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 ACTOF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002.

                                                            OR

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

                                              Commission File Number 1-7461 

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

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

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

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant has been required to filesuch reports), and (2) has been subject to such filing requirements for the past90 days.

                                           YES  X                                        NO   ____
The number of shares ofeach class of the Registrant’s common stock outstanding on November 8, 2002was:

                                   Class of Common Stock                No. of Shares Outstanding                                 Common Stock, $.40 Par Value                14,200,996

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES **

**FORM 10-Q **

**TABLE OF CONTENTS **

**PART I.  FINANCIAL INFORMATION **

         Item 1.            Financial Statements (unaudited): 

                       Consolidated Balance Sheets                        September 30, 2002 and December 31, 2001 

                       Consolidated Statements of Operations                        Three Months and Nine Months Ended September 30, 2002 and 2001 

                      Consolidated Statements of Cash Flows                       Nine Months Ended September 30, 2002 and 2001 

                      Notes to Interim Consolidated Financial Statements 

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

 Item 3.          Quantitative and Qualitative Disclosure about Market Risk 

 Item 4.           Controls and Procedures 

**PART II. OTHER INFORMATION **

         Item 1.           Legal Proceedings 

 Item 5.           Other Information 

 Item 6.           Exhibits and Reports on Form 8-K 

 Signatures 

  Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

 Exhibit Index 

**PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)**

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS (dollars in thousands****except sharedata)                                                                                                                                                                        **

 

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands except per share data)THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001**

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001**

**ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES **

**NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (Columnar Amounts in Thousands Except Per Share Data)**

**1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Descriptionof Operations*** – Acceptance Insurance Companies Inc. and subsidiaries (the“Company”) is primarily an agricultural risk management company. TheCompany concentrates on helping agricultural producers manage their risks byproviding comprehensive insurance products. The Company also continues to managethe run-off of discontinued and sold property and casualty lines.

TheCompany’s results may be influenced by factors which are largely beyond theCompany’s control. Important among such factors are weather conditions,natural disasters, changes in commodity prices, changes in state and federalregulations, changes in premium pricing and agency commission rates in theindustry, changes in the reinsurance market, including pricing, availability andcoverage, changes in tax laws, financial market performance, changes in federalpolicies or court decisions affecting coverages, changes in the rate ofinflation, interest rates and general economic conditions. The Company’scrop insurance results are particularly subject to wide fluctuations because ofweather factors influencing crop harvests and commodity prices. TheCompany’s increased emphasis in its agricultural segment may produce morevolatility in the operating results on a quarter-to-quarter or year-to-yearbasis than has historically been the case due to the seasonal and short-termnature of the Company’s crop business, as well as the impact on the cropbusiness of weather and other natural perils.

***Principlesof Consolidation*** – The Company’s consolidated financial statementsinclude the accounts of its majority-owned subsidiaries. All significantintercompany transactions have been eliminated.

***Management’sOpinion*** – The accompanying consolidated financial statements reflect alladjustments, consisting only of normal recurring adjustments except as otherwisedisclosed, which in the opinion of management are considered necessary to fairlypresent the Company’s financial position as of September 30, 2002 andDecember 31, 2001, and the results of operations for the three months and ninemonths ended September 30, 2002 and 2001 and cash flows for the nine monthsended September 30, 2002 and 2001. See the Company’s 10-K for additionalinformation that may be necessary or useful in understanding the Company’soperations and its financial statement presentation.

***Statementsof Cash Flows*** – The Company aggregates cash and short-term investments withmaturity dates of three months or less from the date of purchase for purposes ofreporting cash flows. As of September 30, 2002 approximately $37.5 million ofshort-term investments had maturity dates at acquisition of greater than threemonths. Restricted short-term investments are not considered a cash equivalent.

***RestrictedShort-Term Investments*** – The restricted short-term investments balance iscomprised of investments deposited with a trustee for the Company’sissuance of an outstanding letter of credit relating to reinsurance coverage.

***Recent Statements of Financial Accounting Standards*** - In July 2001, the Financial Accounting StandardsBoard ("FASB") issued Statement of Financial Accounting Standards No. 141 ( "SFAS No. 141"),*Business Combinations,* and Statement      No. 142 ( "SFAS No. 142"), *Goodwill and Other Intangible Assets*.  SFAS No. 141 requires business combinations      initiated after June 30, 2001 to be accounted for using the purchase method of accounting and specifies the      criteria for recognition of intangible assets separately from goodwill.

SFASNo. 142 requires that goodwill and intangible assets with indefinite usefullives no longer be amortized, but instead tested for impairment at leastannually. Intangible assets with a determinable useful life will continue to beamortized over that period. The adoption of SFAS No. 142 had no impact on theCompany’s financial statements at January 1, 2002. With the adoption ofSFAS No. 142 on January 1, 2002 goodwill is no longer amortized and inaccordance with SFAS No. 142 the goodwill is tested for impairment annually andbetween annual tests if an event occurs that would more likely than not reducethe fair value of the reporting unit. During the second quarter, the Companycompleted the transitional goodwill impairment test required by SFAS No. 142 anddetermined that there was no goodwill impairment. As a result of the significantoperating losses in the agricultural segment during the third quarter, theCompany reevaluated therecoverability of the goodwill and intangible assets. Based upon the results ofsuch review, it was determined that the intangible asset related tonon-competition agreements, which was carried on the books at approximately$5.7 million,  has no value, but based upon the non-binding Letterof Intent between the Company and Rain and Hail (see Note 13) which sets forththe preliminaryterms of the Company’s potential sale of certain crop insurance assets toRain and Hail, the goodwill carried on the books of the Company at approximately$30.0 million is not impaired.

Areconciliation of the Company’s net loss and loss per share for the threeand nine months ended September 30, 2002 and 2001 to amounts adjusted for theexclusion of goodwill amortization is as follows: