UNITED STATES                                    SECURITIES AND EXCHANGE COMMISSION                                          WASHINGTON, D.C. 20549
FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         EXCHANGE ACT OF 1934
                                    OR
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         EXCHANGE ACT OF 1934
                              For the Quarterly Period Ended March 31, 2001                                      Commission File Number 1-7461                                   ACCEPTANCE INSURANCE COMPANIES INC.
        (Exact name of registrant as specified in its charter)
**Delaware****31-0742926**    (State or other jurisdiction of                    (I.R.S. Employer    incorporation or organization)                  Identification Number)    **222 South 15th Street, Suite 600 North           Omaha, Nebraska                                  68102**    (Address of principal executive offices)              (Zip Code)                 Registrant's Telephone Number, Including Area Code:                               (402) 344-8800                Securities Registered Pursuant to Section 12(b) of the Act:**Title of Each Class****Name of Each Exchange on Which Registered **Common Stock $.40 Par Value**New York Stock Exchange, Inc.****Preferred Securities of AICI Capital Trust****New York Stock Exchange, Inc.**
                     Securities Registered Pursuant to Section 12(g) of the Act: None

Indicateby 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 thepreceding 12 months (or for such shorter period that the registrant has beenrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. 

 YES        X        NO   ____

Thenumber of shares of each class of the Registrant’s common stock outstandingon May 8, 2001 was: 
Class of Common StockNo. of Shares OutstandingCommon Stock, $.40 Par Value14,324,857ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIESFORM 10-QTABLE OFCONTENTSPART I.  FINANCIAL INFORMATION**PAGE**Item 1.Financial Statements:                             Consolidated Balance Sheets                           March 31, 2001 and December 31, 2000                           
 
3                            Consolidated Statements of Operations                           Three Months Ended March 31, 2001 and 2000                            
 
4                            Consolidated Statements of Cash Flows                           Three Months Ended March 31, 2001 and 2000                           
 
5                            Notes to Interim Consolidated Financial Statements                            
 
6   Item 2.           Management's Discussion and Analysis of Financial Condition and                           Results of Operations
 
 14Item 3.           Quantitative and Qualitative Disclosure about Market Risk
 
21PART II.  OTHERINFORMATIONItem 1.Legal Proceedings 
 
22Item 6.Exhibits and Reports on Form 8-K 
 
 23Signatures 
 
24Exhibit Index25

**PART I. FINANCIAL INFORMATIONItem 1. Financial Statements**
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)------------------------------------------------------------------------------------------------------                                                                             March 31,      December 31,ASSETS                                                                         2001            2000Investments:  Fixed maturities available-for-sale, at fair value                        $ 218,949       $ 226,541  Marketable equity securities available-for-sale, at fair value               15,826          17,638  Mortgage loan                                                                 8,250           8,400  Real estate                                                                   3,055           3,055  Short-term investments, at cost, which approximates market                  104,183          55,599  Restricted short-term investments, at cost, which approximates market        33,050          33,050                                                                            _________       _________                                                                              383,313         344,283Cash                                                                            3,363          10,700Receivables, net                                                               84,318         130,631Reinsurance recoverable on unpaid losses and loss adjustment expenses         252,413         383,979Prepaid reinsurance premiums                                                   22,341          11,314Property and equipment, net                                                    15,431          16,458Deferred policy acquisition costs                                               2,663           7,219Excess of cost over acquired net assets                                        12,677          17,661Deferred income tax                                                            31,984          31,003Other assets                                                                   15,848          10,734                                                                            _________       _________                                                                            $ 824,351       $ 963,982                                                                            =========       =========LIABILITIES AND STOCKHOLDERS' EQUITYLosses and loss adjustment expenses                                         $ 468,527       $ 617,891Unearned premiums                                                              36,066          34,772Amounts payable to reinsurers                                                  19,870          15,418Accounts payable and accrued liabilities                                       43,402          37,957Company-obligated mandatorily redeemable Preferred Securities of AICICapital Trust, holding solely Junior Subordinated Debentures of theCompany                                                                        94,875          94,875                                                                            __________       ________           Total liabilities                                                  662,740         800,913Common stock subject to redemption                                              2,886           2,588Commitments and contingenciesStockholders' equity:  Preferred stock, no par value, 5,000,000 shares authorized, none issued           -               -  Common stock, $.40 par value, 40,000,000 shares authorized;    15,551,869 and 15,547,853 shares issued                                     6,221           6,219  Capital in excess of par value                                              199,125         199,112  Accumulated other comprehensive income (loss), net of tax                    (2,123)         (4,365)  Retained earnings (accumulated deficit)                                     (15,336)        (11,621)  Common stock subject to redemption                                           (2,886)         (2,588)  Treasury stock, at cost, 1,209,520 shares                                   (26,047)        (26,047)  Contingent stock, 20,396 shares                                                (229)           (229)                                                                            __________       _________           Total stockholders' equity                                         158,725         160,481                                                                            __________      __________                                                                            $ 824,351       $ 963,982                                                                            ==========      ==========The accompanying notes are an integral part of the interim consolidated financial statements.ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands except per share data)THREE MONTHS ENDED MARCH 31, 2001 AND 2000_____________________________________________________________________________________________________________________                                                                                         2001               2000Revenues:  Insurance premiums earned                                                           $ 12,796            $ 52,396  Net investment income                                                                  5,147               5,418  Net realized capital gains                                                               125               1,565                                                                                      ________            ________                                                                                        18,068              59,379                                                                                      ________            ________Costs and expenses:  Insurance losses and loss adjustment expenses                                         15,264              39,713  Insurance underwriting expenses                                                        6,316              20,299  General and administrative expenses                                                      223                 489                                                                                       ________             _______                                                                                        21,803              60,501                                                                                       ________             _______           Operating profit (loss)                                                      (3,735)             (1,122)                                                                                       ________            _______  Interest expense                                                                      (2,169)             (2,168)                                                                                       ________            ________           Loss before income taxes                                                     (5,904)             (3,290)Income tax expense (benefit) :  Current                                                                                   -                 (202)  Deferred                                                                              (2,085)             (1,198)                                                                                       _________           ________                                                                                        (2,085)             (1,400)                                                                                       _________           ________           Net loss                                                                   $ (3,819)           $(1,890)                                                                                      ==========           ========Net loss per share:  Basic                                                                                $ (0.27)            $ (0.13)  Diluted                                                                              $ (0.27)            $ (0.13)
Theaccompanying notes are an integral part of the interim consolidated financialstatements. 
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)THREE MONTHS ENDED MARCH 31, 2001 AND 2000____________________________________________________________________________________________________________________                                                                                           2001              2000Cash flows from operating activities:  Net loss                                                                               $ (3,819)        $ (1,890)  Adjustments to reconcile net loss to net cash from operating activities                  31,818          (18,208)                                                                                         _________        _________           Net cash from operating activities                                              27,999          (20,098)                                                                                         _________        _________Cash flows from investing activities:  Proceeds from sales of investments available-for-sale                                   135,456           25,189  Proceeds from sales of short-term investments                                             9,983           12,185  Proceeds from maturities of investments available-for-sale                                5,047           10,626  Proceeds from maturities of short-term investments                                       18,215              718  Purchases of investments available-for-sale                                            (127,556)         (16,349)  Purchases of short-term investments                                                     (48,879)         (83,952)  Other, net                                                                                   10           (1,575)                                                                                         _________         ________           Net cash from investing activities                                              (7,724)         (53,158)                                                                                         _________         ________Cash flows from financing activities:  Proceeds from issuance of common stock                                                       15              107                                                                                         _________         ________           Net cash from financing activities                                                  15              107                                                                                         _________         ________Net increase (decrease) in cash and short-term investments                                 20,290          (73,149)Cash and short-term investments at beginning of period                                     38,795          105,724                                                                                         _________       _________Cash and short-term investments at end of period                                         $ 59,085         $ 32,575                                                                                         =========        ========  Supplemental disclosure of cash flow information:        Cash paid during the period for interest                                         $    -           $  2,135                                                                                         =========        ========
Theaccompanying notes are an integral part of the interim consolidated financialstatements. 
ACCEPTANCEINSURANCE COMPANIES INC. AND SUBSIDIARIES**NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSTHREE MONTHS ENDED MARCH 31, 2001 AND 2000(Columnar Amounts in Thousands Except Per Share Data)**1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
***Description ofOperations*** - Acceptance  Insurance  Companies Inc. and  subsidiaries(the "Company")     is  primarily  an  agricultural  risk  management   company.   The  Companyconcentrates on helping  agricultural  producers manage their risks by providingcomprehensive  insurance  products.  The Company also writes a minimal amount ofproperty and casualty risks and continues to manage the run-off of  discontinuedand sold property and casualty lines.

