<PAGE>   1
                                    FORM 10-K
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                   For the Fiscal Year Ended December 31, 1997

                                       OR

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

     For the Transition Period from__________ to __________

                         COMMISSION FILE NUMBER: 0-22280

                     PHILADELPHIA CONSOLIDATED HOLDING CORP.
             (Exact name of registrant as specified in its charter)


         PENNSYLVANIA                                     23-2202671
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

      ONE BALA PLAZA, SUITE 100
      BALA CYNWYD, Pennsylvania                             19004
(Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (610) 617-7900

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

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 [X]  NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.                                                       [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 9,
1998 as reported on the NASDAQ National Market System, was $126,441,666. Shares
of Common Stock held by each executive officer and director and by each person
who is known by the Registrant to beneficially own 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of March 9, 1998, Registrant had outstanding 12,282,370 shares of Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)   Portions of the definitive Proxy Statement for Registrant's 1998 Annual
      Meeting of Shareholders to be held May 7, 1998 are incorporated by
      reference in Part III.

The Exhibit Index is located on Page 52 of 235.


                                       1
<PAGE>   2
                                     PART I

Item 1.   BUSINESS

GENERAL

      As used in this Annual Report on Form 10-K, (i) "Philadelphia Insurance"
refers to Philadelphia Consolidated Holding Corp., (ii) the "Company" refers to
Philadelphia Insurance and its subsidiaries, doing business as Philadelphia
Insurance Companies; (iii) the "Insurance Subsidiaries" refers to Philadelphia
Indemnity Insurance Company ("PIIC") and Philadelphia Insurance Company ("PIC"),
collectively; and (iv) "MIA" refers to Maguire Insurance Agency, Inc., a captive
underwriting manager. Philadelphia Insurance was incorporated in Pennsylvania in
1984, to serve as a holding company for its three wholly owned subsidiaries
(PIIC, PIC, MIA).

      1997 represented the fourth consecutive year since its 1993 initial public
offering that the Company has reported growth in gross written premiums and net
income while experiencing a combined ratio substantially lower than the
commercial property and casualty insurance industry as a whole. The Company's
four year compound annual growth rate for gross written premiums, and net income
was 29.2% and 41.3%, respectively, while the four year weighted average combined
ratio (GAAP basis) was 86.8%. The combined ratio is the sum of the net loss and
loss adjustment expenses and acquisition costs and other underwriting expenses
divided by net earned premiums. The Company believes its profitable growth is
attributable to adhering to conservative underwriting guidelines and pricing
discipline while supplementing historically profitable product lines with growth
in certain excess liability products, commercial multi-peril products, and
selected professional liability coverages.

      The Insurance Subsidiaries have been assigned an "A" (Excellent) Best's
Rating by A.M. Best Company. According to A.M. Best, the "A" (Excellent) rating
is issued to companies that demonstrate excellent financial strength and ability
to meet its obligations to policyholders. A.M. Best ratings are based upon
factors relevant to policyholders and are not directed toward the protection of
investors. The Insurance Subsidiaries also possess an "A" claims paying ability
rating by Standard & Poor's. According to Standard & Poor's, insurers rated "A"
offer good financial security for policyholders. The Company believes that the
"A" ratings assigned by A.M. Best and Standard & Poor's are important factors in
marketing its products.


BUSINESS STRATEGY

      The Company designs property and casualty insurance products incorporating
value-added coverages and services for select target industries or niches. A
mixed marketing strategy is utilized, wherein, the Company's production
underwriting organization markets the Company's insurance products directly to
the insured or through the Company's 35 preferred agents, or also accepts
business from independent insurance brokers. The Company's production
underwriting organization, consisting of 100 professionals at year 1997,
operates from 38 proprietary field offices located across the United States and
includes telemarketing staffs at its regional offices and the Philadelphia Home
Office. Approximately, 53% of the total 1997 gross premium was produced
indirectly either through the Company's 35 preferred agents (11%) or its some
4,000 broker relationships (42%).


                                       2
<PAGE>   3
PRODUCT LINES

      The following table sets forth, for the years ended December 31, 1997,
1996 and 1995, the gross written premiums on the Company's insurance product
lines and the relative percentages that such premiums represented.

<TABLE>
<CAPTION>
                                                                  For the Years Ended December 31,
                                             ---------------------------------------------------------------------------
                                                     1997                     1996                        1995
                                                     ----                     ----                        ----
                                              Dollars    Percentage    Dollars    Percentage       Dollars    Percentage
                                              -------    ----------    -------    ----------       -------    ----------

                                                                      (Dollars in Thousands)
<S>                                          <C>         <C>          <C>         <C>             <C>         <C>
Gross Written Premiums
Commercial Automobile ..............         $ 18,415       11.6%     $ 18,506       13.5%        $ 17,294       16.6%
Excess Liability.....................          59,296       37.3        56,411       41.2           51,907       49.8
Commercial Package...................          60,012       37.7        43,707       32.0           25,064       24.1
Specialty Lines......................          20,748       13.0        16,558       12.1            8,505        8.2
Involuntary..........................             620         .4         1,673        1.2            1,410        1.3
                                             --------      -----      --------      -----         --------      -----
Total................................        $159,091      100.0%     $136,855      100.0%        $104,180      100.0%
                                             ========      =====      ========      =====         ========      =====
</TABLE>

      Commercial Automobile and Excess Liability: The Company has provided
Commercial Automobile Products to the leasing and rent-a-car industries for 35
years. Products offered to the rent-a-car industry include coverage for the
business owner's property, dual interest liability, and physical damage on the
rental vehicle.

      Additionally, through arrangements with a number of the largest rent-a-car
companies, the Company also offers its excess liability product at the rental
car counter to rent-a-car customers protecting them against liability for bodily
injury and property damage, which is excess of the statutory coverage provided
with the rental vehicle and primary over the renter's personal automobile
insurance coverage.

      In keeping with its marketing philosophy, the Company includes a number of
special features in its rental car products and services in an attempt to
differentiate them from the competition. Such features include: catastrophic
comprehensive coverage for losses due to fire, lightening, windstorm, hail,
flood, earthquake and other specified causes; subrogation services on
self-insured physical damage; liability deductibles; and self-insured retention
programs.

      The Company also offers a full range of liability and physical damage
coverages to automobile leasing companies and their customers. For the driver
(the lessee), coverages include both primary liability and physical damage
coverage on the vehicle. For the owner (the lessor), coverages include
contingent and excess liability over the primary liability layer which protects
lessors in the event of a loss when the primary coverage is absent or inadequate
and contingent physical damage coverage. Additional products offered to leasing
companies include interim primary liability and physical damage coverage, which
protects the lessor of the vehicle before and after it is delivered to the
lessee; residual value coverage which guarantees the value of the leased vehicle
at the termination of the lease; and guaranteed asset protection coverage which
protects the lessor and lessee for the difference between the leased vehicle's
actual cash value and the lease or loan net value in instances where the vehicle
is stolen or damaged beyond repair.

      Commercial Package: The Company has been providing Commercial Multi Peril
Package Policies ("Package Programs") to specific targeted niche markets for
over 10 years. Among the organizations to which the Company offers its specialty
niche package programs are non-profit social service agencies, introduced in
1988, health and fitness organizations, assisted living facilities, nursing
homes, private and specialty training schools, and condominium / homeowner
association facilities. The package policies provide a combination of
comprehensive


                                       3
<PAGE>   4
liability, property and automobile coverages with limits up to $1.0 million and
umbrella limits on an optional basis up to $5.0 million. The package policies
are further tailored to include special value-added features addressing the
unique aspects of each of the above niche markets differentiating the Company's
product offerings from those of its competitors.

      Specialty Lines: The Company has been providing specialty professional
liability products for approximately ten years, initially offering Directors &
Officers Liability coverage to Nonprofit 501(c)(3) tax exempt organizations. The
Company's recent efforts have been focused on broadening the target market for
its specialty lines product offerings through the expansion of its field
production underwriting staff along with introducing new product offerings. The
Company has significantly expanded its errors and omissions product offered to
the independent insurance agent along with its miscellaneous professional
liability program which is currently offered to an array of professionals
including: mortgage bankers, claims adjusters, lawyers, title abstractors, and
financial advisors. During 1996, the Company introduced a proprietary package of
coverages in its Executive Safeguard policy offered to public and private
companies. The coverages offered in the Executive Safeguard policy include:
directors and officers liability, employment practices liability, fiduciary
liability, and kidnap ransom insurance.

      The following table provides the geographic distribution of the Company's
risks insured as represented by direct earned premiums for all product lines for
the year ended December 31, 1997. No other state accounted for more than 2% of
total direct earned premiums for all product lines for the year ended December
31, 1997.

<TABLE>
<CAPTION>
                     State                                Direct Earned Premiums                  Percent of Total
                     -----                                ----------------------                  ----------------
<S>                                                       <C>                                     <C>  
California.................................                      $31,549,372                             21.9%
Florida....................................                       18,177,954                             12.6
New York...................................                        8,103,169                              5.6
Illinois...................................                        7,191,090                              5.0
New Jersey.................................                        7,044,649                              4.9
Massachusetts..............................                        6,495,937                              4.5
Pennsylvania...............................                        5,513,663                              3.8
Ohio.......................................                        4,971,008                              3.4
Hawaii.....................................                        4,510,938                              3.1
North Carolina.............................                        3,370,045                              2.3
Oklahoma...................................                        3,309,100                              2.3
Minnesota..................................                        3,258,377                              2.3
Wisconsin..................................                        2,979,051                              2.1
Alabama....................................                        2,895,981                              2.0
Other......................................                       34,821,033                             24.2
                                                                ------------                            -----

Total Direct Earned Premiums...............                     $144,191,367                            100.0%
                                                                ============                            =====
</TABLE>

UNDERWRITING AND PRICING

      The Company's underwriting function is segregated into three independent
groups: Commercial Lines, Specialty Lines, and Regional Underwriting. Commercial
and Specialty Lines responsibilities include: pricing all business, managing the
risk selection process, and monitoring loss ratios by product and insured. The
Regional Underwriting group primarily performs preliminary underwriting and
processing functions along with providing customer service.

      The Commercial Lines group, which has underwriting responsibility for the
Company's commercial automobile and commercial package products, currently
consists of home office underwriters that are supported by underwriting
assistants, raters, and other policy administration personnel. The Commercial
Lines underwriters and support staff are organized into geographic underwriting
teams responsible for underwriting and servicing specific commercial automobile
and commercial package products. Each underwriting team is under the direction
of a Senior Underwriter who reports to the Vice President of Commercial Lines
Underwriting.


                                       4
<PAGE>   5
      The Specialty Lines group, which has underwriting responsibility for the
Company's professional liability products, consists of home office underwriters
who report to the Vice President of Specialty Lines Underwriting, and are
supported by underwriting assistants. The Specialty Lines underwriters have
responsibility for underwriting specific professional liability products within
designated Company marketing regions.

      During 1997, the Company established a pilot commercial lines underwriting
function in its Southeast regional marketing office to strengthen local market
intelligence, further develop relationships with agents and insureds and enhance
overall customer service. This pilot underwriting function operates under
well-defined underwriting and pricing guidelines developed by the home office
Commercial Lines Underwriting department and has quoting and binding authority
on all risks falling within these guidelines. Risks not falling within the
guidelines are referred to the home office for underwriting decisions.

