Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P9wqJ+JP43hj+shdBeCtzzOwzLvYpJq1i73YqVv8bAMkNsUlRWZC1Sq31qUDvy8C MaMB2Jy2qJJl19oE2NHUoQ== 0001193125-03-077449.txt : 20031112 0001193125-03-077449.hdr.sgml : 20031111 20031112075410 ACCESSION NUMBER: 0001193125-03-077449 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCEPTANCE INSURANCE COMPANIES INC CENTRAL INDEX KEY: 0000074783 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310742926 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07461 FILM NUMBER: 03990502 BUSINESS ADDRESS: STREET 1: SUITE 1600 STREET 2: 300 WEST BROADWAY CITY: COUNCIL BLUFFS STATE: IA ZIP: 51503 BUSINESS PHONE: 712-329-3600 MAIL ADDRESS: STREET 1: SUITE 1600 STREET 2: 300 WEST BROADWAY CITY: COUNCIL BLUFFS STATE: IA ZIP: 51503 FORMER COMPANY: FORMER CONFORMED NAME: STONERIDGE RESOURCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ORANGE CO INC DATE OF NAME CHANGE: 19870506 FORMER COMPANY: FORMER CONFORMED NAME: NFF CORP DATE OF NAME CHANGE: 19730919 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003.

¨	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

incorporation or organization)

(I.R.S. Employer

Identification Number)

Suite 1600, 300 West Broadway

Council Bluffs, Iowa 51503

(Address of principal executive offices)

(Zip Code)

(712) 329-3600

Registrant’s Telephone Number, Including Area Code:

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of shares of each class of the Registrant’s common stock outstanding on November 11, 2003 was:

Class of Common Stock		No. of Shares Outstanding
Common Stock, $.40 Par Value		14,201,486

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Balance Sheets September 30, 2003 and December 31, 2002	3

	Consolidated Statements of Operations Three and Nine Months Ended September 30, 2003 and 2002	4

	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2003 and 2002	5

	Notes to Interim Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 6.	Exhibits and Reports on Form 8-K	29

Signatures		30

Exhibit Index		31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)

	September 30, 2003			December 31, 2002
ASSETS

Cash and cash equivalents	$	930		$	3,103
Restricted cash equivalents		1,514			—
Receivables, net		1,307			—
Property and equipment, net		—			1,089
Other assets		3,244			3,373

		6,995			7,565

Discontinued operations:
Investments:
Fixed maturities available-for-sale, at fair value		64,313			114,699
Marketable equity securities available-for-sale, at fair value		1,110			7,339
Real estate		3,026			3,026

		68,449			125,064
Cash and cash equivalents		38,146			16,945
Receivables, net		31,584			81,537
Reinsurance recoverable on unpaid losses and loss adjustment expenses		124,520			169,257
Prepaid reinsurance premiums		79			166
Property and equipment, net of accumulated depreciation		1,135			3,003
Other assets		254			55

Discontinued operations		264,167			396,027

	$	271,162		$	403,592

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Accounts payable and accrued liabilities	$	751		$	993
Accrued interest on Junior Subordinated Debentures		8,869			2,173
Company-obligated mandatorily redeemable Preferred Securities of AICI Capital Trust, holding solely Junior Subordinated Debentures of the Company		94,875			94,875

		104,495			98,041

Discontinued operations:
Losses and loss adjustment expenses		221,801			295,121
Unearned premiums		100			232
Accounts payable and accrued liabilities		16,494			64,062

Discontinued operations		238,395			359,415

Total liabilities		342,890			457,456

Commitments and contingencies

Stockholders’ equity (deficit):
Preferred stock, no par value, 5,000,000 shares authorized, none issued		—			—
Common stock, $.40 par value, 40,000,000 shares authorized; 15,685,473 shares issued		6,274			6,274
Capital in excess of par value		199,660			199,660
Accumulated other comprehensive income, net of tax		438			705
Accumulated deficit		(247,902	)		(230,305	)
Treasury stock, at cost, 1,463,591 shares		(29,969	)		(29,969	)
Contingent stock, 20,396 shares		(229	)		(229	)

Total stockholders’ equity (deficit)		(71,728	)		(53,864	)

	$	271,162		$	403,592

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

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

	Three Months						Nine Months
	2003			2002			2003			2002
Revenues:
Net investment income	$	20		$	113		$	55		$	520
Net realized capital gains		—			—			334			—

		20			113			389			520

Costs and expenses:
General and administrative expenses		259			282			979			1,017

Operating loss		(239	)		(169	)		(590	)		(497	)

Interest expense		(2,316	)		(2,173	)		(6,796	)		(6,516	)

Loss before income taxes and discontinued operations		(2,555	)		(2,342	)		(7,386	)		(7,013	)

Income tax expense (benefit):
Current		—			—			—			(434	)
Deferred		(894	)		(820	)		(2,585	)		(2,021	)
Change in valuation allowance		894			8,448			2,585			8,448

		—			7,628			—			5,993

Loss from continuing operations		(2,555	)		(9,970	)		(7,386	)		(13,006	)

Loss from discontinued operations, net of tax		(394	)		(121,027	)		(10,211	)		(127,451	)

Net loss	$	(2,949	)	$	(130,997	)	$	(17,597	)	$	(140,457	)

Loss per share:
Basic and diluted
Loss from continuing operations	$	(0.18	)	$	(0.70	)	$	(0.52	)	$	(0.91	)
Loss from discontinued operations		(0.03	)		(8.53	)		(0.72	)		(8.88	)
Net loss		(0.21	)		(9.23	)		(1.24	)		(9.78	)

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

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

	2003			2002
Cash flows from operating activities:
Net loss	$	(17,597	)	$	(140,457	)
Adjustments to reconcile net loss to net cash from operating activities		16,734			133,742

Net cash from operating activities		(863	)		(6,715	)

Cash flows from investing activities:

Proceeds from maturities of investments available-for-sale		—			4,388
Increase in restricted cash and cash equivalents		(1,514	)		—
Sale of property and equipment		204			—

Net cash from investing activities		(1,310	)		4,388

Cash flows from financing activities:
Redemption of common stock		—			(4,163	)
Proceeds from issuance of common stock		—			69

Net cash from financing activities		—			(4,094	)

Net decrease in cash and cash equivalents		(2,173	)		(6,421	)

Cash and cash equivalents at beginning of period		3,103			7,279

Cash and cash equivalents at end of period	$	930		$	858

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

ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(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”) historically has been an agricultural risk management company providing comprehensive insurance products (“Agricultural Segment”) and a provider of property and casualty insurance (“Property and Casualty Segment”). Due to the financial condition of the Company and regulatory restrictions placed on the Company in the fourth quarter of 2002, the Company neither intends nor has the ability to continue its operations in the Agricultural Segment or the Property and Casualty Segment. As such, all operations in these segments have been presented as discontinued operations. Assets and liabilities have been reflected separately as discontinued operations on the consolidated balance sheets.

The Company’s results may be influenced by factors which are largely beyond the Company’s control. Important among such factors are changes in state and federal regulations, decisions by regulators including any increased regulatory control over Acceptance Insurance Company, changes in the reinsurance market, including the ability and willingness of reinsurers to pay claims, financial market performance, changes in federal policies or court decisions affecting coverages, changes in the rate of inflation, interest rates and general economic conditions.

Principles of Consolidation – The Company’s consolidated financial statements include the accounts of its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. American Growers Insurance Company (“AGIC”), the Company’s subsidiary previously conducting insurance operations within the Agricultural Segment, was placed into rehabilitation by the District Court of Lancaster County, Nebraska on December 20, 2002. Effective as of December 20, 2002, AGIC and its subsidiaries ceased to be under the control of the Company and are not included as consolidated subsidiaries of the Company after that date. As the Company’s equity interest in AGIC and its subsidiaries is negative, the Company has reflected its investment in AGIC and its subsidiaries at fair market value of zero as the Company is no longer responsible for AGIC’s net liabilities.