TheCompany’s results may be influenced by factors influencing the insuranceindustry generally and which are largely beyond the Company’s control. Suchfactors include (a) weather-related catastrophes; (b) taxation and regulatorychanges at both the federal and state level; (c) changes in industry standardsregarding rating and policy forms; (d) significant changes in judicial attitudestowards one or more types of liability claims; (e) the cyclical nature ofpricing in the industry; and (f) changes in the rate of inflation, interestrates and general economic conditions. The Company’s crop insurance resultsare particularly subject to wide fluctuations because of weather factorsinfluencing crop harvests and commodity prices. 

***Principlesof Consolidation*** - The Company’sconsolidated financial statements include the accounts of its majority-ownedsubsidiaries. All significant intercompany transactions have beeneliminated. 

***Management’sOpinion* - The accompanyingconsolidated financial statements reflect all adjustments, consisting only ofnormal recurring adjustments except as otherwise disclosed, which in the opinionof management are considered necessary to fairly present the Company’sfinancial position as of March 31, 2001 and December 31, 2000, and the resultsof operations for the three months ended March 31, 2001 and 2000 and cash flowsfor the three months ended March 31, 2001 and 2000. 
***Statementsof Cash Flows*** -The Company aggregates cash and short-term investments with maturity dates ofthree months or less from the date of purchase for purposes of reporting cashflows. As of March 31, 2001 approximately $48.5 million of short-terminvestments hadmaturity dates at acquisition of greater than three months. Restrictedshort-term investments are not considered a cash equivalent. 

***Restricted Short-TermInvestments*** - Therestricted short-term investments balance is comprised of investments depositedwith a trustee for the Company’s issuance of an outstanding letter ofcredit relating to reinsurance coverage on certain crop insuranceproducts. 

***Recent  Statements of  Financial   Accounting  Standards***  -  Statement  ofFinancial Accounting Standards No. 133 (SFAS No. 133), Accounting for DerivativeInstruments  and for Hedging  Activities,  requires  companies to recognize  allderivatives  as either  assets or  liabilities  in the  statement  of  financialcondition and to measure all  derivatives  at fair value.  SFAS No. 133 requiresthat changes in fair value of a derivative be  recognized  currently in earningsunless specific hedge accounting  criteria are met. Upon  implementation of SFASNo. 133,  hedging  relationships  may be  redesignated,  and securities  held tomaturity may be  transferred  to  available-for-sale  or trading.  SFAS No. 137,Accounting for Derivative  Instruments  and Hedging  Activities-Deferral  of theEffective  Date of FASB  Statement No. 133,  deferred the effective date of SFASNo. 133 to fiscal years beginning after June 15, 2000. SFAS No. 138,  Accountingfor Certain  Derivative  Instruments and Certain Hedging  Activities amended theaccounting  and  reporting  standards  of SFAS No.  133 for  certain  derivativeinstruments,   hedging  activities,   and  decisions  made  by  the  DerivativesImplementation  Group. The impact on the Company's financial  statements relatedto the  adoption  of SFAS  No.  133,  SFAS  No.  137  and  SFAS  No.  138 is notsignificant. 

***Codification ofStatutoryAccounting Principles*** - In March 1998,the National Association of Insurance Commissioners adopted the Codification ofStatutory Accounting Principles (Codification). The Codification, which isintended to standardize regulatory accounting and reporting to state insurancedepartments, is effective January 1, 2001. However, statutory accountingprinciples will continue to be established by individual state laws andpermitted practices. The Company adopted the Codification effective January 1,2001. The adoption of Codification increased statutory capital and surplus as ofJanuary 1, 2001 by approximately $9.6 million. 

