowings.....................................................        13,000            21,000
   Repayment of bank borrowings......................................................           --            (90,000)   
   Net proceeds from issuance of Company-obligated
     manditorily redeemable preferred securities.....................................           --             90,994             
   Proceeds from issuance of common stock............................................           516               903   
   Repurchase of common stock..................................................... .        (20,060)               --
                                                                                        --------------      -----------     
        Net cash provided by (used in) financing activities..........................        (6,544)           22,897    
                                                                                        --------------      -----------
Net increase in cash and cash equivalents............................................        54,997            14,706
Cash and cash equivalents at beginning of period.....................................        38,316            41,627    
                                                                                        --------------      -----------
Cash and short-term investments at end of period.....................................     $  93,313         $  56,333    
                                                                                        ==============      ===========
Supplemental disclosure of cash flow information:
   Cash paid during the period for interest..........................................     $   6,404         $   4,630     
                                                                                        ==============      =========== 
   Cash paid (received)during the period for income taxes............................     $     481         $  (1,835)   
                                                                                        ==============      ===========  
</TABLE>



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








                                        
<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


1. Summary of Significant Accounting Policies:

   Principles of Consolidation

   The Company's consolidated financial statements include the accounts of 
   Acceptance Insurance Companies Inc. and its subsidiaries (the "Company").  
   All significant intercompany transactions have been eliminated.

   Management's Opinion

   The accompanying consolidated financial statements reflect all adjustments, 
   consisting only of normal recurring adjustments except as otherwise 
   disclosed, which in the opinion of management are considered necessary to 
   fairly present the Company's financial position as of September 30, 1998 and
   December 31, 1997, and the results of operations for the three months and 
   nine months ended September 30, 1998 and 1997 and cash flows for the nine
   months ended September 30, 1998 and 1997.

   Statements of Cash Flows

   The Company aggregates cash and cash equivalents with maturity dates 
   of three months or less from the date of purchase for purposes of reporting 
   cash flows.  As of September 30, 1998 approximately $1,828,000 of short-term
   investments had a maturity date at acquisition of greater than three months.
 
   Recent Statements of Financial Accounting Standards

   In June 1997, the Financial Accounting Standards Board (FASB) issued 
   Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
   " Reporting Comprehensive Income."  SFAS No. 130 establishes standards for 
   the reporting and display of comprehensive income.  The purpose of reporting
   comprehensive income is to present a measure of all changes in shareholders'
   equity that results from recognized transactions and other economic events of
   the period, other than transactions with owners in their capacity as owners.
   SFAS No. 130 is effective for financial statements issued for periods  
   beginning after December 15, 1997.  See Note 8.
 
   In June 1997, the FASB issued SFAS No. 131," Disclosures About Segments of 
   an Enterprise and Related Information." SFAS No. 131 specifies revised 
   guidelines for determining an entity's operating segments and the type and 
   level of financial information to be disclosed.  SFAS No. 131 is effective 
   for fiscal years beginning after December 15, 1997.  Adoption of SFAS 
   No. 131 may result in additional disclosures in the Company's financial 
   statements but will not impact the Company's reported net income or net 
   income per share.

   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative 
   Instruments and Hedging Activities," which establishes accounting and 
   reporting standards for derivative instruments, including certain derivative
   instruments embedded in other contracts, and for hedging activities. SFAS 
   No. 133 is effective for all fiscal quarters of fiscal years beginning after
   June 15, 1999.  Management is currently evaluating the impact of SFAS No.133
   on the Company's consolidated financial statements.
 
   Reclassifications
 
   Certain prior year accounts have been reclassified to conform with current
   period presentation.









                                        


<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.

          NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)




2. Investments:

   The amortized cost and related estimated fair values of debt and equity 
   securities in the accompanying balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>


