UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES            EXCHANGE ACT OF 1934

OR

[ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES            EXCHANGE ACT OF 1934

For the Quarterly Period Ended **September 30, 2001**Commission File Number 1-7461

**ACCEPTANCE INSURANCE COMPANIES INC.**(Exact name of registrant as specified in its charter) 

**                                              Delaware                                                        31-0742926**                                  (State or other jurisdiction of                                    (I.R.S. Employer                                    incorporation or organization)                                Identification Number)

**                                     535 West Broadway                                         Council Bluffs, Iowa**  **                                                   51503**                               (Address of principal executive offices)                            (Zip Code)

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

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

**            Title of EachClass****                                               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 befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant has been required to file suchreports), and (2) has been subject to such filing requirements for the past 90 days. 

               YES     X                 NO ____ 

The number of shares of each class of the Registrant’s common stock outstanding onNovember 7, 2001 was: 

             Class ofCommon Stock                                    No. of Shares Outstanding         Common Stock, $.40 Par Value                                     14,427,259 

 

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES**

**FORM 10-Q****TABLE OF CONTENTS**

**PART I. FINANCIAL INFORMATION**

Item 1.           FinancialStatements: 

                    Consolidated Balance Sheets                     September 30, 2001 and December 31, 2000 

                    Consolidated Statements of Operations                     Three Months and Nine Months Ended September 30, 2001 and 2000 

                    Consolidated Statements of Cash Flows                     Nine Months Ended September 30, 2001 and 2000 

                    Notes to Interim Consolidated Financial Statements 

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

Item 3.          Quantitative andQualitative Disclosure about Market Risk 

**PART II. OTHER INFORMATION**

Item 1.          Legal Proceedings 

Item 6.          Exhibits and Reports onForm 8-K 

Signatures 

Exhibit Index 

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES**

**NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSNINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (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”) isprimarily an agricultural risk management company. The Company concentrates on helpingagricultural producers manage their risks by providing comprehensive insurance products.The Company also writes a minimal amount of property and casualty risks and continues tomanage the run-off of discontinued and sold property and casualty lines.

The Company’s results may be influencedby factors influencing the insurance industry generally and which are largely beyond theCompany’s control. Such factors include (a) weather-related catastrophes; (b)taxation and regulatory changes at both the federal and state level; (c) changes inindustry standards regarding rating and policy forms; (d) significant changes in judicialattitudes towards one or more types of liability claims; (e) the cyclical nature ofpricing in the industry (f) changes in reinsurance pricing; and (g) changes in the rate ofinflation, interest rates and general economic conditions. The Company’s cropinsurance results are particularly subject to wide fluctuations because of weather factorsinfluencing crop harvests and commodity prices. With the Company’s increased emphasison the crop segment, the seasonal and short term nature of the Company’s cropbusiness, 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 toquarter or year to year basis than has historically been the case.

***Principles of Consolidation***– The Company’s consolidated unaudited financial statements include the accountsof its majority-owned subsidiaries. All significant intercompany transactions have beeneliminated.

***Management’s Opinion***– The accompanying consolidated financial statements reflect all adjustments,consisting only of normal recurring adjustments except as otherwise disclosed, which inthe opinion of management are considered necessary to fairly present the Company’sfinancial position as of September 30, 2001 and December 31, 2000, and the results ofoperations for the three months and nine months ended September 30, 2001 and 2000 and cashflows for the nine months ended September 30, 2001 and 2000.

***Statements of Cash Flows***– The Company aggregates cash and short-term investments with maturity dates of threemonths or less from the date of purchase for purposes of reporting cash flows. As ofSeptember 30, 2001 approximately $48.7 million of short-term investments had maturitydates at acquisition of greater than three months. Restricted short-term investments arenot considered a cash equivalent.

***Restricted Short-TermInvestments*** – The restricted short-term investments balance iscomprised of investments deposited with a trustee for the Company’s issuance of anoutstanding letter of credit relating to reinsurance coverage on certain crop insuranceproducts.

***Recent Statements of Financial Accounting Standards*** -Statement of Financial Accounting Standards No. 133 (SFAS No. 133), *Accounting forDerivative Instruments and for Hedging Activities,* requires companies to recognizeall derivatives as either assets or liabilities in the statement of financial conditionand to measure all derivatives at fair value. SFAS No. 133 requires that changes in fairvalue of a derivative be recognized currently in earnings unless specific hedge accountingcriteria are met. Upon implementation of SFAS No. 133, hedging relationships may beredesignated, and securities held to maturity may be transferred to available-for-sale ortrading. SFAS No. 137, *Accounting for Derivative Instruments and HedgingActivities-Deferral of the Effective Date of FASB Statement No. 133*, deferred theeffective 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*amendedthe accounting and reporting standards of SFAS No. 133 for certain derivative instruments,hedging activities, and decisions made by the Derivatives Implementation Group. The impacton the Company's financial statements related to the adoption of SFAS No. 133, SFAS No.137 and SFAS No. 138 is not significant. 
In July 2001, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 141 (SFAS No. 141), *Business Combinations*, and StatementNo. 142 (SFAS No. 142), *Goodwill and Other Intangible Assets*. SFAS No. 141requires business combinations initiated after June 30, 2001 to be accounted for using thepurchase method of accounting and specifies the criteria for recognition of intangibleassets separately from goodwill. 

SFAS No. 142 will require that goodwill andintangible assets with indefinite useful lives no longer be amortized, but instead testedfor impairment at least annually. Intangible assets with a determinable useful life willcontinue to be amortized over that period. The Company is required to implement SFAS No.142 on January 1, 2002 and has not determined the full impact that this statement willhave on its consolidated financial position or results of operations.

***Codification of StatutoryAccounting Principles*** – In March 1998, the National Association ofInsurance Commissioners adopted the Codification of Statutory Accounting Principles(Codification). The Codification, which is intended to standardize regulatory accountingand reporting to state insurance departments, is effective January 1, 2001. However,statutory accounting principles will continue to be established by individual state lawsand permitted practices. The Company adopted the Codification effective January 1, 2001.The adoption of Codification increased statutory capital and surplus as of January 1, 2001by approximately $9.6 million.