***Reclassifications***- Certain prior period amounts have been reclassified to conform with currentyear presentation. 
2.INVESTMENTS
        Theamortized cost and related estimated fair values of investments in theaccompanying balance sheets are as follows: 
                                                                             Gross          Gross        Estimated                                                           Amortized       Unrealized     Unrealized        Fair                                                             Cost            Gains          Losses         ValueMarch 31, 2001:  Fixed maturities available-for-sale:    U.S. Treasury and government securities                 $199,845        $ 2,029        $    36       $201,838    States, municipalities and political      subdivisions                                             3,921             19             31          3,909    Other debt securities                                     14,144             50            992         13,202                                                            ________        ________       ________      ________                                                            $217,910        $ 2,098        $ 1,059       $218,949                                                           =========        ========       ========      ========  Marketable equity securities - preferred stock            $ 12,184        $    -         $ 1,053       $ 11,131                                                           =========        ========       ========      ========  Marketable equity securities - common stock               $  7,945        $   175        $ 3,425       $  4,695                                                            ========        ========       ========       =======December 31, 2000:  Fixed maturities available-for-sale:    U.S. Treasury and government securities                 $166,827        $ 1,126        $ 1,444       $166,509    States, municipalities and political      subdivisions                                            42,415            181            247         42,349    Mortgage-backed securities                                 9,617              -            423          9,194    Other debt securities                                      9,373              9            893          8,489                                                            _________       ________       ________      ________                                                            $228,232        $ 1,316        $ 3,007       $226,541                                                            =========       ========       ========      ========  Marketable equity securities - preferred stock            $ 14,450        $     -        $ 1,647       $ 12,803                                                            =========       ========       ========      ========  Marketable equity securities - common stock               $  8,211        $   206        $ 3,582       $  4,835                                                            ========        ========       ========       =======3.INCOME TAXES
        TheCompany provides for income taxes on its statements of operations pursuant toStatement of Financial Accounting Standards No. 109 (SFAS No. 109), Accountingfor Income Taxes. The primary components of the Company’s deferred taxassets and liabilities and the related valuation allowance as of March 31, 2001and December 31, 2000, respectively, follow: 
                                                                               March 31,         December 31,                                                                                 2001               2000Losses and loss adjustment expenses                                            $ 8,447             $ 8,353Unearned premiums                                                                  961               1,642Allowance for doubtful accounts                                                  2,211               2,198Net operating loss carryforward                                                 23,153              18,733Unrealized loss on investments available-for-sale                                1,143               2,350Other                                                                            4,624               4,615                                                                               _______            _________           Deferred tax asset                                                   40,539              37,891                                                                               _______            _________Deferred policy acquisition costs                                                 (932)             (2,527)Other                                                                           (7,623)             (4,361)                                                                               ________           _________           Deferred tax liability                                               (8,555)             (6,888)                                                                               ________           _________Net deferred tax asset                                                         $31,984            $ 31,003                                                                               ========           ========
        Incometaxes computed by applying statutory rates to income before income taxes arereconciled to the provision for income taxes set forth in the consolidatedfinancial statements for the three months ended March 31, 2001 and 2000, asfollows: 
                                                                                 2001               2000Computed U.S. federal income taxes                                            $ (2,067)           $ (1,152)Nondeductible amortization of goodwill and other  intangibles                                                                       34                  99Tax-exempt interest income                                                         (39)               (464)Dividends received deduction                                                      (101)                (99)State income tax                                                                     -                (202)Other                                                                               88                 418                                                                              __________          _________          Income tax expense (benefit)                                        $ (2,085)           $ (1,400)                                                                              ==========          =========4. INSURANCEPREMIUMS AND CLAIMS
        Insurancepremiums written and earned by the Company’s insurance subsidiaries forthethree months ended March 31, 2001 and 2000 are as follows: 
                                                                              2001                 2000Direct premiums written                                                     $ 52,803              $112,426Assumed premiums written                                                       7,423                 3,620Ceded premiums written                                                       (57,164)              (77,264)                                                                            _________             _________  Net premiums written                                                      $  3,062              $ 38,782                                                                            =========             ========Direct premiums earned                                                      $ 53,326              $126,354Assumed premiums earned                                                        5,606                 9,049Ceded premiums earned                                                        (46,136)              (83,007)                                                                            _________             __________  Net premiums earned                                                       $ 12,796              $ 52,396                                                                            =========             =========
        Insurancelosses and loss adjustment expenses have been reduced by recoveries recognizedunder reinsurance contracts of $40.6 million and $86.9 million for the threemonths ended March 31, 2001 and 2000, respectively. 
5. BANKBORROWINGS
        Asof March 31, 2001, the Company has a Security and Letter Loan Agreement for$33.1 million. The entire facility was reserved for an outstanding letter ofcredit and, accordingly, no borrowings were permitted under suchfacility. 
6.COMPANY-OBLIGATED  MANDATORILY  REDEEMABLE PREFERRED SECURITIES OF AICICAPITAL TRUST, HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THECOMPANY
        InAugust 1997, AICI Capital Trust, a Delaware business trust organized by theCompany (the “Issuer Trust”) issued 3.795 million shares or $94.875million aggregate liquidation amount of its 9% Preferred Securities (liquidationamount $25 per Preferred Security). The Company owns all of the commonsecurities (the “Common Securities”) of the Issuer Trust. ThePreferred Securities represent preferred undivided beneficial interests in theIssuer Trust’s assets. The assets of the Issuer Trust consist solely of theCompany’s 9% Junior Subordinated Debentures due in 2027, which were issuedin August 1997 in an amount equal to the total of the Preferred Securities andthe Common Securities. 