                                                                       Gross              Gross             Estimated
                                                   Amortized         Unrealized          Unrealized           Fair
                                                      Cost             Gains              Losses              Value     
                                               --------------     --------------     ---------------    ---------------       
<S>                                             <C>                <C>                <C>                 <C>              
September 30, 1998:
   Fixed maturities available-for-sale:
   U.S. Treasury and government
     securities.............................     $  94,929          $      1,887       $          5        $  96,811
   States, municipalities and political
     subdivisions...........................       152,097                 6,795                 19          158,873
   Mortgage-backed securities...............        49,419                   533                145           49,807
   Other debt securities....................        57,311                 1,674              3,693           55,292
                                                -------------      -------------      --------------       ------------        
                                                 $ 353,756          $     10,889       $      3,862        $ 360,783
                                                =============      =============      ==============       ============ 
   Marketable equity securities -
     preferred stock........................     $  27,855          $      1,249       $         98        $  29,006
                                                =============      =============      ==============       ============  
   Marketable equity securities -
     common stock...........................     $  37,850          $      6,607       $      5,423        $  39,034
                                                =============      =============      ==============       ============ 
December 31, 1997:
   Fixed maturities available-for-sale:
   U.S. Treasury and government
     securities.............................     $ 104,039          $        536       $         41        $ 104,534
   States, municipalities and political
     subdivisions...........................       129,378                 4,520                 38          133,860
   Mortgage-backed securities...............        48,056                   132              3,381           44,807
   Other debt securities....................        40,131                   792              1,325           39,598   
                                                ------------       -------------       -------------       ------------ 
                                                 $ 321,604          $      5,980       $      4,785        $ 322,799   
                                                ============       =============       =============       ============
   Marketable equity securities -
     preferred stock........................     $  51,185          $      2,291       $        167        $  53,309  
                                                ============       =============       =============       ============
   Marketable equity securities -
     common stock...........................     $  23,574          $      8,439       $      1,166        $  30,847  
                                                ============       =============       =============       ============ 
</TABLE>






                                        
<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.

          NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)



3.       Insurance Premiums and Claims:

         Insurance premiums written and earned by the Company's insurance 
         subsidiaries for the three months and nine months ended 
         September 30, 1998 and 1997 are as follows (in thousands):
         <TABLE>
         <CAPTION>
                                                                      Three Months                    Nine Months             
                                                                    ----------------                --------------- 
                                                                 1998             1997            1998            1997    
                                                            ------------      -----------   -------------     -----------     
        <S>                                                  <C>               <C>            <C>              <C>
         Direct premiums written..........................    $ 219,541         $229,906       $ 504,926        $488,794
         Assumed premiums written.........................       58,811           45,291          78,868          57,575
         Ceded premiums written...........................     (163,346)        (165,048)       (324,895)       (293,030) 
                                                             -----------       ----------   -------------     ------------        
              Net premiums written........................    $ 115,006         $110,149       $ 258,899        $253,339  
                                                             ===========       ==========   =============     ============
         Direct premiums earned...........................    $ 224,251         $228,544       $ 500,720        $478,380
         Assumed premiums earned..........................       57,180           45,399          75,135          55,408
         Ceded premiums earned............................     (164,191)        (161,201)       (317,528)       (277,040)  
                                                             -----------       ----------   -------------     ------------ 
              Net premiums earned.........................    $ 117,240         $112,742       $ 258,327        $256,748   
                                                             ===========       ==========   =============     ============          
</TABLE>

 
         Insurance loss and loss adjustment expenses have been reduced by 
         recoveries recognized under reinsurance contracts of approximately 
         $163.7 million and $68.8 million for the three months ended 
         September 30, 1998 and 1997, respectively.  Insurance loss and loss 
         adjustment expenses have been reduced by recoveries recognized under 
         reinsurance contracts of approximately $314.4 million and 
         $158.6 million for the nine months ended September 30, 1998 and 1997,
         respectively.


4.       Bank Borrowings: 

         On June 6, 1997, the Company amended its borrowing arrangements with 
         its bank lenders providing a $100 million five-year Revolving Credit 
         Facility.  In August 1997, the Company used the net proceeds from the 
         issuance of Junior Subordinated Debentures to repay the Company's 
         outstanding indebtedness of $90 million under the Revolving Credit
         Facility.  As a result of the issuance of the Junior Subordinated 
         Debentures, the Revolving Credit Facility was reduced from 
         $100 million to $65 million.  The Company selects its interest rate as
         either the prime rate or LIBOR plus a margin of .50% to 1.25% 
         depending on the Company's debt to equity ratio.  Interest is payable
         quarterly.  At September 30, 1998, the Company had $13 million    
         outstanding indebtedness under this arrangement at a weighted average
         interest cost of 6.5%. (See Note 9).
 