Going Concern – The Company’s only remaining consolidated insurance subsidiary at September 30, 2003, Acceptance Insurance Company (“AIC”), is regulated by the Nebraska Department of Insurance (“NEDOI”). AIC is currently under supervision by the NEDOI. The NEDOI Director (“Director”) currently has the authority to increase regulatory control of AIC by requesting an appropriate court to enter an Order of Rehabilitation or an Order of Liquidation, with or without a change in the financial condition of AIC. The Company believes that an Order of Rehabilitation would have a significant negative impact on the Company and that an Order of Liquidation would have a material adverse effect on the Company.

In August 2003, the NEDOI orally informed the Company of the results of a draft report regarding AIC’s loss and loss adjustment expense reserves at December 31, 2002 prepared by an outside actuary engaged by the NEDOI in connection with the NEDOI’s triennial examination of AIC. The NEDOI informed the Company of the range of estimated adequate loss reserves for AIC at December 31, 2002 determined by the NEDOI’s outside actuary in the draft report. This range of estimated reserves, including the lower amount of the estimate, is significantly higher than the estimate of adequate loss reserves at December 31, 2002 determined by the Company and the independent actuary engaged by the Company to review the Company’s loss reserving process and reserve estimates. During September 2003 the Company received the final written report prepared by the NEDOI’s outside actuary (“NEDOI Actuary Report”). The Company and the Company’s outside actuary have reviewed the NEDOI Actuary Report and the Company has

expressed its concerns, including the validity of various assumptions, to the NEDOI. The NEDOI has engaged another actuarial firm (“Actuarial Firm”) to address the significant differences between the estimates of the Company and the Company’s outside actuary and those included in the NEDOI Actuary Report.

The Actuarial Firm is expected to develop its analysis based upon reviewing the reports of both the Company’s outside actuary and the NEDOI’s outside actuary and, if necessary, performing its own actuarial analysis. The Company believes that the NEDOI will consider this Actuarial Firm’s review when determining what actions they may take, if any. Once the Company receives the results of the Actuarial Firm’s review and any related response by the NEDOI, the Company will decide what course of action that is in the best interests of the Company based all relevant factors, including any reasonable basis for protesting any action that may be taken by the NEDOI. At this time, there can be no assurance as to what actions, if any, the NEDOI will take in connection with the NEDOI Actuary Report and the results of the review currently being performed by the Actuarial Firm. If the NEDOI does take action there can be no assurance as to when it may do so or how long it may take to complete any such action; however, the Company believes that if the NEDOI takes any action, it would initiate such action during the fourth quarter of 2003 or first quarter of 2004.

The Director currently has the authority to increase regulatory control of AIC by requesting an appropriate court to enter an Order of Rehabilitation or an Order of Liquidation, with or without a change in the financial condition of AIC and regardless of the reserve estimate by the NEDOI’s outside actuary. The Company believes that an Order of Rehabilitation would have a significant negative impact on the Company and that an Order of Liquidation would have a material adverse effect on the Company. If the NEDOI seeks and obtains an Order of Rehabilitation or Order of Liquidation, the Company will decide to take the course of action that is in the best interests of the Company based on all relevant factors. The Company believes that its possible options will range from no action to filing bankruptcy depending on what type of order, if any, is sought and obtained by the NEDOI, what actions the NEDOI takes pursuant to any such order and all other factors relevant to taking the actions that are in the best interests of the Company. The filing of a bankruptcy proceeding would constitute an event of default under the trust agreement for the Trust Preferred Securities.

Additionally, there is significant uncertainty as to whether AIC will be able to meet its future cash flow needs. A major portion of AIC’s investments are pledged and AIC’s ability to meet its cash flow needs will be highly dependent upon AIC’s ability to get significant amounts of pledged funds released. Additionally, AIC’s cash flows are significantly impacted by any changes in the expected payout of insurance losses and loss adjustment expenses. AIC’s ability to meet its cash flow needs is also dependent upon the timely recovery of reinsurance balances, including the favorable resolution of balances currently in dispute. While based upon current estimates AIC would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist.

There is also significant uncertainty as to whether Acceptance Insurance Companies Inc. (“AICI”) will be able to meet its cash flow needs. AICI has deferred interest payments on its Junior Subordinated Debentures, which in turn deferred the interest on the Trust Preferred Securities issued by AICI Capital Trust, as permitted by the trust agreement and indenture, and has disputed or denied payments of certain other liabilities and commitments. While based upon current estimates AICI would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist. If the NEDOI obtains an Order of Rehabilitation or Order of Liquidation with respect to AIC, the Company believes that AICI may not be able to meet its cash flow needs.

Basis of Presentation – The accompanying consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments except as otherwise disclosed, which in the opinion of

management are considered necessary to fairly present the Company’s consolidated financial position as of September 30, 2003 and December 31, 2002, and the results of operations for the three and nine months ended September 30, 2003 and 2002 and cash flows for the nine months ended September 30, 2003 and 2002.

Recent Statements of Financial Accounting Standards – In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148 (“SFAS No. 148”), Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of SFAS No. 123, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure requirements of SFAS No. 148.

In November 2002, the FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of annual periods ending after December 15, 2002. The adoption of FIN No. 45 had no impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation of certain entities (“variable interest entity”) when control exists through other than voting interests. FIN No. 46 requires that a variable interest entity be consolidated by the holder of the majority of the risks and rewards associated with the activities of the variable interest entity. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, FIN No. 46 is effective for the first interim or annual period ending after December 15, 2003, and may be applied retroactively or prospectively.

In April 2003, the FASB issued SFAS No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 had no impact on the Company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards on how to classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise effective as of the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had no impact on the Company’s consolidated financial statements.

Reclassifications – Certain prior period amounts have been reclassified to conform with the current period presentation.

2.	RECEIVABLES

At September 30, 2003 and December 31, 2002, the Company had a $27.5 million receivable from AGIC related to the draw down of an Acceptance Insurance Companies Inc. letter of credit by an AGIC reinsurer during the fourth quarter of 2002. Considering the uncertainty regarding the collection of this balance from AGIC, the Company has recorded an allowance for the entire $27.5 million.

At September 30, 2003 the Company had a note receivable of approximately $1.3 million. During the first quarter of 2003, the Company sold its office building and certain contents in Council Bluffs, Iowa. The proceeds included approximately $204,000 of cash and a note receivable with a fair value of approximately $1.3 million and the sale resulted in a gain of approximately $334,000. The terms of the note include interest of 5.25% from August 1, 2003 to February 28, 2008 and 6% from March 1, 2008 to March 31, 2010. Principal and interest payments of approximately $9,100 are due monthly beginning in September 2003 with a balloon payment for the remaining amounts on March 31, 2010.

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

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

Distributions on the Preferred Securities and Junior Subordinated Debentures are cumulative, accrue from the date of issuance and are payable quarterly in arrears. The Junior Subordinated Debentures are subordinate and junior in right of payment to all senior indebtedness of the Company and are subject to certain events of default. At September 30, 2003 and December 31, 2002, the Company had Preferred Securities of $94.875 million outstanding at a weighted average interest cost of 9.2%.

During the three months and nine months ended September 30, 2002 the Company paid $4.3 million and $6.4 million, respectively, of interest on the Preferred Securities. Effective November 18, 2002, the Company elected to defer payment of interest on its Junior Subordinated Debentures, as permitted by the trust agreement and indenture, beginning with the interest payment date on December 31, 2002 until not later than September 30, 2007. The interest payments on the Preferred Securities will be deferred for a corresponding period. As of September 30, 2003 approximately $8.9 million of accrued interest had been deferred.

4.	NET LOSS PER SHARE

The net loss per basic and diluted share for the three and nine months ended September 30, 2003 and 2002 were as follows:

	Three Months						Nine Months
	2003			2002			2003			2002
Loss from continuing operations	$	(2,555	)	$	(9,970	)	$	(7,386	)	$	(13,006	)
Loss from discontinued operations		(394	)		(121,027	)		(10,211	)		(127,451	)

Net loss	$	(2,949	)	$	(130,997	)	$	(17,597	)	$	(140,457	)

Weighted average common shares outstanding		14,201			14,196			14,201			14,357

Loss per share:
Basic and diluted:
Loss from continuing operations	$	(0.18	)	$	(0.70	)	$	(0.52	)	$	(0.91	)
Loss from discontinued operations		(0.03	)		(8.53	)		(0.72	)		(8.88	)
Net loss		(0.21	)		(9.23	)		(1.24	)		(9.78	)

Stock options were not included in the above calculations for the three and nine months ended September 30, 2003 and 2002 due to their antidilutive nature.

5.	OTHER COMPREHENSIVE INCOME

Other comprehensive income determined in accordance with SFAS No. 130 for the three and nine months ended September 30, 2003 and 2002 are as follows:

	Three Months						Nine Months
	2003			2002			2003			2002
Net loss	$	(2,949	)	$	(130,997	)	$	(17,597	)	$	(140,457	)
Unrealized holding gains (losses) of investments, net of reclassification adjustment		(391	)		(72	)		(267	)		923
Income tax expense (benefit)		—			195			—			543

		(391	)		(267	)		(267	)		380

Other comprehensive loss	$	(3,340	)	$	(131,264	)	$	(17,864	)	$	(140,077	)

6.	STOCK-BASED COMPENSATION

The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. No stock-based employee compensation cost has been recognized in the financial statements as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of the grant.

Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value for awards under those plans consistent with the method of SFAS No. 123, the Company’s net loss and net loss per share for the three and nine months ended September 30, 2003 and 2002 would have been as indicated below:

	Three Months						Nine Months
	2003			2002			2003			2002
Net loss:
As reported	$	(2,949	)	$	(130,997	)	$	(17,597	)	$	(140,457	)
Fair value based method compensation expense		(59	)		(169	)		(291	)		(621	)

Pro forma	$	(3,008	)	$	(131,166	)	$	(17,888	)	$	(141,078	)

Net loss per share:
Basic and diluted:
As reported	$	(0.21	)	$	(9.23	)	$	(1.24	)	$	(9.78	)
Pro forma		(0.21	)		(9.24	)		(1.26	)		(9.83	)

7.	EMPLOYEE BENEFITS AND INCENTIVES

As discussed in Note 1, the Company exited its Agricultural Segment and Property and Casualty Segment operations during 2002. In the Property and Casualty Segment, the Company expects to incur approximately $1.1 million of employee termination benefits, comprised primarily of retention and severance amounts. Approximately $127,000 and $435,000 of employee termination benefits have been expensed in discontinued operations – underwriting expenses during the three and nine months ended September 30, 2003, respectively, and $131,000 had been expensed in previous periods. During the nine months ended September 30, 2003 approximately $141,000 of termination benefits were paid and as of September 30, 2003 the Company has an accrued liability of approximately $425,000.

In order to induce employees of AIC to remain in the employment of AIC, AICI has agreed to pay each employee a retention bonus in the event AIC would be unable to meet this obligation. Additionally, AICI has agreed to guarantee certain amounts due under employment agreements with the President and Treasurer. During the second quarter of 2003, AICI agreed to guarantee these obligations by establishing an appropriate trust with a bank whereby the amount of such guarantees, totaling approximately $1.1 million, have been deposited in such trust account. The amounts held in the trust account at September 30, 2003, totaling approximately $1.1 million, are presented as restricted cash equivalents on the Company’s consolidated balance sheet.

During the second quarter of 2003, the Company established an incentive bonus plan. The purpose of the incentive bonus plan is to protect and enhance the interest of creditors and stockholders by providing all employees with meaningful incentives. The incentive bonus plan establishes that up to 20% of an incentive bonus pool, determined based upon value added criteria detailed in the agreement, would be allocated and paid to employees based upon established allocation percentages. As of September 30, 2003, the criteria established within the agreement have not been met and the Company is unable to estimate any amounts that may become due and, as such, no amounts have been accrued.

8.	COMMITMENTS AND CONTINGENCIES

In December 1999 the Company was sued in the United States District Court for the District of Nebraska. Plaintiffs alleged the Company knowingly and intentionally understated the Company’s liabilities in order to maintain the market price of the Company’s common stock at artificially high levels and made untrue statements of material fact, and sought compensatory damages, interest, costs and attorney fees. In February 2000 other plaintiffs sued the Company in the same Court, alleging the Company intentionally understated liabilities in a registration statement filed in conjunction with the Company’s Trust Preferred Securities.

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

On March 2, 2001, the Court entered an order dismissing all claims alleging violations of Section 11 of the Securities Act, and dismissing the Company’s Directors, financial underwriters, independent accountants and others as defendants in this action. The Court also ruled that certain of Plaintiffs’ allegations regarding the remaining defendants’ alleged failure to properly report contingent losses attributable to the Montrose decision did not state a claim under Section 10b and Rule 10b-5. In two subsequent rulings, the Court and Magistrate Judge clarified the March 2 ruling to specify which of Plaintiffs’ Montrose-related allegations failed to state a Section 10b and Rule 10b-5 claim. These three rulings reduced the litigation to a claim that the Company and three of its former officers, during the period from August 14, 1997 to November 16, 1999, failed to disclose adequately information about various aspects of the Company’s operations, including information relating to the Company’s exposure after January 1, 1997 to losses resulting from the Montrose decision. Nevertheless, Plaintiffs continue to seek compensatory damages, reasonable costs and expenses incurred in this action and such other and such further relief as the Court may deem proper.

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

9.	DISCONTINUED OPERATIONS – GENERAL

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 144 a component of business is considered abandoned when it ceases to be used, and such business operations

are to be reported as discontinued operations. Due to the financial condition of the Company and regulatory restrictions placed on the Company in the fourth quarter of 2002, the Company does not intend nor have the ability to continue its operations in the Agricultural Segment or the Property and Casualty Segment. Accordingly, all operations in both segments have ceased and these segments have been presented as discontinued operations.

Assets and liabilities have been separately classified on the face of the consolidated balance sheets. Operating results for these segments for the three and nine months ended September 30, 2003 and 2002 were as follows:

	Three Months						Nine Months
	2003			2002			2003			2002
Revenues:
Insurance premiums earned	$	(39	)	$	(968	)	$	504		$	30,151
Net investment income		696			1,640			2,515			5,148
Net realized capital gains (losses)		(58	)		(203	)		326			(978	)

		599			469			3,345			34,321

Costs and expenses:
Insurance losses and loss adjustment expenses		(241	)		15,222			8,115			50,270
Insurance underwriting expenses		1,234			52,102			5,141			60,627
Acceleration of multi-year reinsurance premiums		—			21,360			—			21,360
Impairment of non-compete related intangibles		—			5,661			—			5,661
Impairment of property and equipment		—			—			300			—

		993			94,345			13,556			137,918

Operating loss		(394	)		(93,876	)		(10,211	)		(103,597	)

Income tax expense (benefit):
Current		—			(1,119	)		—			(2,974	)
Deferred		(137	)		(31,693	)		(3,501	)		(33,135	)
Change in valuation allowance		137			59,963			3,501			59,963

		—			27,151			—			23,854

Loss from discontinued operations, net of tax	$	(394	)	$	(121,027	)	$	(10,211	)	$	(127,451	)

10.