***Reclassifications***– Certain prior period amounts have been reclassified to conform with current yearpresentation.

**2. INVESTMENTS**
The amortized cost and related estimatedfair values of investments in the accompanying balance sheets are as follows:

 

**3. INCOME TAXES**

The Company provides for income taxes on itsstatements of operations pursuant to Statement of Financial Accounting Standards No. 109(SFAS No. 109), *Accounting for Income Taxes*. The primary components of theCompany’s deferred tax assets and liabilities as of September 30, 2001 and December31, 2000, respectively, follow:

Income taxes computed by applying statutoryrates to income before income taxes are reconciled to the provision for income taxes setforth in the consolidated financial statements for the nine months ended September 30,2001 and 2000, as follows:

**4. INSURANCE PREMIUMS AND CLAIMS**

Insurance premiums written and earned by theCompany’s insurance subsidiaries for the three months and nine months ended September30, 2001 and 2000 are as follows:

Insurance losses and loss adjustmentexpenses have been reduced by recoveries recognized under reinsurance contracts of $263.9million and $146.2 million for the three months ended September 30, 2001 and 2000,respectively. Insurance losses and loss adjustment expenses have been reduced byrecoveries recognized under reinsurance contracts of $498.0 million and $298.2 million forthe nine months ended September 30, 2001 and 2000, respectively.

**5. BANK BORROWINGS**

As of September 30, 2001, the Company has aSecurity and Letter Loan Agreement for $33.1 million. The entire facility was reserved foran outstanding letter of credit and, accordingly, no borrowings were permitted under suchfacility.

**6. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF AICI CAPITALTRUST, HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY**

In August 1997, AICI Capital Trust, aDelaware business trust organized by the Company (the “Issuer Trust”) issued3.795 million shares or $94.875 million aggregate liquidation amount of its 9% PreferredSecurities (liquidation amount $25 per Preferred Security). The Company owns all of thecommon securities (the “Common Securities”) of the Issuer Trust. The PreferredSecurities represent preferred undivided beneficial interests in the Issuer Trust’sassets. The assets of the Issuer Trust consist solely of the Company’s 9% JuniorSubordinated Debentures due in 2027, which were issued in August 1997 in an amount equalto the total of the Preferred Securities and the Common Securities.

Distributions on the Preferred Securitiesand Junior Subordinated Debentures are cumulative, accrue from the date of issuance andare payable quarterly in arrears. The Junior Subordinated Debentures are subordinate andjunior in right of payment to all senior indebtedness of the Company and are subject tocertain events of default and can be called at par value after September 30, 2002, all asdescribed in the Junior Debenture Indenture. At September 30, 2001 the Company hadPreferred Securities of $94.875 million outstanding at a weighted average interest cost of9.1%. During the three months ended September 30, 2001 no interest for the third quarterwas paid on the Preferred Securities as the distribution of such interest was due and paidon October 1, 2001. During the nine months ended September 30, 2001 the Company paid $4.3million of interest on the Preferred Securities. During the three and nine months endedSeptember 30, 2000 the Company paid $2.1 million and $6.4 million, respectively, ofinterest on the Preferred Securities.

**7. NET LOSS PER SHARE**

The net loss per share for both basic anddiluted for the three months and nine months ended September 30, 2001 and 2000 are asfollows:

Contingent stock and stock options were notincluded in the above calculations due to their antidilutive nature.

**8. OTHER COMPREHENSIVE INCOME**

Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting ComprehensiveIncome. Other comprehensive income (loss) determined in accordance with SFAS No.130 forthe three months and nine months ended September 30 are as follows: 

**9. BUSINESS SEGMENTS**

The Company is engaged in the crop andspecialty property and casualty insurance business. The principal lines of the CropInsurance segment are MPCI, supplemental coverages and named peril insurance. The Propertyand Casualty Insurance segment primarily consists of commercial property, commercialcasualty, inland marine and workers’ compensation. With the Company’s increasedemphasis on the crop segment, the seasonal and short term nature of the Company’scrop business, as well as the impact on the crop business of weather and other naturalperils, may produce more volatility in the Company’s operating results on a quarterto quarter or year to year basis than has historically been the case.

The accounting policies of the segments arethe same as those described in the summary of significant accounting policies (see Note 1in the financial statements included in the Company’s 2000 Form 10-K). Managementevaluates the performance of and allocates its resources to its operating segments basedon underwriting earnings (loss). Management does not utilize assets as a significantmeasurement tool for evaluating segments.

The Company’s results are significantlyimpacted by its crop business, particularly its MPCI line. Estimated results from MPCI andrelated products are not generally recorded until after crops are harvested and finalmarket prices are established. Due to the nature of several of the CRC products wherebyresults are based on the market prices of various commodities in the fourth quarter, aswell as yields, and the significance of CRC as a percentage of MPCI, the Company recordsits initial estimate of profit or loss for MPCI and related products in the fourthquarter.

Segment insurance premiums earned andsegment underwriting earnings (loss) for the three months and nine months ended September30, are as follows:

**10. SALE OF SUBSIDIARIES AND PROPERTY AND CASUALTY BUSINESS**

In April 2000, the Company signed adefinitive agreement to sell Redland Insurance Company (“Redland”) to ClarendonNational Insurance Company (“Clarendon”). This sale closed effective as of July1, 2000. The transaction included the appointment of other Company subsidiaries as aproducer and administrator for the business the Company writes through Redland. TheCompany also reinsures certain portions of the business written by Redland. The sale was acash transaction of approximately $10.9 million based upon the market value of Redlandafter the divestiture of various assets, including the Redland subsidiaries, to awholly-owned subsidiary of Acceptance Insurance Companies Inc. At September 30, 2001,approximately $96.2 million of fixed maturities available-for-sale and $2.4 million ofshort-term investments were pledged to Clarendon to secure the Company’s obligationsunder reinsurance agreements. The Company is obligated for any of Redland’suncollectible amounts from reinsurers and agents for the business under these reinsuranceagreements.

In March 2001, the Company announced that ithad sold a significant portion of its property and casualty business to InsuranceCorporation of Hannover (“ICH”). The terms of the agreement included the sale ofselected lines of business, a reinsurance treaty whereby the unearned premium and anyadditional premiums for these selected lines would be reinsured by ICH, and the transferof certain employees to ICH. Additionally, the Company’s right to repurchase Redlandunder the agreement between the Company and Clarendon, an affiliate of ICH, was waived.

In May 2001 the Company agreed to sell twowholly-owned insurance companies to McM Corporation, a Raleigh, North Carolina basedinsurance holding company (“McM”). The two companies, Acceptance IndemnityInsurance Company (“AIIC”) and Acceptance Casualty Insurance Company(“ACIC”), underwrote only property and casualty insurance. This sale closedeffective as of July 1, 2001. The sale was a cash transaction of approximately $20.4million that resulted in a realized gain in the third quarter of 2001 of approximately$375,000. The Company also reinsured certain portions of the business written by AIIC andACIC. As of September 30, 2001 approximately $11.0 million of fixed maturitiesavailable-for-sale were pledged to McM to secure the Company’s net obligations underthe reinsurance agreements.

In addition, effective as of May 1, 2001,McM purchased a selected portfolio of the Company’s property and casualty insuranceprograms. Also effective May 1, 2001, the Company sold its Farm and Ranch and Floodinsurance programs to American Reliable Insurance Company of Scottsdale, Arizona. Theterms of these agreements included the sale of these selected lines of business, areinsurance treaty whereby the unearned premium and any additional premiums for theseselected lines would be reinsured by the buyers, and the transfer of certain employees tothe buyers.

As of May 1, 2001 the Company engagedBerkley Risk Administrators Company (“BRAC”) to manage the adjustment andcompletion of all remaining property and casualty claims. BRAC has employed certainpersons previously employed by the Company.

**11. ACQUISITION OF IGF CROP INSURANCE ASSETS**

On June 6, 2001 the Company completed theacquisition of substantially all crop insurance assets and the assumption of certain cropinsurance and reinsurance liabilities of Symons International Group, Inc. and affiliatesincluding IGF Insurance Company (collectively referred to as “IGF”). The Companypaid approximately $27.4 million at closing and agreed to make deferred payments of up toan additional $9.0 million, which included amounts for non-competition agreements,prospective reinsurance agreements, and property and equipment. Additionally, the Companywill reimburse IGF for certain costs related to the 2001 crop season. The Company fundedthe acquisition with internally generated resources, including proceeds from the sale ofcertain property and casualty assets. During 2000, IGF’s gross crop insurancepremiums, including MPCI subsidies, totaled approximately $241 million and theCompany’s gross crop insurance premiums for the same period totaled approximately$435 million. Pro forma results for net loss and net loss per share would not bematerially different than reported as the Company records its initial estimate of the MPCIprofit or loss in the fourth quarter (See Note 9).

The acquisition was accounted for by thepurchase method of accounting and, accordingly, the statements of consolidated incomeinclude the acquired crop results beginning June 6, 2001. The assets acquired andliabilities assumed were recorded at estimated fair values as determined by theCompany’s management based on information currently available and on currentassumptions as to future operations. The Company’s preliminary purchase priceallocation included $19.7 million of goodwill and $10.2 million of intangible assets. Theallocation of the purchase price is subject to revision based upon final determination offair values.

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

PART I.ITEM 2.
**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion and analysis offinancial condition and results of operations of the Company and its consolidatedsubsidiaries should be read in conjunction with the Company’s Interim ConsolidatedFinancial Statements and the notes thereto included elsewhere herein.

**Forward-Looking Information**

Except for the historical informationcontained in this Quarterly Report on Form 10-Q, matters discussed herein may constituteforward-looking information, within the meaning of the Private Securities LitigationReform Act of 1995. Such forward-looking information reflects the Company’s currentbest estimates regarding future operations, but, since these are only estimates, actualresults may differ materially from such estimates.

A variety of events, most of which areoutside the Company’s control, cannot be accurately predicted and may materiallyimpact estimates of future operations. Important among such factors are weatherconditions, natural disasters, changes in commodity prices, changes in state and federalregulations, price competition impacting premium levels, changes in reinsurance pricing,changes in tax laws, financial market performance, changes in court decisions effectingcoverages and general economic conditions.

The Company’s results aresignificantly, and increasingly impacted by its crop business, particularly its MPCI line.Initial estimated results from the crop lines are not generally recorded until the fourthquarter of the year, after crops are harvested and final market prices are established.Crop segment results are particularly dependent on events beyond the Company’scontrol, notably weather conditions during the crop growing seasons in the states wherethe Company writes a substantial amount of its crop insurance, the market price of grainson various commodity exchanges and overall worldwide supply and demand, the continuingglobalization of the crop industry and its effect on the export of crops to othercountries and the volatility of crop prices resulting from domestic and foreign policydecisions. Additionally, federal regulations governing aspects of crop insurance arefrequently modified, and any such changes may impact crop insurance results. With theCompany’s increased emphasis on the crop segment, the seasonal and short term natureof the Company’s crop business, as well as the impact on the crop business of weatherand other natural perils, may produce more volatility in the Company’s operatingresults on a quarter to quarter or year to year basis than has historically been the case.

Forward-looking information set forth hereindoes not take into account any impact from any adverse weather conditions during the 2001crop season, or the various other factors noted above which may affect crop and noncropoperation results.