5.       Company-obligated mandatorily redeemable Preferred Securities of AICI
         Capital Trust, holding solely Junior Subordinated Debentures of the 
         Company:

         In August of 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 August
         of 1997 in an amount equal to the total of the Preferred Securities 
         and the Common Securities.  The Company primarily used the net 


                                       
<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.

          NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)

         proceeds in the amount of approximately $90.9 million from the sale 
         of the Junior Subordinated Debentures to pay down the $90.0 million 
         of borrowings under its Revolving Credit Facility.

         Distributions on the Preferred Securities and Junior Subordinated 
         Debentures are cumulative, accrue from the date of issuance and are 
         payable quarterly in arrears.  The Junior Subordinated Debentures are 
         subordinate and junior in right of payment to all senior indebtedness 
         of the Company and are subject to certain events of default and 
         redemption provisions, all as described in the Junior Debenture 
         Indenture.  At September 30, 1998, the Company had $94.875 million 
         outstanding at a weighted average interest cost of 9.1%.

6.       Income Taxes:

         As of September 30, 1998, management believes it is more likely than 
         not that the Company will realize a portion of the deferred tax asset. 
         The valuation allowance at September 30, 1998 primarily relates to 
         capital loss items whose realization is uncertain.  The net deferred 
         tax asset is as follows (in thousands):
         <TABLE>
         <CAPTION>

                                                                                             September 30,        December 31,
                                                                                                 1998                 1997       
                                                                                            --------------       -------------- 
             <S>                                                                             <C>                <C>         
              Unpaid losses and loss adjustment expenses...........................           $  11,249          $    12,311
              Unearned premiums....................................................               7,315                7,275
              Allowances for doubtful accounts ....................................               2,241                1,745
              Other................................................................               1,787                2,618
              Major Realty basis difference........................................                 --                 8,391     
                                                                                            -------------        --------------   
              Deferred tax asset...................................................              22,592               32,340      
                                                                                            -------------        --------------
              Deferred policy acquisition costs....................................             (11,312)             (10,615)
              Other................................................................              (1,768)              (1,064)
              Unrealized gain on fixed maturities available-for-sale...............              (2,459)                (418)
              Unrealized gain on marketable equity securities......................                (817)              (3,289)     
                                                                                            -------------        --------------
              Deferred tax liability...............................................             (16,356)             (15,386)     
                                                                                            -------------        -------------- 
                                                                                                  6,236               16,954
              Valuation allowance..................................................                 (75)              (1,112)     
                                                                                            -------------        --------------
              Net deferred tax asset...............................................           $   6,161          $    15,842       
                                                                                            =============        ==============   
</TABLE>


            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 
            (in thousands):
            <TABLE>
                                                                                                       September 30,              
                                                                                                      ---------------              
                                                                                                  1998               1997      
                                                                                                -------             ------    
           <S>                                                                               <C>                <C>     
            Computed U.S. federal income taxes.....................................           $  12,513          $   13,782       
            Nondeductible amortization of goodwill and other intangibles...........                 333                 404
            Tax-exempt interest income.............................................              (1,553)             (1,403)
            Dividends received deduction...........................................                (780)               (952)
            Reduction of the valuation allowance...................................              (1,037)                --
            Other..................................................................                 938                 530      
                                                                                             -----------         ------------  
            Income taxes provided..................................................           $  10,414          $   12,361     
                                                                                             ===========         ============
</TABLE>





                                       


<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.

          NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)

 
7.       Net Income Per Share:
 
          Basic and diluted net income per share for the three months and nine
          months ended September 30, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>

                                                                           Three Months                        Nine Months        
                                                                         ---------------                     --------------   
                                                                     1998              1997             1998             1997
                                                                 ----------      --------------     ------------     ----------  
 <S>                                                            <C>               <C>                <C>             <C>
  Net income                                                     $  14,778         $   18,808         $ 25,338        $  26,964
                                                                 ==========       =============      ==========      ===========
        Weighted average common shares outstanding                  14,642             15,066           15,025           15,036
                Dilutive effect of contingent shares                    20                 20               20               62
                Dilutive effect of stock options                       172                250              197              261  
                                                                 ----------       -------------      ----------      -----------
        Diluted weighted average common and equivalent
        shares outstanding                                          14,834             15,336           15,242           15,359
                                                                 ==========       =============      ==========      ===========
        Basic net income per share                               $    1.01         $     1.25         $   1.69        $    1.79
                                                                 ==========       =============      ==========      =========== 
        Diluted net income per share                             $    1.00         $     1.23         $   1.66        $    1.76
                                                                 ==========       =============      ==========      ===========
</TABLE>
8.      Comprehensive Income:

        Effective January 1, 1998, the Company adopted SFAS No. 130, 
        "Reporting Comprehensive Income."  The comprehensive income for the 
        three months and nine months ended September 30, 1998, and 1997 are 
        as follows:
<TABLE>
<CAPTION>
                                                                        Three Months                          Nine Months          
                                                                      ---------------                       --------------
                                                                    1998               1997                 1998          1997  
                                                                   ------             -----  
       <S>                                                     <C>                <C>                <C>              <C>      
        Net income                                              $  14,778          $  18,808          $25,338          $ 26,964
        Other comprehensive income (loss):
               Net unrealized gains (losses) on securities,
               net of tax                                          (2,250)             3,832             (800)            7,806
                                                               -----------        -----------        ----------       ----------   
        Comprehensive income                                    $  12,528          $  22,640          $24,538          $ 34,770
                                                               ===========        ===========        ==========       ==========
</TABLE>

 

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 may be made from time to time in the open market and in 
        private transactions. The actual number of shares purchased will depend
        upon the price and prevailing market conditions. As of September 30, 
        1998, the Company has repurchased 892,700 shares of its common stock at
        an average cost of $22.47 per share.  The Company funded these 
        repurchases using available cash and $13 million of borrowings under 
        its Revolving Credit Facility.









                                       

<PAGE>
PART 1.
ITEM 2.        
                       ACCEPTANCE INSURANCE COMPANIES INC.
                      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 is based
upon the Company's interim consolidated financial statements and the notes 
thereto included in this report.

                              RESULTS OF OPERATIONS

                           Forward-Looking Information

Except for the historical information contained in this Quarterly Report on 
Form 10-Q, matters discussed herein may constitute forward-looking information.
Such forward-looking information reflects the Company's current best estimates 
regarding future operations, but, since these are only estimates, actual 
results may differ materially from such estimates.

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

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

Forward-looking information set forth herein does not take into account any 
impact from any adverse weather conditions during the remainder of the 1998 
crop season, or the various other factors noted above which may affect crop and
non-crop operating results.

              Three months and nine months ended September 30, 1998
      Compared to the three months and nine months ended September 30, 1997

The Company's net income for the three months and nine months ended 
September 30, 1998 decreased 21.4% and 6.0% respectively from the same periods 
in 1997.  The three months ended September 30, 1998 were adversely impacted by 
severe weather activity including hurricanes and Midwest hailstorms and a 
decrease in realized gains as compared to the three months ended 
September 30, 1997.  The nine months ended September 30, 1998 were impacted
by the same factors, but increased investment income and additional profit 
sharing from the previous year under the Company's MPCI program recorded in the
first six months partially offset these negative factors in the nine month 
period.

During the first nine months of 1998, the Company's crop insurance operations 
were affected by an over-all increase in the premium volume of MPCI business,
an increase in the Company's retention rate under the federal reinsurance 
program for the MPCI business, a reduction in the expense reimbursement 
allowance from the federal government under the MPCI program and increased 
losses in the Company's crop hail and named peril crop insurance programs.

During the third quarter of 1998, the Company recognized MPCI profit sharing 
income of approximately $45.1 million based upon a retained MPCI pool of

                                       

<PAGE>
$196.2 million and a profit sharing percentage of 23.0%.  During the third 
quarter of 1997, the Company recognized MPCI profit sharing income of
approximately $38.0 million based upon a retained MPCI pool of $155.3 million
and a profit sharing percentage of 24.5%.  The size of the Company's retained
pool increased from 1997 to 1998 due to an increase in the overall MPCI premium
from $251.7 million in 1997 to $274.0 million in 1998 as well as an increase in
the amount of business retained by the Company for its own account.  The 
increase in the gross premiums under the MPCI premium was due to both an
increase in policy count as well as an increase in the commodity prices upon 
which the MPCI premium is based.  The increase in the Company's retention 
occurred as the Company applied new refined selection techniques provided for 
under the new reinsurance contract with the federal government.