        Distributionson the Preferred Securities and Junior Subordinated Debentures are cumulative,accrue from the date of issuance and are payable quarterly in arrears. TheJunior Subordinated Debentures are subordinate and junior in right of payment toall senior indebtedness of the Company and are subject to certain events ofdefault and can be called at par value after September 30, 2002, all asdescribed in the Junior Debenture Indenture. At March 31, 2001 the Company hadPreferred Securities of $94.875 million outstanding at a weighted averageinterest cost of 9.1%. During the three months ended March 31, 2000 the Companypaid $2.1 million of interest on the Preferred Securities. During the threemonths ended March 31, 2001 no interest was paid as the distribution ofinterest for the first quarter of 2001 was due and paid on April 2,2001.
7. NET LOSSPER SHARE
        Thenet loss per share for both basic and diluted for the three months ended March31, 2001 and 2000 are as follows: 
                                                                                  2001                2000Net loss                                                                       $ (3,819)           $ (1,890)                                                                               ==========          =========Weighted average common shares outstanding                                       14,319              14,285  Dilutive effect of contingent shares                                                -                   -  Dilutive effect of stock options                                                    -                   -                                                                               _________           _________Diluted weighted average common and equivalent  shares outstanding                                                             14,319              14,285                                                                               =========           =========Net loss per share  Basic                                                                        $  (0.27)           $  (0.13)  Diluted                                                                      $  (0.27)           $  (0.13)8. OTHER COMPREHENSIVE INCOME
             Effective  January 1,1998,  the Company  adopted  SFAS No. 130,  ReportingComprehensive Income. Other comprehensive income (loss) determined inaccordancewith SFAS No. 130 for the three months ended March 31 are asfollows:
                                                                                 2001               2000Net income (loss)                                                             $ (3,819)           $ (1,890)Unrealized holding gains (losses) of investments,  net of reclassification adjustment                                             3,449               3,024Income tax expense (benefit)                                                     1,207               1,058                                                                              _________           _________                                                                                2,242                1,966                                                                              _________           _________Other comprehensive income (loss)                                             $ (1,577)           $     76                                                                              =========           =========9. BUSINESSSEGMENTS
        TheCompany is engaged in the crop and specialty property and casualty insurancebusiness. The principal lines of the Crop Insurance segment are MPCI,supplemental coverages and named peril insurance. The Property and CasualtyInsurance segment primarily consists of commercial property, commercialcasualty, inland marine and workers’ compensation. 

        Theaccounting policies of the segments are the same as those described in thesummary of significant accounting policies (see Note 1). Management evaluatesthe performance of and allocates its resources to its operating segments basedon underwriting earnings (loss). Management does not utilize assets as asignificant measurement tool for evaluating segments. 

        Segmentinsurance premiums earned and segment underwriting earnings (loss) for thethreemonths ended March 31, are as follows: 
                                                                                   Property and                                                                   Crop              Casualty                         2001                                    Insurance           Insurance             TotalInsurance premiums earned                                        $ (2,673)          $ 15,469            $ 12,796                                                                 ==========         =========           =========Underwriting earnings (loss)                                     $   (802)          $ (7,982)           $ (8,784)                                                                 ==========          =========          =========                         2000Insurance premiums earned                                        $  7,920           $ 44,476            $ 52,396                                                                 ========           =========           =========Underwriting earnings (loss)                                     $ (2,137)          $ (5,479)           $ (7,616)                                                                 =========          =========          ==========10.SALE OF REDLAND INSURANCE COMPANY
        In April 2000,  the Company signed a definitive  agreement to sell RedlandInsurance   Company   ("Redland")  to  Clarendon   National   Insurance  Company("Clarendon").  This sale closed  effective as of July 1, 2000. The  transactionincluded the appointment of other Company subsidiaries as the exclusive producerand  administrator  of Redland  for the  business  the  Company  writes  throughRedland.  The Company also reinsures certain portions of the business written byRedland.  The sale was a cash transaction of  approximately  $10.9 million basedupon the  market  value of Redland  after the  divestiture  of  various  assets,including the Redland  subsidiaries  to a wholly-owned  subsidiary of AcceptanceInsurance Companies Inc. At March 31, 2001, approximately $86.5 million of fixedmaturities  available-for-sale  and $7.6 million of short-term  investments werepledged to  Clarendon  to secure the  Company's  obligations  under  reinsuranceagreements.  The Company is obligated for any of Redland's uncollectible amountsfrom reinsurers and agents for the business under these reinsuranceagreements.
11.SALE TO INSURANCE CORPORATION OF HANNOVER
        In March 2001, the Companyannounced that it had sold a significant portionof its  property  and casualty  business to  Insurance  Corporation  of Hannover("ICH").  The terms of the  agreement  included  the sale of  selected  lines ofbusiness,  a reinsurance  treaty whereby the unearned premium and any additionalpremiums for these selected lines would be reinsured by ICH, and the transfer ofcertain  employees  to ICH.  Additionally,  the  Company's  right to  repurchaseRedland under the agreement  between the Company and Clarendon,  an affiliate ofICH, was waived.
12.SUBSEQUENT EVENTS
        In May 2001 the Company agreedto sell two wholly-owned insurance companiesto McM Corporation,  a Raleigh,  North Carolina based insurance  holding company("McM").   The  two  companies,   Acceptance  Indemnity  Insurance  Company  andAcceptance  Casualty  Insurance  Company,  underwrote only property and casualtyinsurance, and their sale is subject to regulatory approval.

             In  addition,  effectiveas of May  1,  2001,  McM  purchased  a  selectedportfolio  of the  Company's  property  and casualty  insurance  programs.  Alsoeffective May 1, 2001,  the Company sold its Farm and Ranch and Flood  insuranceprograms to American  Reliable  Insurance  Company of Scottsdale,  Arizona.  Theterms of these agreements included  the sale of these selected lines of business,a reinsurance  treaty whereby the unearned  premium and any additional  premiumsfor these selected  lines would be reinsured by the buyers,  and the transfer ofcertain employees to the buyers.

             As of May 1, 2001 the Company engaged Berkley Risk  Administrators  Company(BRAC) to manage the  adjustment  and  completion of all remaining  property andcasualty claims. BRAC has employed certain Company employees.

**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**
         The following discussion andanalysis of financial condition and results ofoperations of the Company and its  consolidated  subsidiaries  should be read inconjunction with the Company's Interim Consolidated Financial Statements and thenotes thereto included elsewhere herein.