**General**

The principal lines of the Company’scrop insurance segment are Multi-Peril Crop Insurance (MPCI), supplemental coverages, andnamed peril insurance. MPCI is a federally subsidized risk management program designed toencourage farmers to manage their risk through the purchase of insurance policies. MPCIprovides farmers with yield coverage for crop damage from substantially all naturalperils. CRC is an extension of the MPCI program which provides farmers with protectionfrom 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.

The accounting treatment for MPCI isdifferent than the more traditional property and casualty insurance lines. For incomestatement purposes, gross premiums written consist of the aggregate amount of MPCIpremiums paid by farmers, and does not include any related federal premium subsidies. TheCompany’s profit or loss from its MPCI business is determined after the crop seasonends on the basis of a profit sharing formula established by law and the RMA. For incomestatement purposes, any such profit share earned by the Company, net of the cost of thirdparty reinsurance, is shown as net premiums written, which equals net premiums earned forMPCI business; whereas, any share of losses payable by the Company is charged to lossesand loss adjustment expenses. Due to various factors, including timing and severity oflosses from storms and other natural perils and crop production cycles, the profit or losson MPCI premiums was primarily recognized in the second half of the calendar year for 1999and prior years. Due to the nature of the CRC product whereby results are influenced bychanges in the market prices of various commodities in the fourth quarter and theincreasing significance of CRC as a percentage of MPCI, the Company recorded its initialestimate 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 formulaestablished by the RMA) the level of losses that should be considered in estimating theprofit or loss during this period.

Certain characteristics of theCompany’s crop business may affect comparisons, including: (i) the seasonal nature ofthe business whereby profits or losses are generally recognized predominately in thefourth quarter of the year; (ii) the nature of crop business whereby losses are knownwithin a one year period; and (iii) the limited amount of investment income associatedwith crop business. In addition, cash flows from such business differ from cash flows fromcertain more traditional lines. See “Liquidity and Capital Resources” below.With the Company’s increased emphasis on the crop segment, the seasonal and shortterm nature of the Company’s crop business, as well as the impact on the cropbusiness of weather and other natural perils, may produce more volatility in theCompany’s operating results on a quarter to quarter or year to year basis than hashistorically been the case.

In its property and casualty segment, theCompany sold its nonstandard automobile business including Phoenix Indemnity in 1999,transferred its general agency business produced by its Scottsdale office and itstransportation business to other carriers in 2000, and in 2001 sold a majority of itsremaining property and casualty business. In its crop segment, the Company completed theacquisition of substantially all crop insurance assets and the assumption of certain cropinsurance and reinsurance liabilities of Symons International Group, Inc. and affiliatesincluding IGF Insurance Company (collectively referred to as “IGF”) on June 6,2001. See “Acquisition of IGF Crop Insurance Assets” below. These transactionsare part of the Company’s strategy.

**Results of Operations**

*Three Months and Nine Months Ended September 30, 2001Compared to Three Months and Nine Months Ended September 30, 2000*

The Company had a net loss of approximately $9.5 million, or $0.66 per share, for thethree months ended September 30, 2001 as compared with a net loss of approximately $2.3million, or $.16 per share, for the three months ended September 30, 2000. During the ninemonths ended September 30, 2001 the Company had a net loss of approximately $14.2 million,or $0.99 per share, as compared with a net loss of approximately $4.7 million, or $0.33per share, for the same period in 2000. The increase in the net loss was primarilyattributable to a strengthening of property and casualty loss and loss adjustment expensereserves and a decrease in investment income, partially offset by an improvement of cropsegment underwriting earnings.

The crop segment underwriting earnings was approximately $1.9 million and $1.0 millionfor the three months and nine months ended September 30, 2001, respectively. The cropsegment underwriting loss was approximately $2.3 million and $4.3 million for the threemonths and nine months ended September 30, 2000, respectively.The underwriting earnings for the three and nine months ended September 30, 2001 includedapproximately $1.9 million from partial reimbursement of research and development costspreviously associated with the development of the CRC product. This one-time reimbursementfrom the FCIC was recorded as a reduction to underwriting expenses. The underwritingearnings for the three months and nine months ended September 30, 2001 included negativeadjustments of approximately $200,000 and $1.3 million, respectively, related to 2000 cropyear results. These adjustments included a decrease in the estimated 2000 year MPCI profitshare that was partially offset by lower operating costs primarily comprised of a decreasein related reinsurance costs and agency contingent commissions.

The Company’s crop segment results forthe nine months ended September 30, 2000 included a $4.0 million charge related to thesettlement of the class action suit by rice producers, $6.7 million in underwritingcharges related to loss development resulting from higher than expected payments on thesettlement of 1999 CRCPlus losses, and a $2.2 million underwriting loss on 2000 year crophail from late season storms in the Midwest. The 2000 results for the crop segment alsoincluded approximately $9.5 million in underwriting profits primarily related to anincrease in the 1999 MPCI profit share. The crop segment results for the three monthsended September 30, 2000 was effected by the $2.2 million underwriting loss on 2000 crophail.

As stated above, the Company intends torecord its initial estimated results for 2001 MPCI and related products in the fourthquarter. The Company is estimating that MPCI premium volume will increase fromapproximately $375 million in 2000 to approximately $696 million in 2001. Additionally,the Company is estimating the MPCI retained pool will increase from approximately $232million in 2000 to approximately $500 million in 2001. These increases are primarilyrelated to the IGF acquisition. See “Acquisition of IGF Crop Insurance Assets”below. 

The Company’s property and casualtysegment results for the three and nine months ended September 30, 2001 included a reservestrengthening of approximately $13.9 million and $14.7 million, respectively. The reservestrengthening was concentrated primarily in the general liability lines of business foraccident years 1999 and prior. Additionally, the estimated ultimate loss and lossadjustment expense ratios for the 2001 accident year property and casualty business wasincreased during the third quarter.

The Company recorded other adjustments inthe property and casualty insurance segment that contributed to the underwriting loss inthe first nine months of 2001. These included severance costs of approximately $1.3million associated with the run-off of the property and casualty lines of business.Additionally, ceded reinsurance premium for certain property insurance lines were belowminimum levels established in reinsurance contracts, requiring the Company to recognize acontractually established minimum premium resulting in additional reinsurance costs ofapproximately $1.4 million.

During the past three years, the Companydiscontinued a majority of the property and casualty insurance business. In March 2001,the Company sold a significant portion of its property and casualty business to InsuranceCorporation of Hannover and in May 2001, the Company sold several of the remaining linesof business to McM Corporation and to American Reliable Insurance Company (See “Saleof Subsidiaries and Property and Casualty Business” below). The Company continues toreduce the remaining property and casualty business and expects that any premium earned in2002 will relate to the run-off of cancelled or discontinued business.

The Company’s net investment incomedeclined from approximately $6.2 million and $17.7 million for the three and nine monthsended September 30, 2000 to approximately $3.5 million and $13.6 million for the three andnine months ended September 30, 2001. This decrease in investment income was primarily aresult of a significantly lower interest rate environment during 2001 coupled with adecline in the size of the investment portfolio. The Company’s average outstandingportfolio decreased from approximately $420 million for the three and nine months endedSeptember 30, 2000 to $335 million and $350 million for the same periods in 2001,respectively.

**Liquidity and Capital Resources**

The Company has included a discussion of theliquidity and capital resources requirement of the Company and the Company’sinsurance subsidiaries.

**The Company - Parent Only**

As an insurance company, the Company’sassets consist primarily of the capital stock of its subsidiaries, a surplus note issuedby one of its insurance company subsidiaries and investments held at the holding companylevel. The Company’s primary sources of liquidity are receipts from interest paymentson a surplus note, payments from the profit sharing agreement with American Agrisurance,the Company’s wholly owned subsidiary which operates as the general agent for theCompany’s crop insurance programs, tax sharing payments from its subsidiaries,investment income from, and proceeds from the sale of, holding company investments, anddividends and other distributions from subsidiaries of the Company. The Company’sliquidity needs are primarily to service debt, pay operating expenses and taxes and makeinvestments in subsidiaries.

At September 30, 2001 the Company has $10.2 million in cash, short-term investments andfixed maturity securities. Additionally, the Company has $33.1 million of restrictedshort-term investments. The restricted short-term investments is comprised of investmentsdeposited with a trustee for the Company’s issuance of an outstanding letter ofcredit relating to reinsurance coverage on certain crop insurance products. These fundswill become available to the Company over the next six years. The Company also holds asurplus note for $20 million issued by Acceptance Insurance Company, bearing interest atthe rate of 9% per annum payable quarterly. Although repayment of all or part of theprincipal of the surplus note requires prior insurance department approval, no priorapproval of interest payment is currently required.

Under the American Agrisurance profit sharing agreement, American Agrisurance receivesup to 50% of the crop insurance profit after certain expenses and a margin retained by theInsurance Companies based upon a formula established by the Company and approved by theNebraska Department of Insurance. If the calculated profit share is negative, suchnegative amounts are carried forward and offset future profit sharing payments. Theseamounts are distributed from time to time in the form of a dividend to the Company.

Dividends from the Insurance Companies are regulated by the regulatory authorities ofthe states in which each subsidiary is domiciled. The laws of such states generallyrestrict dividends from insurance companies to parent companies to certain statutorilyapproved limits. In 2001, the statutory limitation on dividends from the InsuranceCompanies to the Company without further insurance departmental approval is approximately$5.7 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 federalincome tax that would be payable by such subsidiaries on a stand-alone basis.

In 1997, AICI Capital Trust, a Delawarebusiness trust organized by the Company (the “Issuer Trust”) issued 3.795million shares or $94.875 million aggregate liquidation amount of its 9% PreferredSecurities (liquidation amount $25 per Preferred Security). The Company owns all of thecommon securities (the “Common Securities”) of the Issuer Trust. The PreferredSecurities represent preferred undivided beneficial interests in the Issuer Trust’sassets. The assets of the Issuer Trust consist solely of the Company’s 9% JuniorSubordinated Debentures due 2027 which were issued in 1997 in an amount equal to thePreferred Securities and the Common Securities. Distributions on the Preferred Securitiesand Junior Subordinated Debentures are cumulative, accrue from the date of issuance andare payable quarterly in arrears. The Junior Subordinated Debentures are subordinate andjunior in right of payment to all senior indebtedness of the Company and are subject tocertain events of default and redemptive provisions, all described in the Junior DebentureIndenture. At September 30, 2001, the Company had $94.875 million outstanding at aweighted average interest cost of 9.1%. During the three months ended September 30, 2001no interest was paid for the third quarter on the Preferred Securities as the distributionof such interest was due and paid on October 1, 2001. During the nine months endedSeptember 30, 2001 the Company paid $4.3 million of interest on the Preferred Securities.During the three and nine months ended September 30, 2000 the Company paid $2.1 millionand $6.4 million, respectively, of interest on the Preferred Securities.

As of September 30, 2001, the Company has aSecurity and Letter Loan Agreement for $33.1 million. The entire facility was reserved foran outstanding letter of credit and, accordingly, no borrowings were permitted under suchfacility.

During the second quarter of 2001 and inconnection with the sale of Acceptance Casualty Insurance Company (“ACIC”) theCompany’s $20 million surplus note with ACIC was forgiven and ACIC issued a dividendto the Company of approximately $9.1 million. At closing in the third quarter of 2001 theCompany received $10.2 million in cash from the sale of ACIC. (See “Sale ofSubsidiaries and Property and Casualty Business” below). These proceeds were used inthe acquisition of IGF crop insurance assets (See “Acquisition of IGF Crop InsuranceAssets” below).

The Company believes it has the cash andshort-term investments available to meet its short-term capital needs. The Company,however, continually reviews its capital needs and the surplus needs of the InsuranceCompanies and from time to time may seek additional funding which may include, among otherthings, an account receivable financing at the Insurance Companies level, arranging a newbank line of credit, or a placement of equity or debt securities.

**Insurance Companies**

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

The Company’s portfolio is primarilycomprised of fixed maturities, short-term investments and restricted short-terminvestments that constituted approximately 52%, 35% and 9%, respectively, of theCompany’s investments at September 30, 2001. The composition of the fixed maturitieschanged during 2001 as the municipal securities and mortgage-backed securities wereliquidated and proceeds invested primarily in U.S. Treasury securities. The effectiveduration of the portfolio, including preferred stocks, is approximately 1.5 years as ofSeptember 30, 2001.

Cash flows from the Company’s cropbusiness differs in certain respects from cash flows associated with more traditionalproperty and casualty lines. MPCI premiums are not received from farmers until the coveredcrops are harvested, and when received are remitted within approximately 30 days ofreceipt by the Company in full to the government. Covered losses are paid by the Companyduring the growing season as incurred, with such expenditures reimbursed by the governmentwithin three business days. Policy acquisition and administration expenses are paid by theCompany as incurred during the year. The Company periodically throughout the year receivesa payment in reimbursement of its policy acquisition and administration expenses.

The Company’s profit or loss from itsMPCI business is determined after the crop season ends on the basis of a profit sharingformula established by law and the RMA. The Company receives a profit share in cash, with60% of the amount in excess of 17.5% of its MPCI Retention (as defined in the profitsharing agreement) in any year carried forward to future years, or it must pay its shareof losses. The Company received $46.2 million in net payments under the MPCI programduring the nine months ended September 30, 2001 and $61.8 million for the same period in2000.

**Changes in Financial Condition**

The Company’s stockholders’ equitydecreased by approximately $8.7 million from December 31, 2000 to September 30, 2001. Theprincipal components of this decrease was a net loss of $14.2 million for the nine monthsended September 30, 2001 partially offset by a decrease in the unrealized loss onavailable-for-sale securities, net of tax, from $4.4 million at December 31, 2000 to anunrealized gain of $600,000 at September 30, 2001.

**Consolidated Cash Flows**

Cash provided by operating activities was$39.0 million for the nine months ended September 30, 2001 as compared to $5.8 million forthe nine months ended September 30, 2000. The Company received net payments under the MPCIprogram of $46.2 million and $61.8 million for the nine months ended September 30, 2001and 2000, respectively. Additionally, at the end of each third quarter the Company hascollected significant MPCI premiums that will be remitted to the FCIC in the fourthquarter. 

Offsetting the positive cash flows from thecrop segment during the nine months ended September 30, 2001 and 2000 are negative cashflows from the property and casualty segment related to the run-off of operations. TheCompany expects negative cash flow from its property and casualty segment as theoperations run-off and the losses and loss adjustment expense reserves are settled. TheCompany believes it has positioned its portfolio to be able to meet these liquidity needs.

**Inflation**

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

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

In April 2000, the Company signed adefinitive agreement to sell Redland Insurance Company (“Redland”) to ClarendonNational Insurance Company (“Clarendon”). This sale closed effective as of July1, 2000. The transaction included the appointment of other Company subsidiaries as aproducer and administrator for the business the Company writes through Redland. TheCompany also reinsures certain portions of the business written by Redland. The sale was acash transaction of approximately $10.9 million based upon the market value of Redlandafter the divestiture of various assets, including the Redland subsidiaries, to awholly-owned subsidiary of Acceptance Insurance Companies Inc. At September 30, 2001,approximately $96.2 million of fixed maturities available-for-sale and $2.4 million ofshort-term investments were pledged to Clarendon to secure the Company’s obligationsunder reinsurance agreements. The Company is obligated for any of Redland’suncollectible amounts from reinsurers and agents for the business under these reinsuranceagreements.

In March 2001, the Company announced that ithad sold a significant portion of its property and casualty business to InsuranceCorporation of Hannover (“ICH”). The terms of the agreement included the sale ofselected lines of business, a reinsurance treaty whereby the unearned premium and anyadditional premiums for these selected lines would be reinsured by ICH, and the transferof certain employees to ICH. Additionally, the Company’s right to repurchase Redlandunder the agreement between the Company and Clarendon, an affiliate of ICH, was waived.

In May 2001 the Company agreed to sell twowholly-owned insurance companies to McM Corporation, a Raleigh, North Carolina basedinsurance holding company (“McM”). The two companies, Acceptance IndemnityInsurance Company (“AIIC”) and Acceptance Casualty Insurance Company(“ACIC”), underwrote only property and casualty insurance. This sale closedeffective as of July 1, 2001. The sale was a cash transaction of approximately $20.4million that resulted in a realized gain in the third quarter of 2001 of approximately$375,000. The Company also reinsures certain portions of the business written by AIIC andACIC. At September 30, 2001 approximately $11.0 million of fixed maturitiesavailable-for-sale were pledged to McM to secure the Company’s net obligations underthe reinsurance agreements.

In addition, effective as of May 1, 2001,McM purchased a selected portfolio of the Company’s property and casualty insuranceprograms. Also effective May 1, 2001, the Company sold its Farm and Ranch and Floodinsurance programs to American Reliable Insurance Company of Scottsdale, Arizona. Theterms of these agreements included the sale of these selected lines of business, areinsurance treaty whereby the unearned premium and any additional premiums for theseselected lines would be reinsured by the buyers, and the transfer of certain employees tothe buyers.

As of May 1, 2001 the Company engagedBerkley Risk Administrators Company (“BRAC”) to manage the adjustment andcompletion of all remaining property and casualty claims. BRAC has employed certainpersons previously employed by the Company.