The increase in MPCI profit sharing income was largely offset by a decrease in 
expense reimbursement from the federal government under the MPCI program from 
29.0% for MPCI and 25.0% for CRC policies in 1997 to 27.0% and 23.25% 
respectively for MPCI and CRC policies in 1998.  The Company was able to 
partially offset this decrease in expense reimbursement through efficiencies in
its MPCI operations, but was unable to pass any of the reduction along to its 
agents through commission reductions due to a competitive marketplace in the 
MPCI business. The net result of the increase in MPCI profit sharing income and
decrease in expense reimbursement was a $.3 million increase in MPCI income for
the first nine months of 1998 versus the same period in 1997.  This increase 
was offset by an increase in losses from the Company's crop hail and named 
peril crop insurance programs.  Losses during the first nine months of 1998 
under these programs were approximately $2.7 million compared with a 
$.9 million loss during the same period in 1997.  In addition, during the first
nine months of 1998, the Company recognized approximately $3.3 million of 
profit from adjustments to the prior years MPCI profit sharing as compared to
only $1.1 million during the first nine months of 1997.  Thus, for the nine 
months ended September 30, 1998 the Company recognized a net improvement of 
$.7 million in its crop insurance operations as compared to the same period in
1997, whereas the Company's results for the three months ended September 30,
1998 were $1.5 million less profitable than the same quarter in 1997.

The Company's property and casualty operations were impacted by severe weather
activity from hurricanes and Midwestern storms during the three and nine months
ended September 30, 1998 when compared to the same periods a year earlier.  
Premium income levels, expense ratios and loss ratios for the periods being 
compared otherwise remained relatively stable from 1997 to 1998.  The severe
weather activity resulted in additional losses of approximately $3.2 million 
during the third quarter effecting both the three and nine months results for 
the Company's property and casualty operations.  For the three months ended 
September 30, 1998, the Company's loss and expense ratio from non-crop 
operations was 104.0% as compared to 102.9% during the first nine months of 
1997, and for the three months ended September 30, 1998 the Company's loss 
expense ratio was 107.6% as compared to 104.5% during the same three months
in 1997.

Realized gains in the Company's investment portfolio also decreased
$2.2 million in the three months ended September 30, 1998 as compared to the
same period in 1997.  For the nine months ended September 30, 1998, realized 
gains were approximately the same as compared to the nine months ended 
September 30, 1997.  The realized losses recorded during the third quarter of
1998 were principally in the Company's equity portfolio.

While investment income was down slightly, approximately $.1 million, during 
the third quarter of 1998 as compared to the same period in 1997, investment 
income was approximately $.7 million more during the nine months ended
September 30, 1998 as compared to the same period a year earlier.  The small 
decrease in investment income during the three months ended September 30, 1998
as well as the increase in investment income during the nine months ended
September 30, 1998, both as compared to the same periods a year earlier, 
resulted from an increase in the size of the investment portfolio from 
$475.4 million and $448.0 million during the three and nine months ended 
September 30, 1997 to $515.2 million and $496.5 million during the three and 
nine months ended September 30, 1998, offset by a decrease in the average yield
on the portfolio from 6.15% and 6.16% during the three and nine months ended 
September 30, 1997 to 5.60% and 5.73% during the three and nine months ended 
September 30, 1998.  The decrease in yield on the investment portfolio from
1997 to 1998 was a result of a lower interest rate environment and an increase 
in the percentage of the Company's securities invested in tax advantaged 
municipal securities during 1998 as compared to the same periods in 1997.

                                       
<PAGE>



The Company's net income during the three and nine months ended 
September 30, 1998 was adversely effected by an increase in interest expense 
of 16.2% and 51.4% when compared to the similar periods in 1997.  The increase
in interest expense was a result of both an increase in the Company's average 
outstanding borrowings from $92.8 million and $77.1 million during the three 
and nine months ended September 30, 1997 to $101.8 and $97.2 million during the
three and nine months ended September 30, 1998, and an increase in the average
interest rate from 8.5% and 7.5% for the three and nine months ended 
September 30, 1997 to 8.9% and 9.1% for the three and nine months ended
September 30, 1998.  The increased borrowings were used to add statutory 
surplus to the Company's insurance company subsidiaries as well as to
repurchase shares of the Company's stock under the Company's Stock Repurchase
program approved by the Board of Directors in May of 1998.  The increase in the
Company's average interest rate paid resulted from the issuance of 
$94.875 million in Trust Preferred Securities and the retirement of the 
Company's outstanding bank debt during the third quarter of 1997 
(See Liquidity and Capital Resources).