**Forward-Looking Information**

            Except for the historical information contained in this Quarterly Report onForm 10-Q, matters discussed herein may constitute forward-looking  information,within the meaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking  information  reflects  the  Company's  current  best  estimatesregarding future operations, but, since these are only estimates, actual resultsmay 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 futureoperations.  Important  among  such  factors  are  weather  conditions,  naturaldisasters,   changes  in  commodity   prices,   changes  in  state  and  federalregulations,  price competition  impacting premium levels,  changes in tax laws,financial market performance, changes in court decisions effecting coverages andgeneral economic conditions.

              The  Company's  resultsare  significantly  impacted by its crop  business,particularly its MPCI line.  Initial  estimated  results from the crop lines arenot generally  recorded  until the fourth  quarter of the year,  after crops areharvested  and final market  prices are  established.  Crop segment  results areparticularly  dependent on events beyond the Company's control,  notably weatherconditions  during the crop  growing  seasons in the  states  where the  Companywrites a substantial amount of its crop insurance, the market price of grains onvarious  commodity  exchanges  and  overall  worldwide  supply and  demand,  thecontinuing  globalization  of the crop  industry and its effect on the export ofcrops to other  countries  and the  volatility  of crop  prices  resulting  fromdomestic  and  foreign  policy  decisions.   Additionally,  federal  regulationsgoverning  aspects  of crop  insurance  are  frequently  modified,  and any suchchanges may impact crop insurance results.

              Forward-lookinginformation set forth herein does not take into account anyimpact from any adverse weather  conditions  during the 2001 crop season, or thevarious other  factors  noted above which may affect crop and noncrop  operationresults.

**General**

             The principal lines of the Company's crop insurance segment are Multi-PerilCrop Insurance (MPCI),  supplemental coverages, and named peril insurance.  MPCIis a federally  subsidized risk management program designed to encourage farmersto manage their risk through the purchase of insurance  policies.  MPCI providesfarmers  with yield  coverage  for crop  damage from  substantially  all naturalperils.  CRC is an  extension of the MPCI program  which  provides  farmers withprotection  from revenue  loss caused by changes in crop  prices,  low yields orboth. As used herein,  the term MPCI includes CRC, unless the context  indicatesotherwise.

              The accounting  treatment for MPCI is different  than the more  traditionalproperty and casualty  insurance  lines. For income  statement  purposes,  grosspremiums  written  consist  of the  aggregate  amount of MPCI  premiums  paid byfarmers,  and does not  include  any  related  federal  premium  subsidies.  TheCompany's  profit or loss from its MPCI  business is  determined  after the cropseason ends on the basis of a profit  sharing  formula  established by law and theRMA. For income statement purposes, any such profit share earned by the Company,net of the cost of third party  reinsurance,  is shown as net premiums  written,which equals net premiums earned for MPCI business; whereas, any share of lossespayable by the Company is charged to losses and loss adjustment expenses. Due tovarious  factors,  including timing and severity of losses from storms and othernatural perils and crop production  cycles,  the profit or loss on MPCI premiumswas  primarily  recognized  in the second half of the calendar year for 1999 andprior years. Due to the nature of the CRC product whereby results are influencedby changes in the market prices of various commodities in the fourth quarter andthe increasing significance of CRC as a percentage of MPCI, the Company recordedits  initial  estimate  of the  profit or loss for the 2000 crop  results in thefourth quarter of 2000. The Company relies on loss information from the field todetermine  (utilizing a formula established by the RMA) the level of losses thatshould be considered in estimating the profit or loss during thisperiod.

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

         In its  property  and casualty segment,  the Company sold its  nonstandardautomobile business including Phoenix Indemnity in 1999, transferred its generalagency  business  produced  by its  Scottsdale  office  and  its  transportationbusiness to other carriers in 2000, and in 2001 sold a majority of its remainingproperty and casualty  business.  These  transactions  are part of the Company'sstrategy in this segment.

**Results of Operations**

*Three Months Ended March 31, 2001       Compared to Three Months Ended March 31, 2000*

         The Company  had a net loss of $3.8  million,  or $0.27 per share,  for thethree months ended March 31, 2001 as compared  with a net loss of $1.9  million,or $0.13 per share,  for the three months ended March 31, 2000.  The increase inthe net loss was primarily  attributable to an increase in the underwriting lossin the  property and  casualty  segment and a decrease in net  realized  capitalgains. This was partially offset by a decrease in the crop segment  underwritingloss.

        The Company recorded severaladjustments in the property and casualty insurancesegment  that  were the  primary  cause of the  underwriting  loss in the firstquarter of 2001. These included  severance costs of  approximately  $1.3 millionassociated  with the run-off of the  property  and  casualty  lines of business.Ceded  reinsurance  premium for certain property  insurance lineswere below minimum levels  established in reinsurance  contracts,  requiring theCompany to recognize a contractually  established  minimum premium  resulting inadditional  ceded premiums of approximately $1.4 million.  The thirdprincipal cause effectingfirst quarter 2001 results  was prior year adverse loss  development ofapproximately$750,000 primarily in the Company's umbrella program,  and abnormally high firstquarter claims activity in certain recently sold property and casualtyprograms.

         During the past three  years,the Company  discontinued  a majority of theproperty  and casualty  insurance  business.  In March 2001,  the Company sold asignificant   portion  of  its  property  and  casualty  business  to  InsuranceCorporation of Hannover (See "Sale to Insurance Corporation of Hannover" below).Additionally,  in May 2001,  the Company sold several of the remaining  lines ofbusiness to McM  Corporation  and to American  Reliable  Insurance  Company (See"Subsequent  Events"  below).  During the three  months ended March 31, 2001 theCompany had net written  premium of $3.1 million  related to remaining  programsnot previously sold or discontinued. The Company expects negative cash flowsfrom its property and casualty segment (See "Consolidated Cash Flows" below).The Company continues to explore options toreduce the remaining property and casualty  business.  The Company believes thatthe planned  reduction  in the amount of business  written in the  property  andcasualty segment offers the best profitability and growth  opportunities for thecrop segment of the Company.