**Acquisition of IGF Crop Insurance Assets**

On June 6, 2001 the Company completed theacquisition of substantially all crop insurance assets and the assumption of certain cropinsurance and reinsurance liabilities of Symons International Group, Inc. and affiliatesincluding IGF Insurance Company (collectively referred to as “IGF”). The Companypaid approximately $27.4 million at closing and agreed to make deferred payments of up toan additional $9.0 million, which included amounts for non-competition agreements,prospective reinsurance agreements, and property and equipment. Additionally, the Companywill reimburse IGF for certain costs related to the 2001 crop season. The Company fundedthe acquisition with internally generated resources, including proceeds from the sale ofcertain property and casualty assets. During 2000, IGF’s gross crop insurancepremiums, including MPCI subsidies, totaled approximately $241 million and theCompany’s gross crop insurance premiums for the same period totaled approximately$435 million. Pro forma results for net loss and net loss per share would not bematerially different than reported as the Company records its initial estimate of the MPCIprofit or loss in the fourth quarter (See “General” above).

The acquisition was accounted for by thepurchase method of accounting and, accordingly, the statements of consolidated incomeinclude the acquired crop results beginning June 6, 2001. The assets acquired andliabilities assumed were recorded at estimated fair values as determined by theCompany’s management based on information currently available and on currentassumptions as to future operations. The Company’s preliminary purchase priceallocation included $19.7 million of goodwill and $10.2 million of intangible assets. Theallocation of the purchase price is subject to revision based upon final determination offair values.

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

The Company was served in July 2001 with a complaint naming it as one of the defendantsin a suit related to this transaction. See "Part II Other Information - Item 1. LegalProceedings." 

**Recent Statement of Financial Accounting Standards**

Statements of Financial Accounting Standards No. 133 (SFAS No. 133), "Accountingfor Derivative Instruments and for Hedging Activities," requires companies torecognize all derivatives as either assets or liabilities in the statement of financialcondition and to measure all derivatives at fair value. SFAS No. 133 requires that changesin fair value of a derivative be recognized currently in earnings unless specific hedgeaccounting criteria are met. Upon implementation of SFAS No. 133, hedging relationshipsmay be redesignated, and securities held to maturity may be transferred toavailable-for-sale or trading. SFAS No. 137, "Accounting for Derivative Instrumentsand 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 HedgingActivities" amended the accounting and reporting standards of SFAS No. 133 forcertain derivative instruments, hedging activities and decisions made by the DerivativesImplementation Group. The impact on the Company's financial statements related to theadoption of SFAS No. 133, SFAS No. 137 and SFAS No. 138 is not significant.

In July 2001, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 141 (SFAS No. 141), "Business Combinations", andStatement No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets". SFASNo. 141 requires business combinations initiated after June 30, 2001 to be accounted forusing the purchase method of accounting and specifies the criteria for recognition ofintangible assets separately from goodwill. 

SFAS No. 142 will require that goodwill and intangible assets with indefinite usefullives no longer be amortized, but instead tested for impairment at least annually.Intangible assets with a determinable useful life will continue to be amortized over thatperiod. The Company is required to implement SFAS No. 142 on January 1, 2002 and has notdetermined the full impact that this statement will have on its consolidated financialposition or results of operations.

**Codification of Statutory Accounting Principles**

In March 1998, the National Association of Insurance Commissioners adopted theCodification of Statutory Accounting Principles (Codification). The Codification, which isintended to standardize regulatory accounting and reporting to state insurancedepartments, is effective January 1, 2001. However, statutory accounting principles willcontinue to be established by individual state laws and permitted practices. The Companyadopted the Codification effective January 1, 2001. The adoption of Codification increasedstatutory capital and surplus as of January 1, 2001 by approximately $9.6 million.

PART I. ITEM 3.
**Quantitative and Qualitative Disclosure about Market Risk**

The Company’s balance sheet includes a significant amount of assets andliabilities whose fair value are subject to market risk. Market risk is the risk of lossarising from adverse changes in market interest rates or prices. The Company currently hasinterest rate risk as it relates to its fixed maturity securities and equity price risk asit relates to its marketable equity securities. In addition, the Company is also subjectto interest rate risk at the time of refinancing as it relates to its mandatorilyredeemable Preferred Securities. The Company’s market risk sensitive instruments areentered into for purposes other than trading.

At September 30, 2001 and December 31, 2000, the Company had $190.1 million and $234.9million, respectively, of fixed maturity investments and mortgage loans and $10.2 millionand $17.6 million, respectively, of marketable equity securities that were subject tomarket risk. The Company’s investment strategy is to manage the duration of theportfolio 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 untilmaturity and therefore would not expect to realize a material adverse impact on income orcash flows.

The Company’s Preferred Securities of $94.875 million at September 30, 2001 andDecember 31, 2000 mature in August 2027 and are redeemable at the Company’s option inSeptember 2002. The Company will continue to monitor the interest rate environment andevaluate refinancing opportunities as the redemption and maturity date approaches.

The Company uses two models to analyze the sensitivity of its market risk assets andliabilities. For its fixed maturity securities, mortgage loans and mandatorily redeemablePreferred Securities, the Company uses duration modeling to calculate changes in fairvalue. For its marketable equity securities, the Company uses a hypothetical 20% decreasein the fair value of these securities. Actual results may differ from the hypotheticalresults assumed in this disclosure due to possible actions taken by management to mitigateadverse changes in fair value and because fair values of securities may be affected bycredit concerns of the issuer, prepayment speeds, liquidity of the security and othergeneral market conditions. The sensitivity analysis duration model used by the Companyproduces a loss in fair value of $2.8 million and $5.9 million on its fixed maturitysecurities and mortgage loan and a gain in fair value of $6.5 million and $5.8 million onits mandatorily redeemable Preferred Securities as of September 30, 2001 and December 31,2000, respectively, based on a 100 basis point increase in interest rates. Thehypothetical 20% decrease in fair value of the Company’s marketable equity securitiesproduces a loss in fair value of $2.0 million and $3.5 million as of September 30, 2001and December 31, 2000, respectively.