DISCONTINUED OPERATIONS - INVESTMENTS

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2003:
Fixed maturities available-for-sale:
U.S. Treasury and government securities	$	47,497	$	559	$	—	$	48,056
Other debt securities		16,058		314		115		16,257

	$	63,555	$	873	$	115	$	64,313

Marketable equity securities - common stock	$	1,430	$	—	$	320	$	1,110


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2002:
Fixed maturities available-for-sale:
U.S. Treasury and government securities	$	59,744	$	1,472	$	—	$	61,216
Other debt securities		53,137		1,198		852		53,483

	$	112,881	$	2,670	$	852	$	114,699

Marketable equity securities - preferred stock	$	2,500	$	—	$	317	$	2,183

Marketable equity securities - common stock	$	5,952	$	69	$	865	$	5,156

As required by insurance regulatory laws, certain fixed maturities with an estimated fair value of approximately $7.3 million at September 30, 2003 were deposited in trust with regulatory agencies. Additionally, at September 30, 2003, approximately $30.6 million of fixed maturities available-for-sale and $16.2 million of cash equivalents were pledged to Clarendon to secure the Company’s obligations under reinsurance agreements and approximately $10.6 million of fixed maturities available-for-sale and $1.4 million of cash equivalents were pledged to McM to secure the Company’s net obligations under the reinsurance agreements (See Note 15).

11.

DISCONTINUED OPERATIONS – INSURANCE PREMIUMS

Insurance premiums written and earned by the Company’s insurance subsidiaries for the three and nine months ended September 30, 2003 and 2002 were as follows:

	Three Months						Nine Months
	2003			2002			2003			2002
Direct premiums written	$	(1	)	$	125,655		$	222		$	300,117
Assumed premiums written		(82	)		3,929			464			8,078
Ceded premiums written		38			(130,835	)		(227	)		(279,198	)

Net premiums written	$	(45	)	$	(1,251	)	$	459		$	28,997

Direct premiums earned	$	21		$	128,410		$	317		$	309,626
Assumed premiums earned		(76	)		5,732			501			20,849
Ceded premiums earned		16			(135,110	)		(314	)		(300,324	)

Net premiums earned	$	(39	)	$	(968	)	$	504		$	30,151

12.

DISCONTINUED OPERATIONS – REINSURANCE

The Company’s insurance subsidiaries cede insurance to other companies under quota share, excess of loss, catastrophe and facultative treaties. The reinsurance agreements are tailored to the various programs offered by the insurance subsidiaries. Reinsurance does not discharge the insurer from its obligations to its insured. If the reinsurer fails to meet its obligations, the ceding insurer remains liable to pay the insured loss, but the reinsurer is liable to the ceding insurer to the extent of the reinsured portion of any loss.

The Company reinsures certain portions of business written by Clarendon, Redland, AIIC and ACIC (See Note 15). Under these reinsurance agreements, the Company assumes business after Clarendon, Redland, AIIC, and ACIC cessions to outside reinsurers. However, the Company is contingently liable for any uncollectible amounts due from these outside reinsurers related to business produced and managed by the Company.

As of December 31, 2002 the Company has outstanding reinsurance recoverables from Constitution Insurance Company (“CIC”) of approximately $26.2 million and is contingently liable for AIIC and Redland reinsurance recoverables from CIC totaling approximately $2.8 million. CIC had its financial strength rating lowered by A.M. Best from A- (Excellent) to B- (Fair) during the fourth quarter of 2002. In January 2003, in response to a request from CIC’s parent to withdraw from the rating process, A.M. Best withdrew its financial strength rating of B- and assigned CIC and its parent an NR-3 rating (Rating Procedure Inapplicable). As of September 30, 2003 CIC continues to make payments to the Company for reinsurance billings and accordingly, no allowance for doubtful accounts or liability has been established for these balances.

In September 2001 the Company initiated an arbitration proceeding to recover from a pool of solvent reinsurers sums the Company believes are due under a workers’ compensation insurance program of the Company principally written on Redland. The Company is contingently liable to Redland for amounts due from these reinsurers. At December 31, 2002 the Company was contingently liable for approximately $20.4 million due from these reinsurers and approximately $5.1 million conditionally paid by the reinsurers but was still subject to the outcome of the arbitration. On May 31, 2003, the arbitration panel found that there was no reason to relieve the reinsurers of their obligations under the reinsurance contracts, made final the previous $5.1 million conditional payment from the reinsurers, ordered and awarded the payments of reinsurance recoverables, plus interest, to Redland and AIC sought by AIC, subject to potential adjustments that may be made to amounts withheld and escrowed until any such adjustments are made. The award of the arbitration panel did not have a significant impact on the Company’s net loss for the nine months ended September 30, 2003.

The Company has other reinsurance recoverables and is contingently liable for AIIC and Redland reinsurance recoverables that are currently being disputed by reinsurers or the reinsurers have delayed payment for various reasons. The Company believes the reinsurers will be required to pay amounts due and, accordingly, a liability has not been established for these reinsurance recoveries. However, the ultimate outcome of these items cannot be predicted at this time.

13.

DISCONTINUED OPERATIONS – REGULATORY MATTERS

AGIC was placed into rehabilitation by the District Court of Lancaster County, Nebraska on December 20, 2002. Effective as of December 20, 2002, AGIC and its subsidiaries ceased to be under the control of the Company and are not included as consolidated subsidiaries of the Company.

The only remaining consolidated insurance company of AICI is AIC. The Director entered an administrative Order of Supervision with respect to AIC on December 20, 2002 and AIC is currently operating pursuant to that Order.

The National Association of Insurance Commissioners has established risk-based capital (“RBC”) standards. RBC standards are designed to measure the acceptable level of capital an insurer should have, based on the inherent and specific risks of each insurer. As of September 30, 2003 and December 31, 2002, AIC had negative surplus, resulting in a RBC at the mandatory control level. Under the mandatory control level, the Director may take such actions as necessary to place AIC under regulatory control under the Nebraska Insurers Supervision, Rehabilitation, and Liquidation Act. Since AIC is currently in run-off, the Director is permitted to allow AIC to continue its run-off under supervision of the NEDOI. While AIC is currently in supervision, the Director currently has the authority to increase regulatory control of AIC by requesting an appropriate court to enter an Order of Rehabilitation or an Order of Liquidation, with or without a change in the financial condition of AIC. The Company believes that an order of Rehabilitation would have a significant negative impact on the Company and that an Order of Liquidation would have a material adverse effect on the Company.

Under the Order of Supervision, AIC is required to pay all costs incurred by the Supervisor, AIC may not accept or renew any insurance business and may not perform any activities beyond those that are routine in the day-to-day conduct of its runoff business without prior approval of the Director or Supervisor. Additionally, any transactions with affiliates or former affiliates require prior approval of the Director or Supervisor. AICI does not expect to have access to any surplus note interest payments or dividend payments from AIC, as these payments would require Nebraska Department of Insurance approval.

14.