The Company's effective tax rate declined from 33.3% and 31.4% during the three
and nine months ended September 30, 1997 to 32.8% and 29.1% during the three 
and nine months ended September 30, 1998.  This lower effective tax rate 
resulted from an increase in the size of the company's investment in tax 
advantaged municipal securities as well as the tax benefit of the sale of its
approximate 33% equity investment in Major Realty Corporation during the second
quarter of 1998.  As of September 30, 1997, the Company held an approximate 33%
equity investment in Major Realty Corporation, a publicly traded real estate 
company engaged in the ownership and development of its undeveloped land in
Orlando, Florida.  On March 6, 1998, the Company, with certain stockholders of 
Major Realty who together held a majority interest in Major Realty, entered
into a Stockholder Agreement with an outside party whereby Major Realty was
to be merged with this outside party and all shares of Major Realty converted 
into the right to receive cash.  This transaction was completed in May of 1998.
The Company recorded this transaction as a net loss from investee of 
approximately $.7 million and a tax benefit to income tax expense of 
approximately $.7 million.  Thus, this transaction lowered the Company's 
effective tax rate, but due to the net loss from investee, had no material
effect on the results of the Company for the nine months ended
September 30, 1998.

               Recent Statement of Financial Accounting Standards

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income."  SFAS No. 130 establishes standards for the reporting
and display of comprehensive income.  The purpose of reporting comprehensive
income is to present a measure of all changes in shareholders' equity that
results from recognized transactions and other economic events of the period, 
other than transactions with owners in their capacity as owners.  SFAS
No. 130 is effective for financial statements issued for periods beginning
after December 15, 1997.  See Note 8.

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information."  SFAS No. 131 specifies revised guidelines
for determining an entity's operating segments and the type and level of 
financial information to be disclosed.  SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997.  Adoption of SFAS No. 131 may result
in additional disclosures in the Company's financial statements but will not
impact the Company's reported net income or net income per share.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative 
Instruments and Hedging Activities," which establishes accounting and 
reporting standards for derivative instruments, including certain derivative 
instruments embedded in other contracts, and for hedging activities.  SFAS 
No. 133 is effective for all fiscal quarters of fiscal years beginning after 
June 15, 1999.  Management is currently evaluating the impact of SFAS 
No. 133 on the Company's consolidated financial statements.

                         

                                       
<PAGE>

                        LIQUIDITY AND CAPITAL RESOURCES


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

                             The Company-Parent Only

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

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

Dividends from the insurance subsidiaries of the Company are regulated by the 
regulatory authorities of the states in which each subsidiary is domiciled.  
The laws of such states generally restrict dividends from insurance companies 
to parent companies to certain statutorily approved limits.  In 1998, the 
statutory limitation on dividends from insurance company subsidiaries to the
parent without further insurance department approval is approximately 
$21.7 million.

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

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 2027 which were issued in August of 1997 in
an amount equal to the Preferred Securities and the Common Securities. The 
Company primarily used the net proceeds in the amount of $90.9 million from 
the sale of the Junior Subordinated Debenture to pay down the $90.0 million of
borrowings under its Revolving Credit Facility.  Distributions on the Preferred
Securities and Junior Subordinated Debentures are cumulative, accrue from the 
date of issuance and are payable quarterly in arrears.  The Junior Subordinated
Debentures are subordinate and junior in right of payment to all senior 
indebtedness of the Company and are subject to certain events of default and 
redemptive provisions, all described in the Junior Debenture Indenture.  At 
September 30, 1998, the Company had $94.875 million outstanding at a weighted 
annual interest cost of 9.1%.

As of September 30, 1998, the Company maintains a five-year revolving credit 
facility (the "Revolving Credit Facility") with its bank lenders in the amount
of $65 million.  The Company selects its interest rate at either the prime rate
or LIBOR plus a margin which varies depending on the Company's funded debt to
equity ratio.  Interest is payable quarterly.  At September 30, 1998, the 
Company had $13 million outstanding indebtedness under this arrangement at a
weighted interest cost of 6.5%.

At its May 29, 1998 meeting, the Company's Board of Directors approved a stock
repurchase plan providing for the repurchase of up to one million shares of the
Company's stock.  As of September 30, 1998, the Company has repurchased 892,700
shares at an average cost of $22.47 per share.  The Company funded these 
repurchases using available cash and $13.0 million of borrowings under its 
Revolving Credit Facility.  Under the Revolving Credit Facility, the Company is
authorized to borrow up to $15.0 million to fund the repurchase of its stock.