**PART II. OTHER INFORMATION**

**Item 1. Legal Proceedings**

*In re Acceptance Insurance Companies Securities Litigation* (USDC, Nebraska,Master File No. 8:99CV547). In December 1999 the Company was sued in the United StatesDistrict Court for the District of Nebraska. Plaintiffs alleged the Company knowingly andintentionally understated the Company’s liabilities in order to maintain the marketprice of the Company’s common stock at artificially high levels and made untruestatements of material fact, and sought compensatory damages, interest, costs and attorneyfees. In February 2000 other plaintiffs sued the Company in the same Court, alleging theCompany intentionally understated liabilities in a registration statement filed inconjunction with the Company’s Redeemable Preferred Securities.

The Court consolidated these suits in April 2000 and Plaintiffs subsequently filed aconsolidated class action complaint. Plaintiffs sought to represent a class consisting ofall persons who purchased either Company common stock between March 10, 1998 and November16, 1999, or AICI Capital Trust Preferred Securities between the July 29, 1997 publicoffering and November 25, 1999. In the consolidated complaint Plaintiffs alleged violationof Section 11 of the Securities Act of 1933 through misrepresentation or omission of amaterial fact in the registration statement for the trust preferred securities, andviolation 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 informationbetween 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 asthe financial underwriters for the Company’s preferred securities, were defendants inthe consolidated action.

On March 2, 2001 the Court entered an order dismissing all claims alleging violationsof 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 certain of Plaintiffs’ allegations regarding the remainingdefendants’ alleged failure to properly report contingent losses attributable toMontrose failed to state a claim under Section 10b and Rule 10b-5. In two subsequentrulings, the Court and Magistrate Judge clarified the March 2 ruling to specify which ofPlaintiffs’ Montrose-related allegations failed to state a Section 10b and Rule 10b-5claim. As a result of these three rulings, the litigation has been reduced to a claim theCompany and three of its former officers, during the period from August 14, 1997 toNovember 16, 1999, failed to disclose adequately information about various aspects of theCompany’s operations, including information relating to the Company’s exposureafter January 1, 1997 to losses resulting from the Montrose decision. Plaintiffs seekcompensatory damages, reasonable costs and expenses incurred in this action and such otherand such further relief as the Court may deem proper. On August 6, 2001 the MagistrateJudge granted Plaintiffs’ Motion for Class Certification. Discovery has commenced andis proceeding in accordance with a schedule established by the Court. A tentative trialdate has not been scheduled.

The Company intends to vigorously contest this action and believes Plaintiffs’allegations are without merit. Nevertheless, the ultimate outcome of this action cannot bepredicted at this time and the Company currently is unable to determine the potentialeffect of this litigation on its financial position, results of operations or cash flows.

*Acceptance Insurance Companies Inc. et al. adv. Mutual Service CasualtyInsurance Company,* (USDC, SD, Indiana; Civil Action IP01-0918 C –M/S). InJuly 2001 the Company was served with a Complaint filed in the United States DistrictCourt for the Southern District of Indiana by Mutual Service Casualty Insurance Company(“MSCI”). Other defendants in this action include IGF Insurance Company(“IGF”), Symons International Group, Inc. and several of their corporate andindividual affiliates. MSCI alleges IGF reinsured it in conjunction with an agriculturalproduction interruption insurance program (the “AgPI Program”), that IGF failedto perform its obligations and that an arbitration and suit in New Jersey federal courtboth were pending between MSCI and IGF regarding the AgPI Program.

In the Indiana suit MSCI contends the Company failed to pay IGF fair equivalent valuefor the crop insurance assets the Company purchased from IGF as of June 6, 2001 andassisted other defendants to hinder, delay or defraud MSCI in violation of the IndianaFraudulent Transfers Act. MSCI sought a preliminary injunction prohibiting IGF and itsaffiliates from disposing of any proceeds received from the Company in conjunction withthe Company’s purchase of the IGF crop insurance assets, and also prohibiting theCompany from disposing of any of the crop insurance assets it purchased from IGF. MSCIalso seeks a judgment voiding the asset sale and purchase IGF and the Company completedJune 6, 2001, declaring all defendants directly responsible to MSCI for the obligations ofIGF and awarding any other legal or equitable relief permitted by law.

On August 2 and 3, 2001 the Court held an evidentiary hearing on MSCI’s requestfor a preliminary injunction. During the hearing the Court accepted documentary evidenceand heard extensive testimony from various witnesses. At the conclusion of the hearing theCourt orally denied MSCI’s request for a preliminary injunction. The Courtsubsequently entered a case management order indicating the anticipated trial date inMarch 2003.

The Company has and will continue to vigorously contest all allegations of MSCIconcerning the Company’s actions in conjunction with its purchase of substantiallyall crop insurance assets of IGF and believes the MSCI allegations are without merit.Nevertheless, the ultimate outcome of this action cannot be predicted at this time and theCompany currently is unable to determine the potential effect of this litigation on itsfinancial position, results of operations or cash flows.

**Item 6. Exhibits and Reports on Form 8-K**

            (a)   Exhibits

                    SeeExhibit Index.

            (b)   Form8-K 

 

The following Current Reports onForm 8-K have been filed during the last fiscal quarter of the period covered by thisreport.

                                                                  Financial Statements                         Date of                     Item                                                 Filed                                      Report            

         Item 5. Other Events.                         No                                                August 6, 2001 

         Item 5. Other Events.                         No                                                August 10, 2001

         Item 5. Other Events.                         No                                               August 16, 2001 
 

SIGNATURES 

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

ACCEPTANCE INSURANCE COMPANIES INC. 

By    /s/ John E. Martin                                                                     Dated: November 9, 2001          John E. Martin         President and Chief Executive Officer 

By   /s/ Dwayne D. Hallman                                                             Dated: November 9, 2001        Dwayne D. Hallman        Chief Financial Officer and Treasurer 
 

**ACCEPTANCE INSURANCE COMPANIES INC.QUARTERLY REPORT ON FORM 10-QNINE MONTHS ENDED SEPTEMBER 30, 2001**

**EXHIBIT INDEX**

**NUMBER                         EXHIBIT DESCRIPTION**

**NONE**