      As a result of the success of this pilot office, the Company plans to
establish commercial lines underwriting functions in its Western and Northeast
regional marketing offices during 1998 under the currently established
structure. In addition, the Specialty Lines division has also identified key
regional offices in which Specialty Lines underwriters will be placed. During
the fourth quarter of 1997, a pilot Specialty Lines Underwriting unit was
established in the Company's Western region. The Specialty Lines underwriters
will also operate under a matrix organization structure similar to that of
Commercial Lines underwriting where final underwriting decisions falling outside
of established guidelines will be referred to the home office. Production and
service decisions will reside with the regional marketing vice president. The
Company anticipates placing Specialty Lines underwriters into approximately four
other of the Company's seven regional marketing offices during 1998.

      The Company uses a combination of Insurance Services Office, Inc. ("ISO")
coverage forms and rates and independently filed forms and rates. Coverage forms
and rates are independently developed in situations where the line of business
is not supported by ISO or where management believes the ISO forms and rates do
not adequately address the risk. Departures from ISO forms are also used to
differentiate the Company's products from its competitor's products and are
independently filed.

      The Company attempts to follow conservative underwriting and pricing
practices. When necessary, the Company is willing to reunderwrite, sharply
curtail or discontinue a product deemed to present unacceptable risks. Written
underwriting guidelines are maintained, and updated regularly, for all classes
of business underwritten. Adherence to underwriting guidelines is maintained
through underwriting audits. Product price levels are measured utilizing a price
monitoring system which measures the aggregate price level of the book of
business. This system is intended to assist management and underwriters in
recognizing and correcting price deterioration before it results in underwriting
losses.

REINSURANCE

      The Company's reinsurance program is principally placed with Swiss Re
America, an "A" (Excellent) rated company by A.M. Best Company, with which the
Company has maintained a reinsurance relationship since 1989.

      The Company's casualty reinsurance agreement with Swiss Re America (the
"Reinsurer") provides that the Company bears the first $500,000 layer of
liability on each occurrence with the Reinsurer bearing the remaining
contractual liability to policy limits of $1.0 million. Casualty risks in excess
of $1.0 million up to $6.0 million are reinsured under a casualty treaty
("Excess Treaty") placed through a reinsurance broker. Kemper Re, NAC Re, and
SCOR Re participate on the Excess Treaty at 50%, 25%, and 25%, respectively.
Each of these reinsurers is rated "A-" (Excellent) or better by A.M. Best
Company. Facultative reinsurance is placed for each casualty risk in excess of
$6.0 million.

      The Company also has an excess casualty reinsurance agreement with the
Reinsurer providing an additional $5.0 million of coverage for protection from
exposures such as extra-contractual obligations and judgments in excess of
policy limits. Additionally, the Company has an errors and omissions insurance
policy which provides an additional $5.0 million of coverage with respect to
these exposures.

      The Company's property reinsurance agreement provides that the Company
bears the first $500,000 layer of loss on each risk with the Reinsurer bearing
the next $1.5 million layer of loss on each risk subject to a maximum


                                       5
<PAGE>   6
of $3.5 million recoverable from a single occurrence. The Company has an
automatic facultative arrangement for each property risk in excess of $2.0
million up to $20.0 million.

      The Company seeks to limit the risk of a reinsurer's default in a number
of ways. First, the Company principally contracts with large reinsurers that are
rated at least "A-" (Excellent) by A.M. Best. Second, the Company seeks to
collect the obligations of its reinsurers on a timely basis. This collection
effort is supported by a reinsurance recoverable system that is regularly
monitored. Finally, the Company typically does not write casualty policies in
excess of $10.0 million nor property policies in excess of $20.0 million.

      The Company regularly assesses its reinsurance needs and seeks to improve
the terms of its reinsurance arrangements as market conditions permit. Such
improvements may involve increases in retentions, modifications in premium
rates, changes in reinsurers and other matters.

MARKETING AND DISTRIBUTION

      Proactive risk selection based on sound underwriting criteria and
relationship selling in clearly defined commercial markets continues to be the
foundation of the Company's marketing plan. Within this framework, the Company's
marketing effort is designed to assure a systematic and disciplined approach to
developing business which is anticipated to be profitable. The Company's most
important distribution channel is its production underwriting organization. The
production underwriting organization is currently comprised of 100 employees
located in 38 field offices in major markets across the country. The field
offices are focused daily on interacting with prospective and existing insureds.
In addition to this direct marketing, relationships with approximately 4,000
brokers have been formed either as a result of the broker having a relationship
with the insured, or through seeking the Company's expertise in one of its
specialty products.

      During 1996, the Company introduced its preferred agent program wherein
business relationships were formed with brokers specializing in certain of the
Company's business niches. At year end 1997, the Company had 35 preferred agent
relationships, representing approximately $16.2 million in gross written
premium. The Company anticipates increasing the number of these relationships by
approximately 35% in 1998 thereby further increasing the distribution of the
Company's niche products. This mixed marketing concept not only provides the
flexibility to work with the broker and/or policyholder but also provides the
flexibility to seize emerging market opportunities.

      The Company supplements its marketing efforts through trade shows, direct
mailings and national advertisements placed in trade magazines serving
industries in which the Company specializes.

      In 1997, approximately 85% of the Company's expiring insurance premiums
were renewed. Management attributes this renewal rate in large part to
continuing personal contacts between the Company's production underwriters,
value-added coverage enhancements which differentiates the Company's products,
and servicing its policyholders.

