SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7461
ACCEPTANCE INSURANCE COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 31-0742926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 South 15th St., Suite 600 N.
Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 344-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
The number of shares of each class of the Registrant's common stock outstanding
on August 12, 1999 was:
Class of Common Stock No. of Shares Outstanding
Common Stock, $.40 Par Value 14,252,582
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1999 1998
___________ ___________
(unaudited) (audited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale..................................... $ 346,043 $ 337,107
Marketable equity securities - preferred stock.......................... 20,676 27,316
Marketable equity securities - common stock........................... 45,414 44,371
Mortgage loans and other investments.................................... 9,228 9,549
Real estate............................................................. 3,294 3,300
Short-term investments, at cost, which approximates
market................................................................ 44,841 67,754
___________ ___________
469,496 489,397
Cash....................................................................... 546 6,897
Receivables, net........................................................... 166,339 185,951
Reinsurance recoverable on unpaid losses and loss
adjustment expenses...................................................... 298,299 238,769
Prepaid reinsurance premiums............................................... 70,578 76,663
Property and equipment, net................................................ 18,732 16,425
Deferred policy acquisition costs.......................................... 24,539 25,433
Excess of cost over acquired net assets.................................... 32,806 33,363
Deferred income tax........................................................ 5,708 6,901
Other assets............................................................... 22,384 13,144
___________ __________
Total assets............................................................ $1,109,427 $1,092,943
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses........................................ $ 559,135 $ 524,744
Unearned premiums.......................................................... 152,415 162,037
Amounts payable to reinsurers.............................................. 50,268 35,840
Accounts payable and accrued liabilities................................... 15,594 24,293
Bank borrowings............................................................ -- 15,000
Company - obligated manditorily redeemable Preferred Securities of
AICI Capital Trust, holding solely Junior Subordinated Debentures
of the Company.......................................................... 94,875 94,875
___________ ___________
Total liabilities....................................................... 872,287 856,789
Contingencies.............................................................. -- --
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, none issued............................................... -- --
Common stock, $.40 par value, 40,000,000
shares authorized, 15,480,851 and 15,466,860
shares issued......................................................... 6,192 6,187
Capital in excess of par value.......................................... 198,844 198,657
Accumulated other comprehensive
income (loss), net of tax .......................................... (826) 5,305
Retained earnings....................................................... 59,206 52,281
___________ ___________
263,416 262,430
Less:
Treasury stock, at cost, 1,209,520 shares.................................. (26,047) (26,047)
Contingent stock, 20,396 shares............................................ (229) (229)
___________ ___________
Total stockholders' equity.............................................. 237,140 236,154
___________ __________
Total liabilities and stockholders' equity.............................. $1,109,427 $1,092,943
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
interim consolidated financial statements.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months and six months ended June 30, 1999 and 1998
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
____________________________ _____________________________
1999 1998 1999 1998
________ _________ ________ _________
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned............................... $ 58,001 $ 72,084 $111,572 $141,087
Net investment income................................... 6,394 7,212 12,638 14,132
Net realized capital gains.............................. 2,862 2,642 5,342 5,483
_________ __________ _________ _________
67,257 81,938 129,552 160,702
_________ __________ _________
Costs and expenses:
Costs of revenues:
Insurance losses and loss adjustment expenses......... 41,955 51,482 78,831 97,783
Insurance underwriting expenses....................... 17,089 21,665 35,257 42,865
General and administrative expenses.................. 637 562 1,190 1,218
_________ __________ _________ _________
59,681 73,709 115,278 141,866
_________ __________ _________ _________
Operating profit........................................... 7,576 8,229 14,274 18,836
_________ __________ _________ _________
Other income (expense):
Interest expense........................................ (2,270) (2,165) (4,660) (4,330)
Share of net loss of investee........................... -- -- -- (704)
Other, net.............................................. 7 (91) 21 (57)
_________ __________ _________ _________
(2,263) (2,256) (4,639) (5,091)
_________ __________ _________ __________
Income before income taxes and cumulative effect
of change in accounting principles .................... 5,313 5,973 9,635 13,745
Income tax expense (benefit):
Current............................................... 262 (8,423) (2,305) (7,014)
Deferred.............................................. 1,150 9,994 4,677 10,199
_________ _________ _________ __________
Income before cumulative effect of change in
accounting principles.................................... 3,901 4,402 7,263 10,560
Cumulative effect of change in accounting principles....... -- -- 338 --
__________ ________ _________ ____________
Net income................................................. $ 3,901 $ 4,402 $ 6,925 $ 10,560
========== ======== ========= ============
Earnings (loss) per share:
Basic:
Income before cumulative effect of change in
accounting principles............................... $ .27 $ .29 $ .51 $ .69
Cumulative effect of change in accounting principles. -- -- (.02) --
Net income........................................... .27 .29 .49 .69
Diluted:
Income before cumulative effect of change in
accounting principles............................... $ .27 $ .29 $ .51 $ .68
Cumulative effect of change in accounting principles.. -- -- (.02) --
Net income............................................ .27 .29 .48 .68
</TABLE>
The accompanying notes are an integral part of the
interim consolidated financial statements.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
____________ __________
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 6,925 $ 10,560
Net adjustment to reconcile net income to net cash from
operating activities............................................................ (9,828) 50,891
_____________ __________
Net cash from operating activities............................................ (2,903) 61,451
_____________ __________
Cash flows from investing activities:
Proceeds from sales of investments available-for-sale............................. 89,930 75,287
Proceeds from maturities of investments .......................................... 6,890 1,970
Proceeds from maturities of investments available-for-sale........................ 31,575 43,388
Purchases of investments.......................................................... (25,701) (1,666)
Purchases of investments available-for-sale....................................... (129,155) (161,123)
Purchases of property and equipment............................................... (4,472) (2,177)
_____________ __________
Net cash used for investing activities....................................... (30,933) (44,321)
_____________ __________
Cash flows from financing activities:
Repayment of bank borrowings.................................................... (15,000) --
Proceeds from issuance of common stock.......................................... 192 404
_____________ __________
Net cash from financing activities ....................................... (14,808) 404
_____________ __________
Net increase (decrease) in cash and short-term investments........................... (48,644) 17,534
Cash and short-term investments at beginning of period............................... 72,822 38,316
_____________ ___________
Cash and short-term investments at end of period..................................... $ 24,178 $ 55,850
============= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.......................................... $ 4,733 $ 4,269
============ ==========
Cash paid during the period for income taxes...................................... $ -- $ 97
============ ==========
</TABLE>
The accompanying notes are an integral part of the
interim consolidated financial statements.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
Principles of Consolidation
The Company's consolidated financial statements include the accounts of
Acceptance Insurance Companies Inc. and its majority owned subsidiaries (the
"Company"). All significant intercompany transactions have been eliminated.
Management's Opinion
The accompanying consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments except as otherwise
disclosed, which in the opinion of management are considered necessary to
fairly present the Company's financial position as of June 30, 1999 and
December 31, 1998, and the results of operations for the three months and
six months ended June 30, 1999 and 1998 and cash flows for the six months
ended June 30, 1999 and 1998.
Statements of Cash Flows
The Company aggregates cash and short-term investments with maturity dates
of three months or less from the date of purchase for purposes of reporting
cash flows. As of June 30, 1999 approximately $21,209,000 of short-term
investments had a maturity date at acquisition of greater than three months.
Recent Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Management does not expect the
adoption of SFAS No. 133 to have a material impact to the Company's
consolidated financial statements.
Change in Accounting Principles
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AcSEC) issued Statement
of Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments through
premium tax offsets. The Company adopted SOP 97-3 on January 1, 1999
resulting in a cumulative effect of change in accounting principles of
$338,000.
Reclassifications
Certain prior period amounts have been reclassified to conform with current
year presentation.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
2. Investments:
The amortized cost and related estimated fair values of debt and equity
securities in the accompanying balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
___________ ___________ __________ __________
<S> <C> <C> <C> <C>
June 30, 1999:
Fixed maturities available-for- sale:
U.S. Treasury and government
securities............................. $ 119,957 $ 263 $ 1,862 $ 118,358
States, municipalities and political
subdivisions........................... 164,083 1,872 2,433 163,522
Mortgage-backed securities............... 26,878 19 986 25,911
Other debt securities.................... 42,344 245 4,337 38,252
___________ ___________ ___________ __________
$ 353,262 $ 2,399 $ 9,618 $ 346,043
=========== =========== =========== ==========
Marketable equity securities -
preferred stock........................ $ 20,832 $ 463 $ 619 $ 20,676
=========== =========== =========== ==========
Marketable equity securities -
common stock........................... $ 39,311 $ 10,393 $ 4,290 $ 45,414
=========== =========== =========== ==========
December 31, 1998:
Fixed maturities available-for-sale:
U.S. Treasury and government
securities............................. $ 77,671 $ 1,228 $ 114 $ 78,785
States, municipalities and political
subdivisions........................... 161,017 6,278 93 167,202
Mortgage-backed securities............... 38,475 42 590 37,927
Other debt securities.................... 56,786 1,795 5,388 53,193
___________ ___________ ___________ ___________
$ 333,949 $ 9,343 $ 6,185 $ 337,107
=========== =========== ============ ===========
Marketable equity securities -
preferred stock........................ $ 27,246 $ 494 $ 424 $ 27,316
=========== =========== ============ ===========
Marketable equity securities -
common stock........................... $ 39,438 $ 9,718 $ 4,785 $ 44,371
=========== =========== ============ ===========
</TABLE>
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
3. Insurance Premiums and Claims:
Insurance premiums written and earned by the Company's insurance
subsidiaries for the three months and six months ended June 30, 1999
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
___________________________ ___________________________
1999 1998 1999 1998
__________ _________ __________ __________
<S> <C> <C> <C> <C>
Direct premiums written.......................... $ 158,877 $157,057 $ 280,524 $ 285,385
Assumed premiums written......................... 7,990 11,025 12,457 20,057
Ceded premiums written........................... (109,886) (99,781) (184,948) (161,549)
__________ _________ ___________ __________
Net premiums written........................ $ 56,981 $ 68,301 $ 108,033 $ 143,893
========== ========= =========== ==========
Direct premiums earned........................... $ 159,093 $154,798 $ 285,892 $ 276,469
Assumed premiums earned.......................... 10,215 8,311 16,712 17,955
Ceded premiums earned............................ (111,307) (91,025) (191,032) (153,337)
__________ _________ ___________ __________
Net premiums earned......................... $ 58,001 $ 72,084 $ 111,572 $ 141,087
========== ========= =========== ==========
</TABLE>
Insurance loss and loss adjustment expenses have been reduced by
recoveries recognized under reinsurance contracts of approximately
$127,631,000 and $127,291,000 for the three months ended June 30, 1999
and 1998, respectively. Insurance loss and loss adjustment expenses
have been reduced by recoveries recognized under reinsurance contracts
of approximately $190,144,000 and $150,708,000 for the six months
ended June 30, 1999 and 1998, respectively.
4. Bank Borrowings:
The Company's $65 million Revolving Credit Facility with its bank
lenders is subject to automatic reductions on a quarterly basis
beginning March 31, 1999. At June 30, 1999 the Revolving Credit
Facility was reduced to $62.0 million. The Company selects its
interest rate as either the prime rate or LIBOR plus a margin of .50%
to 1.25% depending on the Company's debt to equity ratio. Interest is
payable quarterly. At June 30, 1999, the Company had no outstanding
indebtedness under this arrangement.
5. Company-obligated mandatorily redeemable Preferred Securities of AICI
Capital Trust, holding solely Junior Subordinated Debentures of the
Company:
In 1997, AICI Capital Trust, a Delaware business trust organized by
the Company (the "Issuer Trust") issued 3.795 million shares or
$94.875 million aggregate liquidation amount of its 9% Preferred
Securities (liquidation amount $25 per Preferred Security). The
Company owns all of the common securities (the "Common Securities") of
the Issuer Trust. The Preferred Securities represent preferred
undivided beneficial interests in the Issuer Trust's assets. The
assets of the Issuer Trust consist solely of the Company's 9% Junior
Subordinated Debentures due 2027 which were issued in 1997 in an
amount equal to the total of the Preferred Securities and the Common
Securities.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
Distributions on the Preferred Securities and Junior Subordinated
Debentures are cumulative, accrue from the date of issuance and are
payable quarterly in arrears. The Junior Subordinated Debentures are
subordinate and junior in right of payment to all senior indebtedness
of the Company and are subject to certain events of default and
redemption provisions, all as described in the Junior Debenture
Indenture. At June 30, 1999, the Company had $94.875 million
outstanding at a weighted average interest cost of 9.1%.
6. Income Taxes:
As of June 30, 1999, management believes it is more likely than not
that the Company will realize a portion of the deferred tax asset.
The valuation allowance at June 30, 1999 primarily relates to capital
loss items whose realization is uncertain. The net deferred tax asset
is as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
__________ ____________
<S> <C> <C>
Unpaid losses and loss adjustment expenses....................... $ 10,193 $ 12,512
Unearned premiums................................................ 5,729 5,976
Allowances for doubtful accounts................................. 2,017 1,822
Other............................................................ 1,789 2,344
Unrealized loss on fixed maturities available-for-sale........... 2,527 --
__________ ____________
Deferred tax asset............................................... 22,255 22,654
__________ ____________
Deferred policy acquisition costs................................ (8,589) (8,902)
Other............................................................ (3,933) (2,051)
Unrealized gain on fixed maturities available-for-sale........... -- (1,105)
Unrealized gain on marketable equity securities.................. (2,081) (1,751)
Unrealized gain on consolidated subsidiaries held for sale....... (1,869) (1,869)
__________ ____________
Deferred tax liability ......................................... (16,472) (15,678)
__________ ____________
5,783 6,976
Valuation allowance.............................................. (75) (75)
__________ ____________
Net deferred tax asset ........................................ $ 5,708 $ 6,901
========== ============
</TABLE>
Income taxes computed by applying statutory rates to income before
income taxes are reconciled to the provision for income taxes set
forth in the consolidated financial statements as follows
(in thousands):
<TABLE>
June 30,
__________________________________
1999 1998
_________ ___________
<S> <C> <C>
Computed U.S. federal income taxes..................................... $ 3,372 $ 4,835
Nondeductible amortization of goodwill and other intangibles........... 226 221
Tax-exempt interest income............................................. (1,271) (1,042)
Dividends received deduction........................................... (341) (516)
Recognition of a portion of the deferred tax asset..................... -- (1,037)
Other.................................................................. 386 724
_________ ___________
Income taxes provided........................................... $ 2,372 $ 3,185
========= ===========
</TABLE>
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
7.. Net Income Per Share:
Basic and diluted net income per share for the three months and six
months ended June 30, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
_________________________ _________________________
1999 1998 1999 1998
__________ __________ ___________ _________
<S> <C> <C> <C> <C>
Income before cumulative effect of change in
accounting principles $ 3,901 $ 4,402 $ 7,263 $10,560
Cumulative effect of change in accounting principles -- -- 338 --
__________ __________ __________ _________
Net income $ 3,901 $ 4,402 $ 6,925 $10,560
========== ========== ========== =========
Weighted average common shares outstanding 14,245 15,221 14,243 15,216
Dilutive effect of contingent shares 21 21 21 21
Dilutive effect of stock options 29 195 54 209
__________ __________ __________ _________
Diluted weighted average common and equivalent
shares outstanding 14,295 15,437 14,318 15,446
========== ========== ========== =========
Earnings (loss) per share:
Basic:
Income before cumulative effect of change in
accounting principles $ .27 $ .29 $ .51 $ .69
Cumulative effect of change in accounting
principles -- -- (.02) --
Net income .27 .29 .49 .69
Diluted:
Income before cumulative effect of change in
accounting principles $ .27 $ .29 $ .51 $ .68
Cumulative effect of change in accounting
principles -- -- (.02) --
Net income .27 .29 .48 .68
</TABLE>
8. Comprehensive Income:
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The comprehensive income for the three months
and six months ended June 30, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
_________________________ _______________________
1999 1998 1999 1998
__________ __________ _________ _________
<S> <C> <C> <C> <C>
Net income $ 3,901 $ 4,402 $ 6,925 $10,560
Other comprehensive income (loss):
Unrealized gains (losses) of investments,
net of reclassification adjustments (3,706) (1,488) (9,432) 2,231
Deferred income tax expense (benefits) on changes (1,297) (521) (3,301) 781
__________ __________ __________ _________
Other comprehensive income (2,409) (967) (6,131) 1,450
__________ __________ __________ _________
Comprehensive income $ 1,492 $ 3,435 $ 794 $12,010
========== ========== ========== =========
</TABLE>
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
9. Business Segments:
The Company is engaged in the specialty property and casualty and the
crop insurance business. The Property and Casualty Insurance segment
consists of excess and surplus lines liability and property,
substandard property, specialty automobile, workers' compensation,
professional liability, and specialty coverages for transportation
risks, temporary help agencies, condominiums, rural markets, and fine
arts. The principal lines of the Crop Insurance segment are MPCI and
crop hail insurance.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Management evaluates
the performance of and allocates its resources to its operating
segments based on income before income taxes. Interest income and
interest expense are primarily allocated to segments based upon
estimated investments and capital, respectively. For the three months
and six months ended June 30, 1999 and 1998, there were no material
intersegment transactions. Management does not utilize assets as a
significant measurement tool for evaluating segments.
Segment revenues and segment operating profit for the three months and
six months ended June 30 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
______________________________________ ___________________________________
Property Property
and and
Casualty Crop Casualty Crop
Insurance Insurance Total Insurance Insurance Total
__________ __________ ___________ __________ __________ ___________
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues $ 62,883 $ 4,374 $ 67,257 $ 124,006 $ 5,546 $ 129,552
========== ========== =========== ========== ========== ==========
Operating profit $ 6,118 $ 1,458 $ 7,576 $ 11,629 $ 2,645 $ 14,274
Interest expense and other 1,367 896 2,263 2,802 1,837 4,639
__________ __________ ___________ __________ __________ __________
Income before income taxes $ 4,751 $ 562 $ 5,313 $ 8,827 $ 808 $ 9,635
========== ========== =========== ========== ========== ==========
1998
Revenues $ 76,384 $ 5,554 $ 81,938 $ 150,813 $ 9,889 $ 160,702
========== ========== =========== ========== ========== ==========
Operating profit $ 7,037 $ 1,192 $ 8,229 $ 13,318 $ 5,518 $ 18,836
Interest expense and other 1,580 676 2,256 3,500 1,591 5,091
__________ __________ ___________ __________ __________ __________
Income before income taxes $ 5,457 $ 516 $ 5,973 $ 9,818 $ 3,927 $ 13,745
========== ========== =========== ========== =========== ==========
</TABLE>
The Company does not have a single customer which represents 10% or
more of its consolidated revenues. In addition, substantially all
revenue of the Company's reportable segments are attributed to or
located in the United States.
10. Sale of Phoenix Indemnity Insurance Company:
On May 11, 1999, the Company entered into a definitive agreement with
Millers American Group, Inc. ("Millers") for the sale of the Company's
non-standard automobile business, including Phoenix Indemnity Insurance
Company ("Phoenix Indemnity ") to Millers . Under this agreement, the
Company will transfer all of its non-standard automobile business and
all outstanding stock of Phoenix Indemnity to Millers in exchange for
approximately $25 million in cash. The sale is subject to customary
regulatory approvals. At closing, the effect of the transaction to
after-tax income is expected to be immaterial.
<PAGE>
PART 1.
ITEM 2.
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations of the Company and its consolidated subsidiaries is based
upon the Company's interim consolidated financial statements and the notes
thereto included in this report.
RESULTS OF OPERATIONS
Forward-Looking Information
Except for the historical information contained in this Quarterly Report on
Form 10-Q, matters discussed herein may constitute forward-looking information,
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, since these are only estimates, actual
results may differ materially from such estimates.
A variety of events, most of which are outside the Company's control, cannot be
accurately predicted and may materially impact estimates of future operations.
Important among such factors are weather conditions, natural disasters, changes
in state and federal regulations, price competition impacting premium levels,
changes in tax laws, financial market performance, changes in court decisions
effecting coverages, and general economic conditions.
The Company's results are significantly impacted by its crop business,
particularly its MPCI line. Results from the crop lines are not generally
known until the third and fourth quarters of the year, after crops are
harvested. Crop results are particularly dependent on events beyond the
Company's control, notably weather conditions during the crop growing season
in the states where the Company writes a substantial amount of its crop
insurance, and, with the introduction of the Company's Crop Revenue Coverage,
the market price of grains on various commodity exchanges. Additionally,
federal regulations governing aspects of crop insurance are frequently
modified, and any such changes may impact crop insurance results.
Forward-looking information set forth herein does not take into account any
impact from any adverse weather conditions during the 1999 crop season, or the
various other factors noted above which may affect crop and non-crop operating
results.
Three months and six months ended June 30, 1999
Compared to three months and six months ended June 30, 1998
The Company's net income for the three months and six months ended June 30,
1999 decreased 11.4% and 34.4% respectively from the same periods in 1998. The
first six months of 1999 were impacted by a decrease in net premiums earned
with a commensurate reduction in loss and loss adjustment expenses and
underwriting expenses, a decrease in investment income, and an increase in
interest expense. Certain non-recurring events also affected a comparison of
the results for the first six months of 1999 and 1998. During the first six
months of 1998, the Company benefited from additional profit sharing earned in
the previous year under the Company's Multi-Peril Crop Insurance program.
Results in the first six months of 1999 were negatively impacted by charges
associated with the previously announced restructuring of the Company's
property and casualty segment as well as the cumulative effect of a change in
accounting principles adopted on January 1, 1999.
The Company previously announced a restructuring of its property and casualty
segment in which approximately one-third of its property and casualty gross
written premiums for 1998 were discontinued. As a part of this restructuring,
the Company ceded the unearned premium from its discontinued lines as well as
new premiums written during the runoff of these discontinued lines to an
independent reinsurer. Accordingly, during the three months and six months
ended June 30, 1999, the Company's net premiums written declined by 16.6% and
24.9% respectively as compared to the same periods during 1998. The Company
did experience a reduction in loss and loss adjustment expenses as well as
underwriting expenses roughly commensurate with the reduction in net premiums
earned, and therefore, was able to maintain combined loss and expense ratios
which were relatively equivalent for the period being compared. For the three
and six months ended June 30, 1999, excluding the effects of the non-recurring
events, the Company's combined ratio was 102.6% and 101.4% respectively as
compared to 102.4% and 102.7% during the same period in 1998.
<PAGE>
The Company's net investment income declined from approximately $7.2 million
and $14.1 million during the three and six months ended June 30, 1998 to $6.4
million and $12.6 million during the six months ended June 30, 1999. This
decline in the investment income of the Company was only slightly affected by a
small decline in the size of the average outstanding portfolio of the Company
from $487.2 million during the six months ended June 30, 1998 to $484.7 million
during the six months ended June 30, 1999. However, the Company's yield on the
portfolio declined from 5.74% and 5.80 % during the three and six months
ended June 30, 1998 to 5.30% and 5.21% during the three and six months ended
June 30, 1999. This decrease in yield resulted as several of the Company's
higher yielding preferred stock investments were called and the size of the
Company's holdings in tax advantaged municipal securities increased, and as
overall interest rates decreased by approximately 40 basis points on the
Company's fixed income portfolio and 60 basis points on the Company's
short-term cash equivalent portfolio from the first six months of 1998 to the
first six months of 1999. In addition, the size of the Company's mortgage
backed security portfolio was, on average, $20 million less for the first six
months of 1999 versus 1998 as the Company reduced both the interest rate risk
and the investment yield on its mortgage backed portfolio through the
elimination of materially all of its inverse floating rate collateralized
mortgage obligations. In addition, as the Company discontinued nearly
one-third of its property and casualty business, the duration of the portfolio
was shortened and the overall credit quality of the portfolio improved in order
to maintain needed liquidity. Net realized gains increased approximately $.2
million from $2.6 million for the three months ended June 30, 1998 to $2.9
million for the same period in 1999, while realized capital gains decreased for
the six months ended June 30, 1999 by approximately $.1 million as compared to
the same period in 1998.
The Company's net income was also affected by an increase in interest expense
of 4.8% and 7.6% respectively in the three and six months ended June 30, 1999
as compared to the same periods in 1998. These increases were principally a
result of increased borrowings by the Company as average borrowings increased
from $94.9 million for the three and six months ended June 30, 1998 to $101.4
million and $105.6 million respectively for the three and six months ended
June 30, 1999. Additional borrowings were made under the Company's Revolving
Credit Facility (see "Liquidity and Capital Resources -The Parent
Company Only") in order to finance a portion of the Company's stock repurchase
program. During the second quarter of 1999, the Company repaid all of its
borrowings under the Revolving Credit Facility.
The Company's results for the first six months of 1999 as compared to the first
six months of 1998 were also affected by certain non-recurring events. As part
of the previously announced restructuring of the Company's property and
casualty segment, the Company recorded a restructuring charge of approximately
$1.4 million, principally associated with severance benefits paid to
employees in the discontinued areas. Also during the first six months of 1998,
the Company recognized underwriting profits of $3.3 million in its crop segment
as compared to a profit of $.1 million during the first six months of 1999. In
the first six months of 1998, profit was derived from the recording of
additional profit sharing from the previous year under the Company's
Multi-Peril Crop Insurance program. The Company's estimate of its profit
sharing under the MPCI program at December 31, 1997 was affected by a severe
early winter snowstorm which affected geographic areas where the Company had a
high concentration of crop insurance. As the crops were harvested, the effect
of this snowstorm was minimal, and therefore, the Company made an adjustment
during the first quarter of 1998 for its previous year's results. During the
fourth quarter of 1998, a severe freeze in California affected the Company's
crop writings in that geographic area. Negative development during the
first quarter of 1999 from this event offset positive development elsewhere in
the Company's crop operations. Consequently, during the first six months of
1999, there was no significant benefit from additional profit sharing in prior
years.
The Company experienced increased demand for its crop segment products during
the first six months of 1999 as compared to the first six months of 1998,
particularly products sold under the federally subsidized Multi-Peril Crop
Insurance program and the Company's proprietary Crop Revenue Coverage Plus
product. The Company records premiums and expenses associated with these
products in the third quarter of each year after final planted acreages are
reported and corresponding final premiums are calculated. The effect of any
potential losses associated with these products also cannot be determined until
the third and fourth quarter of the year as harvesting is completed and fall
harvest price levels are determined. Therefore, there is no material effect
in the Company's results in the first six months of 1999 from this increase in
sales activity. To respond to this demand, and to obtain reinsurance capacity
for the increase in premiums and exposures, the Company elected to close its
sales season early and reduce coverage offered for some crops. The Company
expects that the benefits of additional revenue generated will be offset
by increased expenses associated with obtaining additional reinsurance
capacity, processing the unexpected increase in volume of business, regulatory
compliance, and legal expense when revenues and expenses are recognized in the
third quarter of 1999. In addition, the Company expects its exposure to net
loss in 1999 to increase by approximately $5 to $10 million from historic
levels. Premiums ceded to reinsurers also increased in 1999 and may increase
in future years in order to maintain needed reinsurance capacity for all of the
Company's products.
<PAGE>
The Company's net income in the first six months of 1999 was also affected by
the cumulative effect of a change in accounting principles adopted on
January 1, 1999. (See "Recent Accounting Standards"). The Company adopted
SOP 97-3 on January 1, 1999 resulting in a cumulative effect of a change in
accounting principles of $338,000.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Management does not expect the adoption of SFAS No. 133 to
have a material impact to the Company's consolidated financial statements.
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when an
asset may be recognized for the recovery of such assessments through premium
tax offsets. The Company adopted SOP 97-3 on January 1, 1999 resulting in a
cumulative effect of change in accounting principles of $338,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has included a discussion of the liquidity and capital resources
requirement of the Company and the Company's insurance subsidiaries.
The Company - Parent Only
As an insurance holding company, the Company's assets consist primarily of the
capital stock of its subsidiaries, surplus notes issued by two of its insurance
company subsidiaries and investments held at the holding company level. The
Company's primary sources of liquidity are receipts from interest payments on
the surplus notes, payments from the profit sharing agreement with American
Agrisurance, the Company's wholly owned subsidiary which operates as the
general agent for the Company's crop insurance programs, tax sharing payments
from its subsidiaries, investment income from, and proceeds from the sale of,
holding company investments, and dividends and other distributions from
subsidiaries of the Company. The Company's liquidity needs are primarily to
service debt, pay operating expenses and taxes, make investments in
subsidiaries, and repurchase shares of the Company's stock.
The Company currently holds three surplus notes, each in the amount of $20
million, issued by two of its insurance company subsidiaries, bearing interest
at the rate of 9% per annum payable semi-annually and quarterly. Although
repayment of all or part of the principal of these surplus notes requires prior
insurance department approval, no prior approval of interest payment is
currently required.
Under the American Agrisurance profit sharing agreement, American Agrisurance
receives up to 50% of the crop insurance profit after expenses and a margin
retained by the Insurance Companies based upon a formula established by the
Company and approved by the Nebraska Department of Insurance. If the calculated
profit share is negative, such negative amounts are carried forward and offset
future profit sharing payments. These amounts are distributed in the form of a
dividend to the Company.
Dividends from the insurance subsidiaries of the Company are regulated by the
regulatory authorities of the states in which each subsidiary is domiciled.
The laws of such states generally restrict dividends from insurance companies
to parent companies to certain statutorily approved limits. In 1999, the
statutory limitation on dividends from insurance company subsidiaries to the
parent without further insurance departmental approval is approximately $15.9
million.
The Company is currently a party to a tax sharing agreement with its
subsidiaries, under which such subsidiaries pay the Company amounts in general
equal to the federal income tax that would be payable by such subsidiaries on a
stand-alone basis.
<PAGE>
In 1997, AICI Capital Trust, a Delaware business trust organized by the
Company (the "Issuer Trust") issued 3.795 million shares or $94.875 million
aggregate liquidation amount of its 9% Preferred Securities (liquidation amount
$25 per Preferred Security).The Company owns all of the common securities
(the "Common Securities") of the Issuer Trust. The Preferred Securities
represent preferred undivided beneficial interests in the Issuer Trust's
assets. The assets of the Issuer Trust consist solely of the Company's 9%
Junior Subordinated Debentures due 2027 which were issued in 1997 in an amount
equal to 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 and redemptive provisions, all described in the Junior Debenture
Indenture. At June 30, 1999, the Company had $94.875 million outstanding at a
weighted annual interest cost of 9.1%.
As of June 30, 1999, the Company maintains a five-year revolving credit
facility (the "Revolving Credit Facility") with its bank lenders in the amount
of $62.0 million. The Company selects its interest rate at either the prime
rate or LIBOR plus a margin which varies depending on the Company's funded
debt to equity ratio. Interest is payable quarterly. As of June 30, 1999,
the Company had no outstanding indebtedness under this arrangement. The
Revolving Credit Facility contains covenants which do not permit the payment
of dividends by the Company, requires the Company to maintain certain operating
and debt service coverage ratios, requires maintenance of specific levels of
surplus and requires the Company to meet certain tests established by the
regulatory authorities.
As of June 30, 1999, the Company held cash and invested assets, excluding
investment in subsidiaries, of $9.7 million.
Insurance Companies
The principal liquidity needs of the Insurance Companies are to fund losses and
loss adjustment expense payments and to pay underwriting expenses, including
commissions and other expenses. The available sources to fund these
requirements are net premiums received and, to a lesser extent, cash flows from
the Company's investment activities, which together have been adequate to meet
such requirements on a timely basis. The Company monitors the cash flows of
the Insurance Companies and attempts to maintain sufficient cash to meet
current operating expenses, and to structure its investment portfolio at a
duration which approximates the estimated cash requirements for the payments of
loss and loss adjustment expenses.
Cash flows from the Company's MPCI and crop hail businesses differ in certain
respects from cash flows associated with more traditional property and casualty
lines. MPCI premiums are not received from farmers until the covered crops are
harvested, and when received are promptly remitted by the Company in full to
the government. Covered losses are paid by the Company during the growing
season as incurred, with such expenditures reimbursed by the government within
three business days. Policy acquisition and administration expenses are paid
by the Company as incurred during the year. The Company periodically
throughout the year receives a payment in reimbursement of its policy
acquisition and administration expenses.
In the crop hail business, premiums are generally not received until after the
harvest, while losses and other expenses are paid throughout the year.
The Company's profit or loss from its MPCI business is determined after the
crop season ends on the basis of a profit sharing formula established by law
and the RMA. Commencing with the 1997 year, the Company receives a profit
share in cash, with 60% of the amount in excess of 17.5% of its MPCI Retention
(as defined in the profit sharing agreement) in any year carried forward to
future years, or it must pay its share of losses. Prior to the 1997 year, the
amount carried forward to future years was any amount in excess of 15% of its
MPCI retention. The Company received $51.5 million in payments under the MPCI
program in March of 1999.
Changes in Financial Condition
The Company's stockholders' equity increased by approximately $1.0 million at
June 30, 1999 as compared to December 31, 1998. The principal components of
this increase were net income of $6.9 million during the first six months of
1999 and a decrease in the value of the Company's investment portfolio causing
the unrealized gain on available-for-sale securities, net of tax, to decrease
from $5.3 million at December 31, 1998 to a .9 million unrealized loss at
June 30, 1999. This change in the unrealized gain on available-for-sale
securities was attributable to a decline in the unrealized gain in the
Company's fixed maturity portfolio.
<PAGE>
Consolidated Cash Flows
Cash used by operating activities was $2.9 milion for the six months ended
June 30, 1999 compared to cash provided from operations for the same period in
1998 of $61.5 million. The major components of this decrease in cash flow
from period to period were profit sharing payments received from the federal
government under the Company's MPCI crop insurance program of $57.0 million in
the first six months of 1998 compared to $51.5 million in the first six months
of 1999, $15.2 million in payments made in the first six months of 1999
related to reinsurance on the Company's discontinued lines of business, and
declining premium volume in the Company's property and casualty segment.
Inflation
The Company does not believe that inflation has had a material impact on its
financial condition or the results of operations.
Quantitative and Qualitative Disclosure about Market Risk
The Company's balance sheet includes 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 mortgage loans and equity price risk as it relates to
its marketable equity securities. In addition, the Company is also subject to
interest rate risk at the time of refinancing as it relates to its mandatorily
redeemable Preferred Securities. The Company's market risk sensitive
instruments are entered into for purposes other than trading.
At June 30, 1999, the Company had $355.3 million of fixed maturity securities
and mortgage loans and $66.1 million 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. In addition, the Company has the ability to hold
its maturity investments until maturity and therefore would not expect to
recognize a material adverse impact on income or cash flows.
The Company's Preferred Securities of $94.875 million at June 30, 1999, mature
in August 2027 and are redeemable at the Company's option in August 2002. The
Company will continue to monitor the interest rate environment and evaluate
refinancing opportunities as the redemption and maturity date approaches.
The Company uses two models to analyze the sensitivity of its market risk
assets and liabilities. For its fixed maturity securities, mortgage loans and
mandatorily redeemable Preferred 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 $18.6 million on its fixed
maturity securities and mortgage loans and a gain in fair value of $8.9 million
on its mandatorily redeemable Preferred Securities, 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 $13.2
million.
Year 2000
The Year 2000 issue is the result of computer programs and microcontrollers
which recognize only two digits rather than four to identify the year. Any
computer program or microcontroller that has a date sensitive function may
recognize a date of "00" as the year 1900 rather than the year 2000. If not
corrected, this could cause computers and other devices dependent upon
microcontrollers to fail or perform miscalculations.
The Company previously identified its information technology ("IT") systems
requiring modification to be Year 2000 compliant. The Company developed and
continues to implement a corrective plan utilizing both internal and external
resources to make necessary modifications to, and to test, the Company's IT
systems for Year 2000 compliance. The Company has addressed the Year 2000 issue
with respect to the majority of the Company's IT systems and believes that
they are Year 2000 compliant and management expects the remaining Company IT
systems to be Year 2000 compliant by September 1, 1999.
<PAGE>
Additionally, the Company is reviewing its Non-IT systems which rely on
microprocessors, such as copiers, fax machines, telephone equipment and mail
room equipment, to determine whether they require modification to be Year 2000
compliant. The Company currently also is communicating with the lessors and
other providers of its Non-IT systems in regards to their Year 2000 compliance
status.
The Company relies on various third parties in the normal course of its
operations and has identified certain third parties with which it has material
relationships. These include insurance producers, reinsurers, government
agencies, banks and providers of telecommunication and utility. The Company
currently is communicating with these material third parties to determine if
they are Year 2000 compliant.
One of the more significant third parties is the Risk Management Agency ("RMA")
which, along with the Federal Crop Insurance Corporation ("FCIC"), administers
the federal crop insurance program. The RMA calculates and settles the
Company's MPCI profit share and expense reimbursement. The RMA has publicly
stated that all RMA and FCIC systems will be Year 2000 compliant as of the
filing date of this 10-Q.
The Company has conducted a comprehensive review of potential claims related to
Year 2000 issues which might be submitted in conjunction with policies of
insurance it currently underwrites. Although the Company has concluded Year
2000 exposures are not covered under its existing insurance policies, the
Company is acting to eliminate, reduce or mitigate potential claims for
coverage of Year 2000 exposures through the use of exclusionary language, new
underwriting procedures and pricing practices, withdrawal from certain classes
of business, and establishment of a specialized unit within its claims
department to respond to such claims.