              In the first quarter of2001 the crop segment  underwriting loss includedadjustments of  approximately  $600,000  related  to 2000 crop  year  results.This included a decrease in estimated  2000 year MPCI profit share thatwas partially offset by lower operating costs primarily  comprised of a decreasein related reinsurance costs and agency contingent commissions.

        The  Company's  crop  segmentresults for the three months ended March 31,2000  included  charges of $4.0 million  related to the  settlement of the classaction suit by rice producers and $4.9 million in  underwriting  charges relatedto  loss  development  resulting  from  higher  than  expected  payments  on thesettlement of CRCPlus  losses in the first  quarter of 2000.  This was partiallyoffset by $6.8 million in underwriting  profits  recognized in the first quarterof 2000  primarily  related to an  increase  in the  estimated  1999 MPCI profitshare.

**Liquidity and Capital Resources**

          The  Company  has  included a  discussion  of the  liquidity  and  capitalresources requirement of the Company and the Company's insurancesubsidiaries.

**The Company - Parent Only**

          As an insurance  company,the Company's  assets  consist  primarily of thecapital stock of its subsidiaries,  surplus notes issued by two of its insurancecompany  subsidiaries  and investments  held at the holding  company level.  TheCompany's  primary  sources of liquidity are receipts from interest  payments onthe surplus  notes,  payments from the profit  sharing  agreement  with AmericanAgrisurance, the Company's wholly owned subsidiary which operates as the generalagent for the Company's crop insurance  programs,  tax sharing payments from itssubsidiaries,  investment  income from,  and proceeds from the sale of,  holdingcompany investments,  and dividends and other distributions from subsidiaries ofthe Company.  The Company's  liquidity  needs are primarily to service debt, payoperating expenses and taxes and make investments in subsidiaries.

              At March  31,  2001 theCompany  has  $14.9  million  in cash,  short-terminvestments and fixed maturity securities.  Additionally,  the Company has $33.1million  of  restricted  short-term   investments.   The  restricted  short-terminvestments  is  comprised  of  investments  deposited  with a  trustee  for theCompany's  issuance of an outstanding  letter of credit  relating to reinsurancecoverage on certain crop insurance  products.  These funds will become availableto the  Company  over the next six years.  The  Company  also holds two  surplusnotes, each in the amount of $20 million, issued by two of its insurance companysubsidiaries,  bearing  interest at the rate of 9% per annum payable  quarterly.Although  repayment  of all or part of the  principal  of  these  surplus  notesrequires  prior  insurance  department  approval,  no prior approval of interestpayment is currently required.

        Under  the  AmericanAgrisurance  profit  sharing   agreement,   AmericanAgrisurance  receives  up to 50% of the  crop  insurance  profit  after  certainexpenses and a margin  retained by the Insurance  Companies based upon a formulaestablished by the Company and approved by the Nebraska Department of Insurance.If the calculated  profit share is negative,  such negative  amounts are carriedforward and offset future profit sharing payments. These amounts are distributedfrom time to time in the form of a dividend to the Company.

          Dividends  from the Insurance  Companies  are  regulated by the  regulatoryauthorities  of the states in which each  subsidiary is  domiciled.  The laws ofsuch states  generally  restrict  dividends from  insurance  companies to parentcompanies  to  certain  statutorily  approved  limits.  In 2001,  the  statutorylimitation  on dividends  from the  Insurance  Companies to the Company  withoutfurther insurance departmental approval is approximately $5.7 million.

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

        In 1997,  AICI Capital  Trust,a Delaware  business trust  organized by theCompany (the "Issuer  Trust")  issued 3.795  million  shares or $94.875  millionaggregate 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  representpreferred  undivided  beneficial  interests in the Issuer  Trust's  assets.  Theassets  of  the  Issuer  Trust  consist   solely  of  the  Company's  9%  JuniorSubordinated Debentures due 2027 which were issued in 1997 in an amount equal tothe  Preferred  Securities  and  the  Common  Securities.  Distributions  on thePreferred Securities and Junior Subordinated  Debentures are cumulative,  accruefrom the date of issuance  and are  payable  quarterly  in  arrears.  The JuniorSubordinated  Debentures  are  subordinate  and junior in right of payment to allsenior  indebtedness of the Company and are subject to certain events of defaultand redemptive provisions,  all described in the Junior Debenture Indenture.  AtMarch 31, 2001,  the Company had $94.875  million  outstanding  at a weightedaverage interest cost of 9.1%. During the three months ended March 31, 2000 theCompany paid $2.1 million of interest on the Preferred Securities. During thethree months ended March 31, 2001 no interest was paid as the distribution ofinterest for the first quarter of 2001 was due and paid on April 2,2001.

             As of March 31, 2001,  the Company has a Security and Letter Loan Agreementfor $33.1 million. The entire facility was reserved for an outstanding letter ofcredit and, accordingly, no borrowings were permitted under suchfacility.

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

**Insurance Companies**

        The principal liquidity needsof the Insurance Companies are to fund lossesand loss adjustment expense payments and to pay underwriting expenses, includingcommissions and other expenses. The available sources to fund these requirementsare net premiums received and, to a lesser extent, cash flows from the Company'sinvestment   activities,   which  together  have  been  adequate  to  meet  suchrequirements  on a timely  basis.  The  Company  monitors  the cash flows of theInsurance  Companies  and attempts to maintain  sufficient  cash to meet currentoperating  expenses,  and to structure  its  investment  portfolio at a durationwhich  approximates the estimated cash requirements for the payments of loss andloss adjustment expenses.

        The Company's  portfolio isprimarily  comprised of fixed  maturities,  short-term  investments andrestricted  short-term  investments that constituted  approximately 57%, 27%and 9%,  respectively, of the Company's  investments at March 31, 2001. Thecomposition of the fixed  maturities  changed during  the  first  quarter  of2001  as  most of the  municipal  securities  and  mortgage-backedsecurities  were  liquidated  and proceeds  invested  primarily in U.S.Treasury  securities.  The effective duration of the portfolio,  includingpreferred stocks, is approximately 2.1 years as of March 31, 2001.