PRODUCT DEVELOPMENT

      The Company continually evaluates new product opportunities, consistent
with its strategic focus on selected market niches. Direct contacts between the
Company's field and home office personnel and its customers have produced a
number of new product ideas. All new product ideas are presented to the Product
Development Committee (the "Committee") for consideration. The Committee,
currently composed of the Company's two most senior executives, as well as
officers from the underwriting and claims departments, meets regularly to review
the feasibility of products from a variety of perspectives, including
underwriting risk, marketing and distribution, reinsurance, long-term viability
and consistency with the Company's culture and philosophy. For each new product,
an individualized test market plan is prepared, addressing such matters as the
appropriate distribution channel (e.g., a limited number of selected production
underwriters), an appropriate cap on premiums to be generated during the test
market phase and reinsurance requirements for the test market phase. Test market
products may involve lower retentions than customarily utilized. After a new
product is approved for test marketing, the Company monitors its success based
on specified criteria (e.g., underwriting results, sales success, product demand
and competitive pressures). If expectations are not realized, the Company either
moves to improve results by initiating adjustments or abandons the product.


                                       6
<PAGE>   7
CLAIMS MANAGEMENT AND ADMINISTRATION

      In accordance with its emphasis on underwriting profitability, the Company
actively manages claims under its policies in an effort to investigate reported
incidents at the earliest juncture, service insureds and minimize fraud. Claim
files are regularly audited by claims supervisors and the Company's reinsurers
in an attempt to ensure that claims are being processed properly and that
reserves are being set at appropriate levels. Claims examiners are expected to
set conservative reserves, an important factor in the Company's reserve
development over the years. See "Loss and Loss Adjustment Expenses."

      The Company maintains a Special Investigations Unit to investigate
suspicious claims and to serve as a clearinghouse for information concerning
fraudulent practices primarily within the rental car industry. Working closely
with a variety of industry contacts, including attorneys, investigators and
rental car company fraud units, this unit has uncovered a number of fraudulent
claims.

LOSS AND LOSS ADJUSTMENT EXPENSES

      The Company is liable for losses and loss adjustment expenses under its
insurance policies and reinsurance treaties. While the Company's professional
liability policies are written on claims-made forms and while claims on its
other policies are generally reported promptly after the occurrence of an
insured loss, in many cases several years may elapse between the occurrence of
an insured loss, the reporting of the loss to the Company and the Company's
payment of the loss. The Company reflects its liability for the ultimate payment
of all incurred losses and loss adjustment expenses by establishing loss and
loss adjustment expense reserves, which are balance sheet liabilities
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events that have occurred.

      When a claim involving a probable loss is reported, the Company
establishes a case reserve for the estimated amount of the Company's ultimate
loss and loss adjustment expense. This estimate reflects an informed judgment,
based on the Company's reserving practices and the experience of the Company's
claims staff. Management also establishes reserves on an aggregate basis to
provide for losses incurred but not reported ("IBNR"), as well as future
development on claims reported to the Company.

      As part of the reserving process, historical data are reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, changes in societal attitudes,
inflation and economic conditions. Reserve amounts are necessarily based on
management's estimates and judgments; as new data become available and are
reviewed, these estimates and judgments are revised, resulting in increases or
decreases to existing reserves. To verify the adequacy of its reserves, the
Company engages independent actuarial consultants to perform interim loss
reserve analyses and annual certifications.


                                       7
<PAGE>   8
      The following table sets forth a reconciliation of beginning and ending
reserves for unpaid loss and loss adjustment expenses, net of amounts for
reinsured losses and loss adjustment expenses, for the years indicated. As a
result of changes in estimates of insured events of prior years, the Company
reduced losses and loss adjustment expenses incurred by $1,716,000, $965,000 and
$925,000 in 1997, 1996 and 1995, respectively. Such favorable development was
due to losses emerging at a lesser rate than had been originally anticipated
when the initial reserves for the applicable accident years were estimated.


<TABLE>
<CAPTION>
                                                                    As of and For the Years Ended December 31,
                                                               ---------------------------------------------------
                                                                       1997            1996            1995
                                                                       ----            ----            ----
                                                                                    (Dollars in Thousands)
<S>                                                                 <C>              <C>             <C>
Unpaid loss and loss adjustment expenses at
   beginning of year (1) ........................................   $  85,723        $ 68,246        $ 53,595
                                                                    ---------        --------        --------
Provision for losses and loss adjustment expenses for                                                
   current year claims ..........................................      56,725          41,083          34,152

Decrease in estimated ultimate losses and loss                                                       
   adjustment expenses for prior year claims ....................      (1,716)           (965)           (925)
                                                                    ---------        --------        --------
Total incurred losses and loss adjustment expenses ..............      55,009          40,118          33,227
                                                                    ---------        --------        --------
Loss and loss adjustment expense payments for claims                                                 
attributable to:                                                                                     
   Current year .................................................       9,512           7,427           6,186
   Prior years ..................................................      22,292          15,214          12,390
                                                                    ---------        --------        --------
Total payments ..................................................      31,804          22,641          18,576
                                                                    ---------        --------        --------
Unpaid loss and loss adjustment expenses at end of year (1) .....   $ 108,928        $ 85,723        $ 68,246
                                                                    =========        ========        ========
</TABLE>


      (1)   Unpaid loss and loss adjustment expenses differ from the amounts
            reported in the Consolidated Financial Statements because of the
            inclusion therein of reinsurance receivables of $13,502, $10,919 and
            $9,440 at December 31, 1997, 1996 and 1995, respectively.


      The following table presents the development of unpaid loss and loss
adjustment expenses, net of amounts for reinsured losses and loss adjustment
expenses, from 1987 through 1997. The top line of the table shows the estimated
reserve for unpaid loss and loss adjustment expenses at the balance sheet date
for each of the indicated years. These figures represent the estimated amount of
unpaid loss and loss adjustment expenses for claims arising in the current year
and all prior years that were unpaid at the balance sheet date, including IBNR
losses. The table also shows the re-estimated amount of the previously recorded
unpaid loss and loss adjustment expenses based on experience as of the end of
each succeeding year. The estimate changes as more information becomes known
about the frequency and severity of claims for individual years.