The Company has expensed costs of approximately $2.9 million relating to the
year 2000 issue since inception of the project, and did not incur any expenses
during the six months ended June 30, 1999. The Company anticipates an
additional $.3 to $.8 million of expenses to complete the project.
Although the Company plans to have addressed the Year 2000 issues prior to
being affected by such issues, it currently is assessing the need to develop
contingency plans, particularly with respect to certain third parties with whom
it has material relationships. The Company anticipates this assessment will be
complete, and contingency plans with respect to certain third parties will be
in the development stage, by September 1999.
Particularly because of the potentially wide-scale disruption of general
infrastructure and business systems, and despite the Company's activities in
regards to the Year 2000 issue, there can be no assurance that computer and
microcontroller failures related to the Year 2000 will not interfere with the
Company's normal business operations, result in unintended and unexpected
claims under policies of insurance written by the Company, or otherwise have a
material adverse affect upon the Company's business, financial condition and
results of operations.
Sale of Phoenix Indemnity Insurance Company
On May 11, 1999, the Company entered into a definitive agreement with Millers
American Group, Inc. ("Millers") for the sale of the Company's non-standard
automobile business, including Phoenix Indemnity Insurance Company ("Phoenix
Indemnity") to Millers. Under this agreement, the Company will transfer all of
its non-standard automobile business and all outstanding stock of Phoenix
Indemnity to Millers in exchange for approximately $25 million in cash. The
sale is subject to customary regulatory approvals. At closing, the effect of
the transaction to after-tax income is expected to be immaterial.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of shareholders was held on
May 27, 1999, and the following matters were submitted to a vote
of shareholders at such Annual Meeting.
At the Annual Meeting, nine Directors nominees were elected by
shareholders to serve as Directors until the next Annual Meeting
of shareholders, and until their successors are named. The
number of votes for each such Director and the number of votes
withheld for each Director are set forth below:
<TABLE>
<CAPTION>
Name Number of Votes
For Withheld
<S> <C> <C>
Jay A. Bielfield 10,370,747 1,974,755
Kenneth C. Coon 10,299,000 2,046,502
Edward W. Elliott, Jr. 10,370,868 1,974,634
Robert LeBuhn 10,368,871 1,976,631
Michael R. McCarthy 10,365,868 1,979,634
John P. Nelson 10,300,651 2,044,851
R.L. Richards 10,370,868 1,974,634
David L. Treadwell 10,368,418 1,977,084
Doug T. Valassis 10,369,872 1,975,630
</TABLE>
Each nominee received at least 83.4% of the votes cast.
Also submitted to shareholders at such Annual Meeting was a
proposal to ratify the appointment of Deloitte and Touche LLP as
the Company's principal independent public accountants for 1999.
The voting results of such proposal are as follows:
FOR 12,050,416
AGAINST 272,073
ABSTAIN 23,013
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K:
Report on Form 8-K for an event (the issuance of a press release
announcing the Company had retained Warburg Dillon Read LLC to
assist the Company in a comprehensive review of strategic
alternatives for increasing or realizing shareholder value) which
occurred on April 28, 1999.
Report on Form 8-K for an event (the issuance of a press release
announcing the Company had entered into a definitive agreement
for the sale of the Company's non-standard automobile business,
including Phoenix Indemnity Insurance Company, to Millers
American Group, Inc.) which occurred on May 11, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCEPTANCE INSURANCE COMPANIES INC.
August 12 , 1999 /s/KENNETH C COON
Kenneth C. Coon
Chairman and Chief Executive Officer
August 12 , 1999 /s/GEORGIA M MACE
Georgia M. Mace
Chief Financial Officer and Treasurer
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1999
EXHIBIT INDEX
NUMBER EXHIBIT DESCRIPTION
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements included in the Form 10-Q and is
qualified in its entiretly by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 346,043
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 66,090
<MORTGAGE> 9,228
<REAL-ESTATE> 3,294
<TOTAL-INVEST> 469,496
<CASH> 546
<RECOVER-REINSURE> 40,594
<DEFERRED-ACQUISITION> 24,539
<TOTAL-ASSETS> 1,109,427
<POLICY-LOSSES> 559,135
<UNEARNED-PREMIUMS> 152,415
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 94,875
0
0
<COMMON> 6,192
<OTHER-SE> 230,948
<TOTAL-LIABILITY-AND-EQUITY> 1,109,427
111,572
<INVESTMENT-INCOME> 12,638
<INVESTMENT-GAINS> 5,342
<OTHER-INCOME> 0
<BENEFITS> 78,831
<UNDERWRITING-AMORTIZATION> 894
<UNDERWRITING-OTHER> 34,363
<INCOME-PRETAX> 9,635
<INCOME-TAX> 2,372
<INCOME-CONTINUING> 7,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 338
<NET-INCOME> 6,925
<EPS-BASIC> .49
<EPS-DILUTED> .48
<RESERVE-OPEN> 0<F1>
<PROVISION-CURRENT> 0<F1>
<PROVISION-PRIOR> 0<F1>
<PAYMENTS-CURRENT> 0<F1>
<PAYMENTS-PRIOR> 0<F1>
<RESERVE-CLOSE> 0<F1>
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1>This amount is presented on an annual basis. See 12/31/98 Form 10-K for the
most recent reported amounts.
</FN>
</TABLE>
