SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT

        THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT, dated as of
November 17, 2000 (this “Amendment”), is made in respect of the Credit Agreement
dated as of March 14, 1997 (as amended, the “Credit Agreement”), by and between
PMA CAPITAL CORPORATION, a Pennsylvania corporation formerly known as
Pennsylvania Manufacturers Corporation (the “Borrower”), the banks and financial
institutions listed on the signature pages thereof or that become parties
thereto after the date thereof (collectively the “Lenders”), THE BANK OF NEW
YORK, as administrative agent for the Lenders (in such capacity, the
“Administrative Agent”), and FIRST UNION NATIONAL BANK (formerly known as First
Union National Bank of North Carolina), as documentation agent for the Lenders
(in such capacity, the “Documentation Agent”) (each of the Administrative Agent
and Documentation Agent, an “Agent” and collectively, the “Agents”). Capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Credit Agreement.

RECITALS

        The Borrower has requested that the Credit Agreement be amended to
permit it to engage in certain transactions as set forth herein, and the
Required Lenders signing below are willing to approve such request subject to
the terms and conditions set forth below.

STATEMENT OF AGREEMENT

        NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agents and the
Lenders, for themselves and their successors and assigns, agree as follows:

ARTICLE I

AMENDMENTS TO CREDIT AGREEMENT

  1.1

Amendment to Section 1.1.

          (a)   Section 1.1 of the Credit Agreement shall be amended by adding
the following language to the “Contingent Obligation” definition after the
reference to “include” and before the reference to “(x)” as found in the proviso
thereof:

 

(v) guarantees or agreements issued by the Borrower to Insurance Regulatory
Authorities pursuant to which the Borrower agrees to maintain the statutory
surplus of Pennsylvania Manufacturers Indemnity Corporation and Manufacturers
Alliance Insurance Company in an amount (in each case) not to exceed $7,500,000,
(w) guarantees or agreements issued by the Borrower to PMAIC pursuant to which
the Borrower agrees to maintain the statutory surplus of PMA Holdings Cayman in
an amount not to exceed $15,000,000,

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          (b)   Section 1.1 of the Credit Agreement is further amended by
deleting the period at the end of the definition of “Letter of Credit Facility”
and replacing it with “and the Second Amended and Restated Letter of Credit
Agreement to be entered into by and among the Borrower, PNC Bank, National
Association, as agent, and certain other banks.”

          (c)   Section 1.1 of the Credit Agreement is further amended by
inserting the following definitions of “PMA Holdings Cayman” and “U.S. Federal
Agency Obligations” in appropriate alphabetical order:

 

     "PMA Holdings Cayman" shall mean PMA Holdings, Cayman Ltd., a Cayman Island
corporation.

 

     "U.S. Federal Agency Obligations" shall mean bonds, debentures, notes or
other evidences of indebtedness issued by either of the following: Federal
National Mortgage Association or Government National Mortgage Association.

          1.2    Amendments to Section 7.2.

          (a)   Section 7.2(i) of the Credit Agreement is amended by deleting
the reference to “$50,000,000” set forth therein and substituting “$70,000,000”
therefor.

          (b)   Section 7.2(vii) of the Credit Agreement is amended adding the
following at the end of such subclause:

 

provided that for so long as no Event of Default has occurred and is continuing,
such Indebtedness may be extended, renewed or refunded as long as the principal
amount of such renewed Indebtedness shall not exceed the principal amount of
such Indebtedness being extended, renewed or refunded together with any accrued
interest with respect thereto;

          (c)   Section 7.2 of the Credit Agreement shall be further amended by
deleting the word “and” at the end of clause (ix), by substituting “(other than
Indebtedness specified in clauses (i) through (viii) and in clauses (x) through
(xii))” for the first parenthetical in clause (ix), by substituting “;” for the
period at the end of clause (x), and by adding the following new clauses (xi)
and (xii) to the end thereof:

 

(xi) Indebtedness in an aggregate amount not to exceed $15,000,000 in respect of
guarantees issued by the Borrower to PMAIC of payments due with respect to the
preferred stock issued by PMA Holdings Cayman; and

 

(xii) Indebtedness in an aggregate amount not to exceed $15,000,000 of the
Borrower to Mid-Atlantic States Investment Company (“MASIC”) incurred in
connection with the sale to MASIC by other Wholly Owned Subsidiaries of certain
of their receivables from the Borrower.

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          1.3   Amendment to Section 7.3. Section 7.3 of the Credit Agreement is
amended by and restating Section 7.3(vii) as follows:

 

(vii) Liens with respect to cash, Treasury Securities and U.S. Federal Agency
Obligations of the Borrower or any Subsidiaries conveyed pursuant to and in
accordance with the Letter of Credit Facility to secure the Borrower’s or any
Subsidiary’s reimbursement obligations thereunder; and

ARTICLE II

CONSENT

          Based upon the representations and warranties set forth herein, for
purposes of Section 7.7 of the Credit Agreement, the Required Lenders hereby
consent to any amendment of the Letter of Credit Facility occurring in
connection with execution of the Second Amended and Restated Letter of Credit
Agreement to be entered into by and among the Borrower, PNC Bank, National
Association, as agent, and certain other banks, provided that this consent shall
not be deemed to apply to any subsequent amendment of such Second Amended and
Restated Letter of Credit Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

          As an inducement to obtain the consent and amendments set forth
herein, the Borrower represents and warrants to the Agents and the Lenders as
follows:

          3.1   Representations and Warranties. After giving effect to this
Amendment and, with respect to Section 4.10 only, other than the effect of loss
reserve action undertaken by the Borrower and its Subsidiaries with respect to
their financial statements for the fiscal quarter ending September 30, 2000,
which resulted in an after-tax charge to the Borrower and its Subsidiaries of
approximately $40,000,000, each of the representations and warranties of the
Borrower contained in Article IV the Credit Agreement is true and correct in all
material respects on and as of the date hereof with the same effect as if made
on and as of the date hereof (except to the extent any such representation or
warranty is expressly stated to have been made as of a specific date, in which
case such representation or warranty is true and correct as of such date).

          3.2   No Default or Event of Default. After giving effect to this
amendment, no Default or Event of Default has occurred and is continuing.

ARTICLE IV

GENERAL

          4.1   Effect of Amendment. From and after the date hereof, all
references to the Credit Agreement set forth in any other Credit Document or
other agreement or instrument shall, unless

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otherwise specifically provided, be references to the Credit Agreement as
amended by this Amendment and as may be further amended, modified, restated or
supplemented from time to time. This Amendment is limited as specified and shall
not constitute or be deemed to constitute an amendment, modification or waiver
of any provision of the Credit Agreement or of any other Credit Document except
as expressly set forth herein. Except as expressly amended hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.

          4.2   Governing Law. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).

          4.3   Expenses. The Borrower agrees to pay upon demand all reasonable
out-of-pocket costs and expenses of the Documentation Agent (including, without
limitation, the reasonable fees and expenses of counsel to the Documentation
Agent) in connection with the preparation, negotiation, execution and delivery
of this Amendment.

          4.4   Severability. To the extent any provision of this Amendment is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Amendment in any jurisdiction.

          4.5    Successors and Assigns. This Amendment shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.

          4.6   Construction. The headings of the various sections and
subsections of this Amendment have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof.

          4.7   Counterparts; Effectiveness. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers all as of the day and year first
above written.

      PMA CAPITAL CORPORATION   By: /s/ Albert D. Ciavardelli

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Name: Albert D. Ciavardelli

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Title: Vice President - Finance

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  THE BANK OF NEW YORK, as Administrative Agent and a Lender   By: /s/ David
Trick

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Name: David Trick

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Title: Assistant Vice President

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  FIRST UNION NATIONAL BANK, as Documentation Agent and as a Lender   By: /s/
Thomas L. Stitchberry

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Name: Thomas L. Stitchberry

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Title: Senior Vice President

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      CREDIT LYONNAIS NEW YORK BRANCH   By: /s/ Sebastian Recco

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Name: Sebastian Recco

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Title: Senior Vice President

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  FLEET NATIONAL BANK   By: /s/ Lawrence Davis

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Name: Lawrence Davis

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Title: Associate Portfolio Manager

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  PNC BANK, NATIONAL ASSOCIATION   By: /s/ Kirk Seagers

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Name: Kirk Seagers

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Title: Vice President

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  MELLON BANK N.A.   By: /s/ Gary A. Best

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Name: Gary A. Best

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Title: Vice President

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      DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH   By:  

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Name:  

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Title:  

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    By:  

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Name:  

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Title:  

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  UNION BANK OF CALIFORNIA, N.A.   By:  

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Name:  

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Title:  

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