                                       8
<PAGE>   9
<TABLE>
<CAPTION>
                                                          AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                             ------------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)
UNPAID LOSS AND LOSS
ADJUSTMENT EXPENSES, AS                                                                                            
STATED                               1987      1988      1989      1990      1991      1992      1993      1994      1995 
                                     ----      ----      ----      ----      ----      ----      ----      ----      ---- 
<S>                                <C>      <C>       <C>       <C>       <C>       <C>      <C>        <C>       <C>     
                                   $4,940   $10,615   $12,198   $15,930   $22,248   $31,981   $38,714   $53,595   $68,246 
Cumulative Paid as of:
1  year later                       1,375     2,955     3,354     4,286     6,698     9,865    10,792    12,391    15,214 
2 years later                       2,481     4,832     6,249     8,084    12,485    16,290    19,297    23,139    31,410
3 years later                       3,025     6,584     8,807    10,838    16,288    21,253    24,991    33,511
4 years later                       3,582     7,813    10,155    12,907    17,780    24,299    28,903
5 years later                       3,771     8,341    11,217    13,211    19,406    25,793
6 years later                       3,881     8,748    11,497    13,792    19,898
7 years later                       3,922     8,704    11,760    14,074
8 years later                       3,911     8,696    11,902
9 years later                       3,916     8,746
10 years later                      3,918

Unpaid Loss and Loss Adjustment
Expenses re-estimated as of End of
Year:
1 year later                        4,472     9,535    12,628    15,953    22,056    30,538    38,603    52,670    67,281 
2 years later                       4,056     9,825    12,644    15,712    21,327    30,428    38,016    52,062    66,061
3 years later                       3,932     9,645    12,424    14,822    21,198    29,648    37,184    51,149
4 years later                       3,924     9,437    11,947    14,811    21,118    29,306    36,272
5 years later                       3,970     9,053    11,836    14,841    21,399    28,553
6 years later                       4,010     8,859    12,060    14,593    21,106
7 years later                       3,952     8,770    12,008    14,606
8 years later                       3,926     8,783    12,039
9 years later                       3,947     8,804
10 years later                      3,959

Cumulative Redundancy
  Dollars                          $  981   $ 1,811   $   159   $ 1,324   $ 1,142   $ 3,428   $ 2,442   $ 2,446   $ 2,185 
  Percentage                         19.9%     17.1%      1.3%      8.3%      5.1%     10.7%      6.3%      4.6%      3.2%
</TABLE>



<TABLE>
<CAPTION>
                                                          AS OF AND FOR THE YEARS ENDED DECEMBER 31,                         
                             ------------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)                                   
UNPAID LOSS AND LOSS        
ADJUSTMENT EXPENSES, AS                   
STATED                                        1996      1997  
                                              ----      ----  
<S>                                        <C>      <C>       
                                           $85,723  $108,928  
Cumulative Paid as of:                                        
1  year later                               22,292            
2 years later                                                 
3 years later                                                 
4 years later                                                 
5 years later                                                 
6 years later                                                 
7 years later                                                 
8 years later                                                 
9 years later                                                 
10 years later                                                
                                                              
Unpaid Loss and Loss Adjustment                               
Expenses re-estimated as of End of                            
Year:                                                         
1 year later                                84,007            
2 years later                                                 
3 years later                                                 
4 years later                                                 
5 years later                                                 
6 years later                                                 
7 years later                                                 
8 years later                                                 
9 years later                                                 
10 years later                                                
                                                              
Cumulative Redundancy                                         
  Dollars                                  $ 1,716            
  Percentage                                   2.0%           
</TABLE>



(1)   Unpaid loss and loss adjustment expenses differ from the amounts reported
      in the Consolidated Financial Statements because of the inclusion therein
      of reinsurance receivables of $13,502, $10,919, $9,440, $5,580, $5,539,
      $1,770, $1,267, $1,672 and $1,591 at December 31, 1997, 1996, 1995, 1994,
      1993, 1992, 1991, 1990, and 1989, respectively.


(2)   The Company maintains its historical loss records net of reinsurance and
      therefore is unable to conform the presentation of this table to the
      financial statements.


                                       9
<PAGE>   10
      The cumulative redundancy represents the aggregate change in the reserve
estimated over all prior years, and does not present accident year loss
development. Therefore, each amount in the table includes the effects of changes
in reserves for all prior years.

      The unpaid loss and loss adjustment expense of PIIC and PIC, as reported
in their Annual Statements prepared in accordance with statutory accounting
practices and filed with state insurance departments, differ from those
reflected in the Company's financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") with respect to recording the
effects of reinsurance. Unpaid loss and loss adjustment expenses under statutory
accounting practices are reported net of the effects of reinsurance whereas
under GAAP these amounts are reported without giving effect to reinsurance in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 113.
Under GAAP, reinsurance receivables, with a corresponding increase in unpaid
loss and loss adjustment expense, have been recorded. (See footnote (1) on Page
9 for amounts). There is no effect on net income or shareholders' equity due to
the difference in reporting the effects of reinsurance between statutory
accounting practices and GAAP as discussed above.

OPERATING RATIOS

Statutory Combined Ratio

      The statutory combined ratio, which is the sum of (a) the ratio of loss
and loss adjustment expenses incurred to net earned premiums (loss ratio) and
(b) the ratio of policy acquisition costs and other underwriting expenses to net
written premiums (expense ratio), is the traditional measure of underwriting
experience for insurance companies. Generally, if the combined ratio is below
100%, an insurance company has an underwriting profit and if it is above 100%,
the insurer has an underwriting loss.

      The following table reflects the consolidated loss, expense and combined
ratios of the Insurance Subsidiaries together with the property and casualty
industry-wide combined ratios after policyholders' dividends.