DISCONTINUED OPERATIONS – BUSINESS SEGMENTS

Segment insurance premiums earned and segment underwriting earnings (loss) for the three and nine months ended September 30, 2003 and 2002 are as follows:

	Three Months									Nine Months
	Agricultural Insurance			Property and Casualty Insurance			Total			Agricultural Insurance			Property and Casualty Insurance			Total
2003
Insurance premiums earned	$	—		$	(39	)	$	(39	)	$	—		$	504		$	504

Underwriting earnings (loss)	$	—		$	(1,032	)	$	(1,032	)	$	—		$	(12,752	)	$	(12,752	)

2002
Insurance premiums earned	$	(2,371	)	$	1,403		$	(968	)	$	22,404		$	7,747		$	30,151

Underwriting earnings (loss)	$	(62,190	)	$	(6,102	)	$	(68,292	)	$	(66,381	)	$	(14,365	)	$	(80,746	)

15.

DISCONTINUED OPERATIONS – SALE OF SUBSIDIARIES AND PROPERTY AND CASUALTY BUSINESS AND RELATED GUARANTEES

The Company sold its wholly owned subsidiary, Redland Insurance Company (“Redland”), to Clarendon National Insurance Company (“Clarendon”) effective as of July 1, 2000. The sale was a cash transaction of approximately $10.9 million based upon the market value of Redland after the divestiture of various assets, including the Redland subsidiaries, to a wholly owned subsidiary of Acceptance Insurance Companies Inc. The transaction included the appointment of other Company subsidiaries as a producer and administrator for the business the Company wrote through Clarendon and Redland. The Company also reinsures certain portions of the business written by Clarendon and Redland. At September 30, 2003, approximately $30.6 million of fixed maturities available-for-sale and $16.2 million of cash equivalents were placed in a trust and pledged to Clarendon to secure the Company’s obligations under reinsurance agreements. Under these reinsurance agreements, the Company assumes business from Clarendon and Redland after cessions to outside reinsurers (“Clarendon Reinsurers”). The Company is contingently liable for any uncollectible amounts due from Clarendon Reinsurers related to this business. At September 30, 2003, Clarendon and Redland reinsurance recoverables from Clarendon Reinsurers, which are not included on the consolidated balance sheets of the Company, totaled approximately $87 million.

The amounts pledged to Clarendon were used to secure the issuance of a $20.6 million Redland letter of credit to the California Department of Insurance related to bond requirements resulting from the Company’s workers’ compensation business written on Redland paper (“Bond Requirements”).

In March 2003, the Company and Clarendon agreed to a Master Collateral Agreement (“MCA”) which supercedes previous agreements with respect to the minimum pledged assets to be included in the trust, the methodology for releasing these pledged assets from the trust and use of the trust account for collateral for the issuance of letter of credits to the California Department of Insurance. Additionally, the Company has agreed to take whatever action may be reasonably necessary to permit Clarendon, in accordance with the MCA, to increase the Redland letter of credit amount by approximately $29 million.

In general, the minimum amount to be included in the trust account is based upon the greater of 1) certain percentages of loss and loss adjustment expense reserves assumed by the Company from Clarendon and Redland and reinsurance recoverables from Clarendon Reinsurers for which the Company is contingently liable or 2) 70% of the Bond Requirements.

As of July 1, 2001, the Company sold two wholly owned insurance companies to McM Corporation, a Raleigh, North Carolina based insurance holding company (“McM”). The two companies, Acceptance Indemnity Insurance Company (“AIIC”) and Acceptance Casualty Insurance Company (“ACIC”), underwrote primarily Property and Casualty Segment insurance. The Company reinsures certain portions of the business written by AIIC and ACIC. As of September 30, 2003 approximately $10.6 million of fixed maturities available-for-sale and $1.4 million of cash equivalents were placed in a trust and pledged to McM to secure the Company’s net obligations under the reinsurance agreements. Under these reinsurance agreements, the Company assumes business from AIIC and ACIC after cessions to outside reinsurers (“AIIC Reinsurers”). The Company is contingently liable for any uncollectible amounts due from AIIC Reinsurers related to this business. At September 30, 2003, AIIC and ACIC reinsurance recoverables from AIIC Reinsurers, which are not included on the consolidated balance sheets of the Company, totaled approximately $37 million.

16.

DISCONTINUED OPERATIONS – ACQUISITION OF IGF CROP INSURANCE ASSETS

On June 6, 2001 the Company completed the acquisition of substantially all crop insurance assets and the assumption of certain crop insurance and reinsurance liabilities of Symons International Group, Inc. and affiliates including IGF Insurance Company (collectively referred to as “IGF”). The Company paid approximately $27.4 million at closing and agreed to make deferred payments of up to an additional $9.0 million, which included amounts for non-competition agreements, prospective reinsurance agreements, and property and equipment. Additionally, the Company reimbursed IGF for certain costs related to the 2001 crop season. The Company funded the acquisition with internally generated resources, including proceeds from the sale of certain property and casualty assets. During 2000, IGF’s gross crop insurance premiums, including MPCI subsidies, totaled approximately $241 million and the Company’s gross crop insurance premiums for the same period totaled approximately $434 million.

The acquisition was accounted for by the purchase method of accounting and, accordingly, the consolidated statements of operations include the acquired crop results beginning June 6, 2001. The assets acquired and recognition of liabilities directly related to the acquisition of $34.2 million and $6.8 million, respectively, were recorded at estimated fair values as determined by the Company’s management. The Company’s purchase price allocation included $18.3 million of goodwill and $10.1 million of intangible assets. The assets acquired and recognition of liabilities directly related to the acquisition and the allocation of the purchase price was revised in the second quarter of 2002 based upon final determination of fair values. During the third and fourth quarters of 2002, it was determined that the intangible asset related to non-competition agreements and goodwill were impaired and these assets were written down to zero.

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

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

Forward-Looking Information

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

A variety of events, most of which are outside the control of the Company, cannot be accurately predicted and may materially impact estimates of future operations. Important among such factors are changes in state and federal regulations, decisions by regulators including any increased regulatory control over Acceptance Insurance Company, changes in the reinsurance market, including the ability and willingness of reinsurers to pay claims, financial market performance, changes in federal policies or court decisions affecting coverages, changes in the rate of inflation, interest rates and general economic conditions.

The only remaining consolidated insurance subsidiary of Acceptance Insurance Companies Inc. (“AICI”) at September 30, 2003, Acceptance Insurance Company (“AIC”), is regulated by the Nebraska Department of Insurance (“NEDOI”). AIC is currently under supervision by the NEDOI. The Director currently has the authority to increase regulatory control of AIC by requesting an appropriate court to enter an Order of Rehabilitation or an Order of Liquidation, with or without a change in the financial condition of AIC. The Company believes that an Order of Rehabilitation would have a significant negative impact on the Company and that an Order of Liquidation would have a material adverse effect on the Company.

as to what actions, if any, the NEDOI will take in connection with the NEDOI Actuary Report and the results of the review currently being performed by the Actuarial Firm. If the NEDOI does take action there can be no assurance as to when it may do so or how long it may take to complete any such action; however, the Company believes that if the NEDOI takes any action, it would initiate such action during the fourth quarter of 2003 or first quarter of 2004.

As disclosed in the Company’s Form 10-K for the year ended December 31, 2002 under Part I, Item 1. Business, Loss and Loss Adjustment Expense Reserves, in monitoring reserve adequacy the Company reviews historical data and other data and, as additional experience and data become available, revises estimates of reserves. The liability estimate established represents management’s best estimate based on currently available evidence, including an analysis prepared by an independent actuary engaged by the Company. Even with such extensive analyses, however, the Company believes its ultimate liability may vary significantly from such estimates. The Company annually obtains an independent review of its loss reserving process and reserve estimates by a professional actuary, PricewaterhouseCoopers LLP, who is independent of the Company and its auditors. This independent review was obtained as of December 31, 2002.