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

        The Company's profit or lossfrom its MPCI business is determined after thecrop season ends on the basis of a profit sharing formula established by law andthe RMA. The Company  receives a profit share in cash, with 60% of the amount inexcess  of  17.5%  of its MPCI  Retention  (as  defined  in the  profit  sharingagreement) in any year carried forward to future years, or it must pay its shareof losses.  The Company  received  $62.5 million in net payments  under the MPCIprogram in March of 2000.  The Company  received a net payment of  approximately$50.6 million under the MPCI program in the first quarter of 2001.
**Changes in Financial Condition**

        The Company's  stockholders'equity decreased by approximately $1.8 millionfrom  December  31, 2000 to March 31, 2001.  The  principal  components  of thisdecrease  was a net loss of $3.8  million for the three  months  ended March 31,2001 partially offset by a decrease in the unrealized loss on available-for-salesecurities,  net of tax,  from $4.4 million at December 31, 2000 to $2.1 millionat March 31, 2001.

**Consolidated Cash Flows**

          Cash  provided  by  operatingactivities  was $28.0  million for the threemonths  ended March 31,  2001 as compared to cash used of $20.1  million for thethree months ended March 31, 2000.  The Company  received net payments under theMPCI program of $50.6 million and $62.5 million for the three months ended March31, 2001 and 2000,  respectively.  Offsetting these are negative cash flows fromthe property  and casualty  segment  related to the decline in  operations.  TheCompany expects negative cash flow from its property and casualty segment as theoperations  continues  to  decline  and as losses  and loss  adjustment  expensereserves are settled.  The Company has  positioned  its  portfolio to be able tomeet these liquidity needs.

**Inflation**

        The Company does not believethat  inflation  has had a material  impact onits financial condition or the results of operations.

**Sale of Redland Insurance Company**

             In April 2000,  theCompany  signed a definitive  agreement to sell RedlandInsurance   Company   ("Redland")  to  Clarendon   National   Insurance  Company("Clarendon").  This sale closed  effective as of July 1, 2000. The  transactionincluded the appointment of other Company subsidiaries as the exclusive producerand  administrator  of Redland  for the  business  the  Company  writes  throughRedland.  The Company also reinsures certain portions of the business written byRedland.  The sale was a cash transaction of  approximately  $10.9 million basedupon the  market  value of Redland  after the  divestiture  of  various  assets,including the Redland  subsidiaries  to a wholly-owned  subsidiary of AcceptanceInsurance Companies Inc. At March 31, 2001, approximately $86.5 million of fixedmaturities  available-for-sale  and $7.6 million of short-term  investments werepledged to  Clarendon  to secure the  Company's  obligations  under  reinsuranceagreements.  The Company is obligated for any of Redland's uncollectible amountsfrom reinsurers and agents for the business under these reinsuranceagreements.

**Sale to Insurance Corporation of Hannover**

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

**Subsequent Events**

         In May 2001 the Companyagreed to sell two wholly-owned insurance companiesto McM Corporation,  a Raleigh,  North Carolina based insurance  holding company("McM").   The  two  companies,   Acceptance  Indemnity  Insurance  Company  andAcceptance  Casualty  Insurance  Company,  underwrote only property and casualtyinsurance, and their sale is subject to regulatory approval.

         In  addition,  effective  asof May  1,  2001,  McM  purchased  a  selectedportfolio  of the  Company's  property  and casualty  insurance  programs.  Alsoeffective May 1, 2001,  the Company sold its Farm and Ranch and Flood  insuranceprograms to American  Reliable  Insurance  Company of Scottsdale,  Arizona.  Theterms of these agreements included the sale of these selected lines of business,a reinsurance  treaty whereby the unearned  premium and any additional  premiumsfor these selected  lines would be reinsured by the buyers,  and the transfer ofcertain employees to the buyers.

        As of May 1, 2001 the Companyengaged Berkley Risk  Administrators  Company("BRAC") to manage the adjustment  and completion of all remaining  property andcasualty claims. BRAC has employed certain Company employees.

**Recent Statement of Financial Accounting Standards**

         Statement  of  FinancialAccounting  Standards  No.  133 (SFAS No.  133),"Accounting  for Derivative  Instruments and for Hedging  Activities,"  requirescompanies to recognize all  derivatives  as either assets or  liabilities in thestatement of financial  condition and to measure all  derivatives at fair value.SFAS No. 133 requires  that changes in fair value of a derivative  be recognizedcurrently in earnings  unless specific hedge  accounting  criteria are met. Uponimplementation of SFAS No. 133, hedging  relationships may be redesignated,  andsecurities held to maturity may be transferred to available-for-sale or trading.SFAS   No.   137,   "Accounting   for   Derivative   Instruments   and   HedgingActivities-Deferral  of the Effective  Date of FASB Statement No. 133," deferredthe  effective  date of SFAS No. 133 to fiscal  years  beginning  after June 15,2000. SFAS No. 138,  "Accounting for Certain Derivative  Instruments and CertainHedging  Activities"  amended the accounting and reporting standards of SFAS No.133 for certain derivative instruments, hedging activities and decisions made bythe  Derivatives  Implementation  Group.  The impact on the Company's  financialstatements  related to the  adoption of SFAS No. 133,  SFAS No. 137 and SFAS No.138 is not significant.

**Codification of Statutory Accounting Principles**

        In March 1998, the NationalAssociation of Insurance  Commissioners adoptedthe  Codification  of  Statutory  Accounting  Principles   (Codification).   TheCodification,  which  is  intended  to  standardize  regulatory  accounting  andreporting to state insurance departments, is effective January 1, 2001. However,statutory  accounting  principles  will continue to be established by individualstate  laws and  permitted  practices.  The  Company  adopted  the  Codificationeffective  January 1, 2001.  The adoption of  Codification  increased  statutorycapital and surplus as of January 1, 2001 by approximately $9.6million.

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

        The  Company's  balance sheetincludes a significant  amount of assets andliabilities whose fair value are subject to market risk. Market risk is the riskof loss arising from adverse  changes in market  interest  rates or prices.  TheCompany  currently  has interest  rate risk as it relates to its fixed  maturitysecurities  and  mortgage  loans and  equity  price  risk as it  relates  to itsmarketable  equity  securities.  In  addition,  the  Company is also  subject tointerest rate risk at the time of refinancing  as it relates to its  mandatorilyredeemable Preferred Securities. The Company's market risk sensitive instrumentsare entered into for purposes other than trading.