<TABLE>
<CAPTION>
                                                                             For the Years Ended December 31,
                                                                ------------------------------------------------------------
                                                                   1997       1996          1995       1994         1993
                                                                   ----       ----          ----       ----         ----
<S>                                                                <C>        <C>           <C>        <C>          <C>  
Loss Ratio................................................          55.3%      55.7%         57.1%      59.5%        56.5%
Expense Ratio.............................................          29.1%      31.1%         29.6%      29.9%        34.5%
                                                                   -----      -----         -----      -----        ----- 
Combined Ratio............................................          84.4%      86.8%         86.7%      89.4%        91.0%
                                                                   =====      =====         =====      =====        ===== 
Industry Combined Ratio after Policyholders' Dividends....         101.1%     105.8%        106.3%     108.3%       106.8%
                                                                   =====      =====         =====      =====        ===== 
                                                                    (1)        (2)           (2)        (2)          (2)
</TABLE>


(1)  Source:  Best's Week, December 29, 1997 Issue (Actual September 30, 1997).

(2)  Source:  Best's Aggregates & Averages, 1997 Edition.


                                       10
<PAGE>   11
Premium-to-Surplus Ratio:

      While there are no statutory provisions governing premium-to-surplus
ratios, regulatory authorities regard this ratio as an important indicator as to
an insurer's ability to withstand abnormal loss experience. Guidelines
established by the National Association of Insurance Commissioners (the "NAIC")
provide that an insurer's net premium-to-surplus ratio is satisfactory if it is
below 3 to 1.

      The following table sets forth, for the periods indicated, net written
premiums to policyholders' surplus for the Insurance Subsidiaries (statutory
basis):

<TABLE>
<CAPTION>
                                                                 As of and For the Years Ended December 31,
                                              ------------------------------------------------------------------------------
                                                  1997           1996               1995            1994            1993
                                              ------------   -------------     -------------    ------------    ------------
                                                                           (Dollars in Thousands)
<S>                                           <C>            <C>               <C>              <C>             <C>    
Net Written Premiums..................          $110,790         $83,994           $62,072         $55,398         $40,645
Policyholders' Surplus................          $105,985         $81,906           $67,500         $56,027         $51,197
Premium to Surplus Ratio..............        1.0 to 1.0      1.0 to 1.0         .9 to 1.0      1.0 to 1.0       .8 to 1.0
</TABLE>


INVESTMENTS

      At December 31, 1997, the Company had total investments with a carrying
value of $217.7 million, substantially all of which were held by the Insurance
Subsidiaries. At December 31, 1997, 78.4% of the Company's total investments
were investment grade fixed maturity securities, including U.S. treasury
securities and obligations of U.S. government corporations and agencies,
obligations of states and political subdivisions and corporate debt securities
including collaterized mortgage and asset backed securities totaling $18.6
million. The collaterized mortgage and asset backed securities consist of short
tranche securities possessing favorable pre-payment risk profiles. The remaining
21.6% of the Company's total investments consisted primarily of publicly-traded
common stock securities.

      The following table sets forth information concerning the composition of
the Company's total investments at December 31, 1997:

<TABLE>
<CAPTION>
                                                                        Estimated                         Percent of
                                                                          Market           Carrying        Carrying
                                                    Amortized Cost        Value              Value           Value
                                                    --------------        -----              -----           -----
                                                                           (Dollars in Thousands)
<S>                                                 <C>                 <C>                <C>            <C>
Fixed Maturities:
  Obligations of States and Political
     Subdivisions............................          $105,117          $109,696           $109,696         50.4%
  U.S. Treasury Securities and
     Obligations of U.S. Government
     Corporations and Agencies...............            15,391            15,655             15,655          7.2
  Corporate Debt Securities..................            44,544            45,327             45,327         20.8
Equity Securities............................            29,501            46,988             46,988         21.6
                                                       --------          --------           --------        -----
     Total Investments.......................          $194,553          $217,666           $217,666        100.0%
                                                       ========          ========           ========        ======
</TABLE>



      At December 31, 1997, 100% of the Company's fixed maturity securities
consisted of U.S. government securities or securities rated "1" or "2" by the
NAIC; 96.4% of the fixed maturity securities were rated "A" or better (with no
security rated lower than "BBB-") by Standard & Poor's Corporation.


                                       11
<PAGE>   12
      The cost and estimated market value of fixed maturity securities at
December 31, 1997, by remaining original contractual maturity, are set forth
below. Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations, with or without
call or prepayment penalties:

<TABLE>
<CAPTION>
                                                                       Amortized Cost         Estimated Market Value
                                                                     ------------------    ----------------------------
                                                                                 (Dollars in Thousands)
<S>                                                                  <C>                   <C>
Due in one year or less.......................................            $  4,075                   $  4,079
Due after one year through five years.........................              40,460                     41,267
Due after five years through ten years........................              92,935                     96,509
Due after ten years...........................................              27,582                     28,823
                                                                          --------                   --------
     Total....................................................            $165,052                   $170,678
                                                                          ========                   ========
</TABLE>


      Investments of the Insurance Subsidiaries must comply with applicable laws
and regulations which prescribe the type, quality and diversification of
investments. In general, these laws and regulations permit investments, with
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds, preferred and common equity securities,
real estate mortgages and real estate.

      The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best and Standard & Poor's ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investment
portfolios. The portfolio consists of diversified issuers and issues and, as of
December 31, 1997, approximately 76% of the total invested assets (total
investments plus cash equivalents) consisted of investments in fixed maturity
securities.

      The Company increased its existing portfolio of fixed maturity securities
by investing in investment grade corporate debt during 1997 due to more
favorable after-tax yields. At the end of 1997, investment grade corporate debt
represented 19.6% of the total invested assets, compared to 6.0% as of the end
of 1996. The Company has also continued to increase its total investments in
common stock of quality growth oriented mid- and large-cap companies seeking to
achieve diversification and capital appreciation in the portfolio. At December
31, 1997, common stocks comprised 20.9% of the invested assets, compared to
15.8% as of the end of 1996.