Additionally, there is significant uncertainty as to whether AIC will be able to meet its future cash flow needs. A major portion of AIC’s investments are pledged to states and to acquirers of former Company affiliates and AIC’s ability to meet its cash flow needs will be highly dependent upon AIC’s ability to get significant amounts of pledged funds released. Additionally, AIC’s cash flows are significantly impacted by any changes in the expected payout of insurance losses and loss adjustment expenses. AIC’s ability to meet its cash flow needs is also dependent upon the timely recovery of reinsurance balances, including the favorable resolution of balances currently in dispute. While based upon current estimates AIC would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist.

There is also significant uncertainty as to whether AICI will be able to meet its cash flow needs. AICI has deferred interest payments on its Junior Subordinated Debentures, which in turn deferred the interest on the Trust Preferred Securities issued by AICI Capital Trust, as permitted by the trust agreement and indenture, and has disputed or denied payments of certain other liabilities and commitments. While based upon current estimates AICI would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist. If the NEDOI obtains an Order of Rehabilitation or Order of Liquidation with respect to AIC, the Company believes that AICI may not be able to meet its cash flow needs.

Forward-looking information set forth herein does not take into account any impact from the various factors noted above which may affect future results.

Results of Operations

Three and Nine Months Ended September 30, 2003

Compared to Three and Nine Months Ended September 30, 2002

The Company’s net loss decreased to $2.9 million, or $0.21 per share, and $17.6 million, or $1.24 per share, for the three and nine months ended September 30, 2003, respectively, from $131.0 million, or $9.23 per share, and $140.5 million, or $9.78 per share, for the three and nine months ended September 30, 2002, respectively. Loss before income taxes and discontinued operations were approximately $2.6 million and $2.3 million for the three months ended September 30, 2003 and 2002, respectively. Loss before income taxes and discontinued operations were approximately $7.4 million and $7.0 million for the nine months ended September 30, 2003 and 2002, respectively.

During the first quarter of 2003, the Company sold its office building and certain contents in Council Bluffs, Iowa. The proceeds included approximately $204,000 of cash and a note receivable with a fair value of approximately $1.3 million and the sale resulted in a gain of approximately $334,000.

During the three and nine months ended September 30, 2002 the income tax expense from continuing operations was approximately $7.6 million and $6.0 million, respectively. During the three months ended September 30, 2002, the Company’s ability to generate sufficient taxable income in future periods was significantly impacted by results in its Agricultural Segment. Management concluded it is unlikely that the deferred tax asset will be realized and recorded a valuation allowance impacting continuing operations tax expense by $8.5 million for the three and nine months ended September 30, 2002. During the three and nine months ended September 30, 2003 there was no income tax benefit or expense as the change in valuation allowance offset the deferred tax benefit.

The loss from discontinued operations, net of tax, decreased to approximately $394,000 and $10.2 million during the three and nine months ended September 30, 2003 from $121.0 million and $127.5 million for the three and nine months ended September 30, 2002, respectively. Included in the discontinued operations was the underwriting loss for the Property and Casualty Segment of $1.0 million and $6.1 million for the three months ended September 30, 2003 and 2002, respectively, and $12.8 million and $14.4 million for the nine months ended September 30, 2003 and 2002, respectively. The underwriting loss for the Agricultural Segment was zero and $62.2 million for the three months ended September 30, 2003 and 2002, respectively, and zero and $66.4 million for the nine months ended September 30, 2003 and 2002, respectively. The Company was not impacted in the first three quarters of 2003 and does not expect to be materially impacted by the discontinued operations of the Agricultural Segment in the future.

During the past several years, the Company discontinued or sold all remaining Property and Casualty Segment business. In March 2001, the Company sold a significant portion of its property and casualty business to Insurance Corporation of Hannover and in May 2001, the Company sold several of the remaining lines of business to McM Corporation and to American Reliable Insurance Company (See “Sale of Subsidiaries and Property and Casualty Segment Business and Related Guarantees”). Accordingly, the net premiums earned in the Property and Casualty Segment decreased from approximately $7.7 million for the nine months ended September 30, 2002 to $504,000 for the nine months ended September 30, 2003.

The Company’s Property and Casualty Segment underwriting loss for the nine months ended September 30, 2003 included a reserve strengthening of approximately $8.1 million, primarily as a result of higher than expected loss adjustment expenses for general liability claims and higher than expected losses for workers’ compensation claims.

The Company’s Property and Casualty Segment underwriting results for the three months and nine months ended September 30, 2002 included a reserve increase of approximately $5.4 million and $12.2

million, respectively. The reserve development for the three months and nine months ended September 30, 2002 was comprised of approximately $5.3 million and $12.4 million, respectively, of negative reserve development attributable to the general liability and commercial multi-peril lines of business primarily in recent accident years. The nine months ended September 30, 2002 results included a net positive reserve development of approximately $800,000 in other lines of business partially offset by $650,000 of uncollectible reinsurance recoveries.

While the Company has discontinued its Property and Casualty Segment business, its operating results may continue to be significantly impacted by the Property and Casualty Segment. Significant factors that may impact future results include the adequacy of the Company’s estimate of loss and loss adjustment expense reserves, the recoverability of the Company’s reinsurance recoverables and the recoverability of certain reinsurance recoverables of previously owned subsidiaries for which the Company is contingently liable, and the ability to meet the cash flow needs of AIC. See “Sale of Subsidiaries and Property and Casualty Segment Business and Related Guarantees” and “Liquidity and Capital Resources.”

The underwriting loss from the Company’s Agricultural Segment was approximately $62.2 million and $66.4 million for the three months and nine months ended September 30, 2002, respectively. Within the Agricultural Segment, Multi-Peril Crop Insurance (“MPCI”) underwriting results accounted for $60.9 million and $64.9 million of the underwriting loss for the three and nine months ended September 30, 2002, respectively.

The Company historically has recorded its initial estimate of profit or loss for MPCI and related products in the fourth quarter. Due to the significance of known and estimatible losses for the 2002 crop year, the Company recorded its initial estimate of loss for MPCI and related products in the third quarter of 2002. The Company recorded a zero percentage profit share on a retained pool of approximately $415.3 million and recognized MPCI reinsurance costs and underwriting expenses through September 30, 2002 of approximately $60.7 million. Additionally, the Company expensed its estimated future obligations under a multi-year reinsurance agreement totaling $21.4 million and impaired the remaining non-competition intangible assets totaling approximately $5.7 million. These items were expensed in the third quarter due to the uncertainty of the Company’s ability to operate in the agricultural segment in the future and, therefore, its inability to realize the benefits from these contracts.

During the nine months ended September 30, 2002 the estimated profit share for the 2001 crop year was reestimated at $81.1 million on a MPCI retained pool of $498.3 million, or 16.3%. The first quarter 2002 results included $5.4 million of the decrease in estimated profit share. This reduction in estimated profit share for the nine months ended September 30, 2002 was partially offset by a related reduction in private MPCI reinsurance costs totaling approximately $1.8 million.

During the nine months ended September 30, 2003 the Company impaired approximately $300,000 of property and equipment related to the write-off of crop related property and equipment assets net of expected proceeds. These items were assets of Acceptance Insurance Company (“AIC”) but were not being utilized by any operations of the companies in the consolidated group.

The Company’s net investment income related to discontinued operations declined from approximately $1.6 million and $5.1 million for the three and nine months ended September 30, 2002, respectively, to approximately $696,000 and $2.5 million for the three and nine months ended September 30, 2003, respectively. This decrease in investment income was primarily a result of the continuing decline in the size of the investment portfolio.