        At March 31, 2001 and December31, 2000, the Company had $227.2 million and$234.9 million,  respectively,  of fixed maturity investments and mortgage loansand  $15.8  million  and  $17.6  million,  respectively,  of  marketable  equitysecurities that were subject to market risk. The Company's  investment  strategyis to manage the  duration  of the  portfolio  relative  to the  duration of theliabilities while managing interest rate risk. In addition,  the Company has theability to hold its fixed  maturity  investments  until  maturity and  thereforewould not expect to realize a material adverse impact on income or cashflows.

          The Company's PreferredSecurities of $94.875 million at March 31, 2001 andDecember  31,  2000 mature in August 2027 and are  redeemable  at the  Company'soption in September 2002. The Company will continue to monitor the interest rateenvironment  and  evaluate  refinancing  opportunities  as  the  redemption  andmaturity date approaches.

         The Company uses two models to analyze the  sensitivity  of its market riskassets and liabilities.  For its fixed maturity  securities,  mortgage loans andmandatorily redeemable Preferred Securities,  the Company uses duration modelingto calculate  changes in fair value. For its marketable equity  securities,  theCompany uses a hypothetical 20% decrease in the fair value of these  securities.Actual  results  may  differ  from  the  hypothetical  results  assumed  in thisdisclosure  due to possible  actions  taken by  management  to mitigate  adversechanges in fair value and because fair values of  securities  may be affected bycredit concerns of the issuer,  prepayment speeds, liquidity of the security andother general market conditions. The sensitivity analysis duration model used bythe Company  produces a loss in fair value of $4.9  million and $5.9  million onits fixed maturity securities and mortgage loan and a gain in fair value of $7.5million and $5.8 million on its mandatorily  redeemable  Preferred Securities asof March 31, 2001 and  December  31,  2000,  respectively,  based on a 100 basispoint increase in interest rates. The hypothetical 20% decrease in fair value ofthe Company's  marketable  equity  securities  produces  a loss in fair value of$3.2million  and  $3.5  million  as  of  March  31,  2001  and  December  31,  2000,respectively.

**PART II. OTHER INFORMATION
**Item 1.  Legal Proceedings**

                In  December   1999  theCompany  was sued in the  United  States  District  Court  for the  District ofNebraska. Plaintiffs alleged the Company knowingly and intentionally understatedthe Company's liabilities in order to maintain the market price of the Company'scommon stock at artificially  high levels and made untrue statements of materialfact, and sought  compensatory  damages,  interest,  costs and attorney fees. InFebruary 2000 other plaintiffs sued the Company in the same Court,  alleging theCompany intentionally  understated liabilities in a registration statement filedin conjunction with the Company's Redeemable Preferred Securities.

                The  Court  consolidatedthese suits in April 2000 as *In re  Acceptance  Insurance  CompaniesSecurities Litigation*(USDC,  Nebraska,  No.  8:99CV547).  Plaintiffssubsequently filed aconsolidated  class  action  complaint.  Plaintiffs  sought to represent a classconsisting  of all persons who  purchased  either  Company  common stock betweenMarch 10, 1998 and November 16, 1999, or AICI Capital Trust Preferred Securitiesbetween  the July 29,  1997  public  offering  and  November  25,  1999.  In theconsolidated  complaint  plaintiffs  alleged  violation  of  Section  11 of  theSecurities Act of 1933 through  misrepresentation or omission of a material factin the registration statement for the trust preferred securities,  and violationof 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  materialinformation between March 10, 1998 and November 16, 1999. The Company,  three ofits former  officers,  the Company's  Directors and independent  accountants andother  individuals,  as well as the  financial  underwriters  for the  Company'spreferred securities, were defendants in the consolidated action.

              On March 2, 2001 the Courtentered an order dismissing all claims alleging  violations of Section 11 of theSecurities Act, and dismissing the Company's Directors,  financial underwriters,independent  accountants and others as defendants in this action. The Court alsoruled  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 twosubsequent rulings,  the Court and Magistrate Judge clarified the March 2 rulingto specify which of Plaintiffs'  Montrose-related  allegations failed to state aSection  10b and Rule  10b-5  claim.  As a result of these  three  rulings,  thelitigation  has been  reduced  to a claim the  Company  and three of its  formerofficers, during the period from August 14, 1997 to November 16, 1999, failed todisclose   adequately   information  about  various  aspects  of  the  Company'soperations,  including  information  relating to the  Company's  exposure  afterJanuary 1, 1997 to losses resulting from the Montrose  decision.  Claimants seekcompensatory damages,  reasonable costs and expenses incurred in this action andsuch other and such further relief as the Court may deem proper.

               The  Company  intends  tovigorously  contest  this action and  believes the  claimants'  allegations  arewithout  merit.  Nevertheless,  the  ultimate  outcome of this action  cannot bepredicted  at this time and the Company  currently  is unable to  determine  thepotential  effect of this  litigation  on its  financial  position,  results  ofoperations or cash flows.

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

    (a)      **Exhibits**
                See Exhibit Index.

    (b)          From 8-K
 The following Current Reports on Form 8-K have been filed during the last     fiscal quarter of the period covered by this Report:
 Financial StatementsDate of Item FiledReportItem 5. Other Events. No  March 2, 2001 Item 5. Other Events. No March 5, 2001Item 5. Other Events.  No  March 15, 2001
  SIGNATURES

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

ACCEPTANCE INSURANCE COMPANIES INC.
By   /s/  John E. MartinDated: May 11,  2001      John E. Martin          President and Chief Executive Officer     By   /s/  Dwayne D. HallmanDated: May 11,  2001     Dwayne D. Hallman          Chief Financial Officer and Treasurer
**ACCEPTANCE INSURANCE COMPANIES INC.                             QUARTERLY REPORT ON FORM 10-Q                           THREE MONTHS ENDED MARCH 31, 2001**

**EXHIBIT INDEX**

**NUMBER   EXHIBIT DESCRIPTION**

**NONE**********