REGULATION

      General: Insurance companies are subject to supervision and regulation in
the states in which they transact business. Such supervision and regulation,
designed primarily for the protection of policyholders and not shareholders,
relates to most aspects of an insurance company's business and includes such
matters as authorized lines of business; underwriting standards; financial
condition standards; licensing of insurers; investment standards; premium
levels; policy provisions; the filing of annual and other financial reports
prepared on the basis of Statutory Accounting Practices ("SAP"); the filing and
form of actuarial reports; the establishment and maintenance of reserves for
unearned premiums; losses and loss adjustment expenses; transactions with
affiliates; dividends; changes in control; and a variety of other financial and
nonfinancial matters. Because the Insurance Subsidiaries are domiciled in
Pennsylvania, the Pennsylvania Department of Insurance (the "Department") has
primary authority over the Company.

      Regulation of Insurance Holding Companies: Pennsylvania, like many other
states, has laws governing insurance holding companies (such as Philadelphia
Insurance). Under Pennsylvania law, a person generally must obtain the
Department's approval to acquire, directly or indirectly, 10% or more of the
outstanding voting securities of Philadelphia Insurance or either Insurance
Subsidiary. The Department's determination of whether to approve any such
acquisition is based on a variety of factors, including an evaluation of the
acquiror's financial stability, the competence of its management and whether
competition in Pennsylvania would be reduced.

      The Pennsylvania statute requires every Pennsylvania-domiciled insurer
which is a member of an insurance holding company system to register with the
Department by filing and keeping current a registration statement on a form
prescribed by the NAIC.


                                       12
<PAGE>   13
      The Pennsylvania statute also specifies that at least one-third of the
board of directors and each committee thereof, of either the domestic insurer or
its publicly owned holding company (if any), must be comprised of outsiders
(i.e., persons who are neither officers, employees nor controlling shareholders
of the insurer or any affiliate). In addition, the domestic insurer or its
publicly held holding company must establish one or more committees comprised
solely of outside directors, with responsibility for recommending the selection
of independent certified public accountants; reviewing the insurer's financial
condition, the scope and results of the independent audit and any internal
audit; nominating candidates for director; evaluating the performance of
principal officers; and recommending to the board the selection and compensation
of principal officers.

      Dividend Restrictions: As an insurance holding company, Philadelphia
Insurance will be largely dependent on dividends and other permitted payments
from the Insurance Subsidiaries to pay any cash dividends to its shareholders.
The ability of the Insurance Subsidiaries to pay dividends to the Company is
subject to Pennsylvania insurance laws, which currently require that dividends
be paid from profits and afford the Department 30 days to disapprove the payment
of "extraordinary dividends" from a domestic property and casualty insurer to
its shareholders (i.e., dividends over a twelve-month period that exceed the
greater of (a) 10% of policyholders' surplus shown on the latest Annual
Statement filed with the Department, or (b) the net income for the period
covered by such statement but in no event to exceed the amount of unassigned
funds (i.e., retained earnings plus or minus net unrealized gains or losses). In
addition, the law specifies factors to be considered by the Department to allow
it to determine that policyholders' surplus after the payment of dividends is
reasonable in relation to an insurance company's outstanding liabilities and
adequate to its financial needs. Such factors include, for example, the size of
the company, the extent to which its business is diversified among several lines
of insurance, the number and size of risks insured, the nature and extent of the
company's reinsurance, and the adequacy of the company's reserves. Accumulated
statutory profits of the Insurance Subsidiaries from which dividends may be paid
totaled $59.7 million at December 31, 1997. Of this amount, the Insurance
Subsidiaries are entitled to pay a total of approximately $14.3 million of
dividends in 1998 without obtaining prior approval from the Department.

      The National Association of Insurance Commissioners: In addition to
state-imposed insurance laws and regulations, the Insurance Subsidiaries are
subject to the general SAP and reporting formats established by the NAIC. The
NAIC also promulgates model insurance laws and regulations relating to the
financial and operational regulation of insurance companies. These model laws
and regulations generally are not directly applicable to an insurance company
unless and until they are adopted by applicable state legislatures or
departments of insurance. However, NAIC model laws and regulations have become
increasingly important in recent years, due primarily to the NAIC's state
regulatory accreditation program. Under this program, states which have adopted
certain required model laws and regulations and meet various staffing and other
requirements are "accredited" by the NAIC. Such accreditation is the cornerstone
of an eventual nationwide regulatory network and there is a certain degree of
political pressure on individual states to become accredited by the NAIC.
Because the adoption of certain model laws and regulations is a prerequisite to
accreditation, the NAIC's initiatives have taken on a greater level of practical
importance in recent years. The NAIC accredited Pennsylvania under the NAIC
Financial Regulation Standards in March 1994.

      All the states have adopted the NAIC's financial reporting form, which is
typically referred to as the NAIC "Annual Statement" and most states, including
Pennsylvania, generally defer to the NAIC with respect to SAP. In this regard,
the NAIC has a substantial degree of practical influence and is able to
accomplish certain quasi-legislative initiatives through amendments to the NAIC
annual statement and applicable accounting practices and procedures. For
instance, in recent years the NAIC has required all insurance companies to have
an annual statutory financial audit and an annual actuarial certification as to
loss reserves by including such requirements within the annual statement
instructions.

      Capital and Surplus Requirements: PIC's eligibility to write insurance on
a surplus lines basis in most jurisdictions is dependent on its compliance with
certain financial standards, including the maintenance of a requisite level of
capital and surplus and the establishment of certain statutory deposits. In
recent years, many jurisdictions have increased the minimum financial standards
applicable to surplus lines eligibility. For example, California and certain
other states have adopted regulations which require surplus lines companies
operating therein to maintain minimum capital of $15 million, calculated as set
forth in the regulations. PIC maintains capital to meet these requirements.