During the three and nine months ended September 30, 2002 the income tax expense from discontinued operations was approximately $27.2 million and $23.9 million, respectively. The income tax expense for the three and nine months ended September 30, 2002 included a change in valuation allowance totaling $60.0 million for the three and nine months ended September 30, 2002. During the three and nine months ended September 30, 2003 there was no income tax benefit or expense from discontinued operations as the change in valuation allowance offset the deferred tax benefit.

On September 29, 2003 the Company elected to terminate its lease of office property in Council Bluffs, Iowa effective March 31, 2004 and pay its portion of the termination fee. The Company and American Growers Insurance Company had previously agreed to share the cost of the lease expense through March 31, 2004 and any termination fee. The Company intends to negotiate a new lease effective April 1, 2004 with the landlord for a smaller portion of space at an overall reduced cost.

Liquidity and Capital Resources

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

The Company - Parent Only

As an insurance holding company, the AICI’s assets consist primarily of the equity interest in AIC, a surplus note issued by AIC and investments held at the holding company level. The Company’s liquidity needs are primarily to service debt and pay operating expenses.

At September 30, 2003 the Company has $930,000 in cash and cash equivalents and $1.5 million of restricted cash and cash equivalents. The Company also holds a surplus note for $20 million issued by AIC, bearing interest at the rate of 9% per annum payable quarterly. The Company does not expect to have access to any surplus note interest payments or dividend payments from AIC as these payments would require NEDOI approval as AIC is currently under the supervision of the NEDOI.

Distributions on the Preferred Securities and Junior Subordinated Debentures are cumulative, accrue from the date of issuance and are payable quarterly in arrears. The Junior Subordinated Debentures are subordinate and junior in right of payment to all senior indebtedness of the Company and are subject to certain events of default, all as described in the Junior Debenture Indenture. At September 30, 2003 and December 31, 2002 the Company had Preferred Securities of $94.875 million outstanding at a weighted average interest cost of 9.2%.

There is significant uncertainty as to whether the Company will be able to meet its cash flow needs. As noted above, the Company has deferred interest payments on its Trust Preferred Securities and

additionally, the Company has disputed or denied payment of certain other liabilities and commitments. While based upon current estimates AICI would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist. If the NEDOI obtains an Order of Rehabilitation or Order of Liquidation with respect to AIC, the Company believes that AICI may not be able to meet its cash flow needs.

Acceptance Insurance Company

The Company’s only remaining consolidated insurance subsidiary at September 30, 2003 is AIC. The principal liquidity needs of AIC are to fund losses and loss adjustment expense payments and operating expenses related to the run-off of its operations. The available sources to fund these requirements are cash flows from the Company’s investment activities.

The Company’s investment portfolio is primarily comprised of fixed maturities and cash equivalents. At September 30, 2003, approximately $58.7 million of fixed maturity securities and cash equivalents were placed in a trust and pledged in order to secure the Company’s obligations under reinsurance agreements. The agreements provide for the release of the pledged securities as the obligations under the reinsurance agreements decrease. However, if the Company is unsuccessful in obtaining the release of pledged securities, the Company’s liquidity would suffer a significant negative impact. See “Sale of Subsidiaries and Property and Casualty Segment Business and Related Guarantees” for additional information. Additionally, as required by insurance regulatory laws, certain fixed maturity securities with an estimated fair value of approximately $7.3 million at September 30, 2003 were deposited in trust with regulatory agencies.

There is significant uncertainty as to whether AIC will be able to meet its future cash flow needs. As noted above, a major portion of AIC’s investments are pledged and AIC’s ability to meet its cash flow needs will be highly dependent upon AIC’s ability to get significant amounts of pledged funds released. Additionally, AIC’s cash flows are significantly impacted by any changes in the expected payout of insurance losses and loss adjustment expenses. AIC’s ability to meet its cash flow needs is also dependent upon the timely recovery of reinsurance balances, including the favorable resolution of balances currently in dispute. While based upon current estimates AIC would likely have the ability to meet its cash flow needs through September 30, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC, there can be no assurances considering the significant uncertainties that exist.

Changes in Financial Condition

The Company’s stockholders’ deficit increased by approximately $17.9 million from December 31, 2002 to September 30, 2003. The principal component of this increase was a net loss of $17.6 million for the nine months ended September 30, 2003.

Consolidated Cash Flows

Cash used by operating activities was approximately $863,000 and $6.7 million during the nine months ended September 30, 2003 and 2002, respectively. The Company expects negative cash flows from operating activities as the Company runs off its operations. See “The Parent – Company Only” and “Acceptance Insurance Company” regarding uncertainties of the Company to meet its ongoing cash flow needs.

Sale of Subsidiaries and Property and Casualty Segment Business and Related Guarantees

The Company sold its wholly owned insurance subsidiary, Redland Insurance Company (“Redland”), to Clarendon National Insurance Company (“Clarendon”) effective as of July 1, 2000. The sale was a cash transaction of approximately $10.9 million based upon the market value of Redland after the divestiture of various assets, including the Redland subsidiaries, to a wholly owned subsidiary of AICI. The transaction included the appointment of other Company subsidiaries as a producer and administrator for the business the Company wrote through Clarendon and Redland. The Company also reinsures certain portions of the business written by Clarendon and Redland. At September 30, 2003, approximately $30.6 million of fixed maturities available-for-sale and $16.2 million of cash equivalents were placed in a trust and pledged to Clarendon to secure the Company’s obligations under reinsurance agreements. Under these reinsurance agreements, the Company assumes business from Clarendon and Redland after cessions to outside reinsurers (“Clarendon Reinsurers”). The Company is contingently liable for any uncollectible amounts due from Clarendon Reinsurers related to this business. At September 30, 2003, Clarendon and Redland reinsurance recoverables from Clarendon Reinsurers, which are not included on the consolidated balance sheet of the Company, totaled approximately $87 million.

In March 2003, the Company and Clarendon agreed to a Master Collateral Agreement (“MCA”) which supercedes previous agreements with respect to the minimum pledged assets to be included in the trust, the methodology for releasing these pledged assets from the trust and use of the trust account for collateral for the issuance of letters of credit to the California Department of Insurance. Additionally, the Company has agreed to take whatever action may be reasonably necessary to permit Clarendon, in accordance with the MCA, to increase the Redland letter of credit amount by approximately $29 million.

As of July 1, 2001, the Company sold two wholly owned insurance companies to McM Corporation (“McM”), a Raleigh, North Carolina based insurance holding company. The two companies, Acceptance Indemnity Insurance Company (“AIIC”) and Acceptance Casualty Insurance Company (“ACIC”), underwrote primarily Property and Casualty Segment insurance. The Company reinsures certain portions of the business written by AIIC and ACIC. As of September 30, 2003 approximately $10.6 million of fixed maturities available-for-sale and $1.4 million of cash equivalents were placed in a trust and pledged to McM to secure the Company’s net obligations under the reinsurance agreements. Under these reinsurance agreements, the Company assumes business from AIIC and ACIC after cessions to outside reinsurers (“AIIC Reinsurers”). The Company is contingently liable for any uncollectible amounts due from AIIC Reinsurers related to this business. At September 30, 2003, AIIC and ACIC reinsurance recoverables from AIIC Reinsurers, which are not included on the consolidated balance sheet of the Company, totaled approximately $37 million.

Acquisition of IGF Crop Insurance Assets

agreements, and property and equipment. Additionally, the Company reimbursed IGF for certain costs related to the 2001 crop season. The Company funded the acquisition with internally generated resources, including proceeds from the sale of certain property and casualty assets. During 2000, IGF’s gross crop insurance premiums, including MPCI subsidies, totaled approximately $241 million and the Company’s gross crop insurance premiums for the same period totaled approximately $434 million.