                                       
<PAGE>


As of September 30, 1998, the Company held cash and invested assets, excluding
investment in subsidiaries, of $.6 million.

                               Insurance Companies

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

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

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

The Company's profit or loss from its MPCI business is determined after the 
crop season ends on the basis of a profit sharing formula established by law 
and the RMA.  Commencing with the 1997 years, the Company receives a profit
share in cash, with 60% of the amount in excess of 17.5% of its MPCI retention
(as defined in the profit sharing agreement) in any year carried forward to
future years, or it must pay its share of losses.  Prior to the 1997 year, the
amount carried forward to future years was any amount in excess of 15% of its
MPCI retention.  The Company recognized $52.6 million during 1997 and the first
quarter of 1998 in profit sharing earned on 1997 MPCI business. With the change
in profit sharing payment rules including amounts payable for the 1997 crop 
year, the Company received $57.0 million in payments under the MPCI program in 
February of 1998.



                         Changes in Financial Condition

The Company's stockholders' equity increased by approximately $5.0 million from
December 31, 1997 to September 30, 1998.  The principal components of this 
increase were net income of $25.3 million during the first nine months of 1998,
a decrease in the value of the Company's investment portfolio of $.8 million,
net of tax and the repurchase of 892,700 shares of the Company's stock at an
aggregate cost of approximately $20.1 million.  The change in the unrealized 
gain/loss on available-for-sale securities was attributable to an increase in 
the unrealized gain in the Company's fixed income portfolio of $3.8 million, 
net of tax, offset by a decrease in the unrealized gain/loss in the Company's
equity portfolio of $4.6 million, net of tax.

                             Consolidated Cash Flows

Cash provided by operating activities was positive during the nine months ended
September 30, 1998 and 1997, with $81.8 million and $60.6 million in positive
cash flow during the two periods respectively.  The major component of this
cash flow during both periods was profit sharing payments received from the 
federal government under the Company's MPCI crop insurance program.  During the
first nine months of 1997, this component of operating cash flows was 
$25.5 million while in the first nine months of 1998, it was $57.0 million.
                                       

<PAGE>

                                    Inflation

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

                                    Year 2000

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

The Company previously identified its information technology ("IT") systems 
requiring modification to be Year 2000 compliant.  The Company developed and 
continues to implement a corrective plan utilizing both internal and external
resources to make necessary modifications to, and to test, the Company's IT
systems for Year 2000 compliance.  The majority of the Company's IT systems
currently are Year 2000 compliant and management expects the remaining Company 
IT systems to be Year 2000 compliant by December 31, 1998.

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

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

One of the more significant third parties is the Risk Management Agency ("RMA")
which, along with the Federal Crop Insurance Corporation ("FCIC"), administers
the federal crop insurance program.  The RMA calculates and settles the
Company's MPCI profit share and expense reimbursement. The RMA has publicly
stated that all RMA and FCIC systems will be Year 2000 compliant by March 1999.

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

The Company has expensed costs of approximately $2.7 million relating to the
year 2000 issue since inception of the project, including $1.3 million during
the nine months ended September 30, 1998.  The Company anticipates an 
additional $.5 to $1.1 million of expenses to complete the project.

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

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









                                       
                                       

<PAGE>

                       ACCEPTANCE INSURANCE COMPANIES INC.


PART II.          OTHER INFORMATION



Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  See Exhibit Index.

         (b)      No reports on Form 8-K were filed by the registrant during 
                  the quarter for which this report is filed.

                                    



<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.



November 11, 1998                  /S/  KENNETH C COON                         
                                   -----------------------
                                        Kenneth C. Coon
                                        Chief Executive Officer


November 11, 1998                  /S/  GEORGIA M MACE                        
                                   ------------------------ 
                                        Georgia M. Mace
                                        Treasurer and Chief Financial Officer

                                       

 

<PAGE>
                       ACCEPTANCE INSURANCE COMPANIES INC.
                          QUARTERLY REPORT ON FORM 10-Q
                   FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

                                  EXHIBIT INDEX

NUMBER            EXHIBIT DESCRIPTION


27                Financial Data Schedule.