The acquisition was accounted for by the purchase method of accounting and, accordingly, the statements of operations include the acquired crop results beginning June 6, 2001. The assets acquired and recognition of liabilities directly related to the acquisition of $34.2 million and $6.8 million, respectively, were recorded at estimated fair values as determined by the Company’s management. The Company’s purchase price allocation included $18.3 million of goodwill and $10.1 million of intangible assets. The assets acquired and recognition of liabilities directly related to the acquisition and the allocation of the purchase price was revised in the second quarter of 2002 based upon final determination of fair values. During 2002, it was determined that the intangible asset related to non-competition agreements and goodwill were impaired and these assets were written down to zero.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company’s consolidated balance sheets include a significant amount of assets and liabilities whose fair value are subject to market risk. Market risk is the risk of loss arising from adverse changes in market interest rates or prices. The Company currently has interest rate risk as it relates to its fixed maturity securities and equity price risk as it relates to its marketable equity securities. The Company’s market risk sensitive instruments are entered into for purposes other than trading.

At September 30, 2003 and December 31, 2002 the Company had $64.3 million and $114.7 million, respectively, of fixed maturity investments that were subject to market risk. At September 30, 2003 and December 31, 2002 the Company had $1.1 million and $7.3 million, respectively, of marketable equity securities that were subject to market risk. The Company’s investment strategy is to manage the duration of the portfolio relative to the duration of the liabilities while managing interest rate risk.

The Company uses two models to analyze the sensitivity of its market risk assets. For its fixed maturity securities, the Company uses duration modeling to calculate changes in fair value. For its marketable equity securities, the Company uses a hypothetical 20% decrease in the fair value of these securities. Actual results may differ from the hypothetical results assumed in this disclosure due to possible actions taken by management to mitigate adverse changes in fair value and because fair values of securities may be affected by credit concerns of the issuer, prepayment speeds, liquidity of the security and other general market conditions. The sensitivity analysis duration model used by the Company produces a loss in fair value of $508,000 and $1.6 million on its fixed maturity securities as of September 30, 2003 and December 31, 2002, respectively, based on a 100 basis point increase in interest rates. The hypothetical 20% decrease in fair value of the Company’s marketable equity securities produces a loss in fair value of $222,000 and $1.5 million as of September 30, 2003 and December 31, 2002, respectively.

Item 4. Controls and Procedures

Based on their evaluation, the Company’s President and Chief Executive Officer (the “CEO”) and the Chief Financial Officer and Treasurer (the “CFO”) have concluded the Company’s disclosure controls and procedures are effective. During 2002 the Company downsized its internal audit department. In 2003 the Company eliminated its internal audit department. The Company did, however, establish a “Financial Disclosure and Internal Control Procedures” committee during 2003. There have been no significant changes in the Company’s internal controls or in other factors, including the elimination of the internal audit department, that could significantly affect these controls subsequent to the date of the evaluation.

CEO and CFO Certifications

Appearing as Exhibits 31.1 and 31.2 are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading, is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Acceptance Insurance Companies Securities Litigation (USDC, Nebraska, Master File No. 8:99CV547). In December 1999 the Company was sued in the United States District Court for the District of Nebraska. Plaintiffs alleged the Company knowingly and intentionally understated the Company’s liabilities in order to maintain the market price of the Company’s common stock at artificially high levels and made untrue statements of material fact, and sought compensatory damages, interest, costs and attorney fees. In February 2000 other plaintiffs sued the Company in the same Court, alleging the Company intentionally understated liabilities in a registration statement filed in conjunction with the Company’s Trust Preferred Securities.

On August 6, 2001, the Magistrate Judge granted Plaintiffs’ Motion for Class Certification. Plaintiffs’ fact discovery was concluded July 31, 2002 in accordance with a schedule established by the Court. On September 16, 2002 Plaintiffs sought the Court’s permission to reinstate certain previously dismissed claims under Section 11 and 15 of the Securities Act. The Court denied Plaintiffs’ request in its entirety on February 27, 2003; Plaintiffs asked the Court to reconsider this decision and the Court has not ruled on that request. On March 31, 2003, however, the Court established a schedule for the submission during May 2003 of briefs regarding the Company’s proposed motion to decertify the class. The Court also established a schedule concluding in August 2003 for submission of briefs regarding both parties’ anticipated motions for summary judgment. The Company has filed a motion to decertify the class and a motion for summary judgment. No hearings have been scheduled with respect to either motion.

Reinsurance Arbitration. In September 2001 the Company initiated an arbitration proceeding to recover from a pool of solvent reinsurers sums the Company believes are due under a workers’ compensation

insurance program of the Company principally written on Redland. The Company is contingently liable to Redland for amounts due from these reinsurers. At December 31, 2002 the Company was contingently liable for approximately $20.4 million due from these reinsurers and approximately $5.1 million conditionally paid by the reinsurers but was still subject to the outcome of the arbitration. On May 31, 2003, the arbitration panel found that there was no reason to relieve the reinsurers of their obligations under the reinsurance contracts, made final the previous $5.1 million conditional payment from the reinsurers, ordered and awarded the payments of reinsurance recoverables, plus interest, to Redland and AIC sought by AIC, subject to potential adjustments that may be made to amounts withheld and escrowed until any such adjustments are made. The award of the arbitration panel did not have a significant impact on the Company’s net loss for the nine months ended September 30, 2003.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

See Exhibit Index.

(b)

Form 8-K

No Form 8-K have been filed during the last fiscal quarter of the period covered by this Report

SIGNATURES

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

ACCEPTANCE INSURANCE COMPANIES INC.

By	/s/ John E. Martin	Dated:	November 11, 2003
	John E. Martin
	President and Chief Executive Officer

By	/s/ Gary N. Thompson	Dated:	November 11, 2003
	Gary N. Thompson
	Chief Financial Officer and Treasurer

ACCEPTANCE INSURANCE COMPANIES INC.

QUARTERLY REPORT ON FORM 10-Q

NINE MONTHS ENDED SEPTEMBER 30, 2003

EXHIBIT INDEX

NUMBER		EXHIBIT DESCRIPTION

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-31.1 3 dex311.htm CERTIFICATION OF CEO Certification of CEO

EXHIBIT 31.1

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

I, John E. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Acceptance Insurance Companies Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 11, 2003

/s/ John E. Martin

John E. Martin

President and Chief Executive Officer

EX-31.2 4 dex312.htm CERTIFICATION OF CFO Certification of CFO

EXHIBIT 31.2

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

I, Gary N. Thompson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Acceptance Insurance Companies Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 11, 2003

/s/ Gary N. Thompson

Gary N. Thompson

Chief Financial Officer and Treasurer

EX-32.1 5 dex321.htm CERTIFICATION PURSUANT TO 18 U.S.C. Certification Pursuant to 18 U.S.C.

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”) of Acceptance Insurance Companies Inc. (the “Company”) for the nine months ended September 30, 2003, I, John E. Martin, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John E. Martin

John E. Martin

Title: President and Chief Executive Officer

Acceptance Insurance Companies Inc.

Date: November 11, 2003

EX-32.2 6 dex322.htm CERTIFICATION PURSUANT TO 18 U.S.C. Certification Pursuant to 18 U.S.C.

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”) of Acceptance Insurance Companies Inc. (the “Company”) for the nine months ended September 30, 2003, I, Gary N. Thompson, Chief Financial Officer and Treasurer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gary N. Thompson

Gary N. Thompson

Title: Chief Financial Officer and Treasurer

Acceptance Insurance Companies Inc.

Date: November 11, 2003

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