                                       13
<PAGE>   14
      Risk-Based Capital: Risk-based capital is designed to measure the
acceptable amount of capital an insurer should have based on the inherent
specific risks of each insurer. Insurers failing to meet this benchmark capital
level may be subject to scrutiny by the insurer's domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the standards
currently adopted, the policyholders' surplus at December 31, 1997 is in excess
of the prescribed risk-based capital requirements.

      Insurance Guaranty Funds: The Insurance Subsidiaries are subject to
guaranty fund laws which can result in assessments, up to prescribed limits, for
losses incurred by policyholders as a result of the impairment or insolvency of
unaffiliated insurance companies. Typically, an insurance company is subject to
the guaranty fund laws of the states in which it conducts insurance business;
however, companies which conduct business on a surplus lines basis in a
particular state are generally exempt from that state's guaranty fund laws.
During the five years ended December 31, 1997, the amount of such guaranty fund
assessments paid by the Company was not material.

      Shared Markets: As a condition of its license to do business in various
states, PIIC is required to participate in mandatory property-liability shared
market mechanisms or pooling arrangements which provide various insurance
coverages to individuals or other entities that otherwise are unable to purchase
coverage voluntarily provided by private insurers. In addition, some states
require automobile insurers to participate in reinsurance pools for claims that
exceed a certain amount. PIIC's participation in such shared markets or pooling
mechanisms is generally in amounts related to the amount of PIIC's direct
writings for the type of coverage written by the specific pooling mechanism in
the applicable state.

      Possible New Legislation, Regulations or Interpretations: New regulations
and legislation have been (and are being) proposed from time to time to limit
damage awards; to bring the industry under regulation by the federal government;
to control premiums, policy terminations and other policy terms; and to impose
new taxes and assessments. It is not possible to determine whether any of these
proposals will be adopted in any jurisdictions and, if so, in what form or in
what jurisdictions. In addition, the Company could be affected by
interpretations of state insurance regulators with respect to licensing
requirements applicable to the product distribution method currently utilized by
the rent a car companies that are customers of the Company. The impact of these
initiatives on the Company can not be determined.

COMPETITION

      The commercial property and casualty insurance industry is highly
competitive. Many of the Company's existing and potential competitors are
larger, have considerably greater financial and other resources, have greater
experience in the insurance industry and offer a broader line of insurance
products than the Company. Not only does the Company compete with other
insurers, it also competes with new forms of insurance organizations such as
risk retention groups and self-insurance mechanisms.

      Overall, due to the abundance of capital in the insurance industry, the
current business climate remains competitive from a solicitation and pricing
standpoint. In the context of the current environment, the Company will not
sacrifice pricing guidelines for premium volume and will "walk away" from
writing business that does not meet underwriting or pricing guidelines.
Management believes, though, that the Company's marketing strategy is a strength
in this market environment, in that it provides the flexibility to quickly
deploy the marketing efforts of the Company's direct production underwriters
from soft market segments to market segments with emerging opportunities.
Additionally, through the mixed marketing strategy, the Company's production
underwriters have established relationships with approximately 4,000 brokers,
thus increasing distribution and facilitating a regular flow of submissions.

EMPLOYEES

      As of February 26, 1998, the Company had 276 full-time employees and 15
part-time employees. The Company actively encourages its employees to continue
their educational efforts and aids in defraying their educational costs
(including 100% of education costs related to the insurance industry).
Management believes that the Company's relations with its employees are
generally excellent.


                                       14
<PAGE>   15
Item 2.  PROPERTIES

         The Company leases certain office space in Bala Cynwyd, PA which serves
         as its headquarters location and also leases 38 field offices for its
         field marketing organization. Additionally, the Company leases its
         previous headquarters building, which it owns, in Wynnewood, PA.

Item 3.  LEGAL PROCEEDINGS

         The Company is not subject to any material pending legal proceedings
         other than ordinary routine litigation incidental to its business.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
         fourth quarter of 1997.


                                       15
<PAGE>   16
                                     PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

During the fourth quarter of 1997, the Company did not sell any of its
securities which were not registered under the Securities Act of 1933.

The Company's common stock, no par value, trades on The Nasdaq Stock Market
under the symbol "PHLY". As of February 20, 1998, there were 220 holders of
record and approximately 900 beneficial shareholders of the Company's common
stock. The high and low sales prices of the common stock, as reported by the
National Association of Securities Dealers, were as follows:

<TABLE>
<CAPTION>
                                                 1997                                1996
                                     -----------------------------     -----------------------------------
Quarter                                  High             Low               High                Low
                                     ------------    -------------     --------------    -----------------
<S>                                  <C>             <C>               <C>               <C>
First(1)                                15.000           11.250            10.500              8.125
Second(1)                               17.563           14.000            11.250              9.125
Third(1)                                23.250           16.500            10.875              8.375
Fourth(2)                               23.000           15.688            12.125             10.625
</TABLE>

(1)   Restated to reflect a two for one split of the Company's common stock
      distributed in November 1997.

(2)   1996 Fourth Quarter restated to reflect a two for one split of the
      Company's common stock distributed in November 1997.


The Company did not declare cash dividends on its common stock in 1997 or 1996,
and currently intends to retain its earnings to enhance future growth.

The payment of dividends by the Company will be determined by the Board of
Directors and will be based on general business conditions, legal and regulatory
restrictions.

As a holding company, the Company is dependent upon dividends and other
permitted payments from its subsidiaries to pay any cash dividends to its
shareholders. The ability of the Company's insurance subsidiaries to pay
dividends to the Company is subject to regulatory limitations (see "Regulation"
in Item 1. of this Form 10-K and Note 2 to the Consolidated Financial
Statements).


                                       16
<PAGE>   17
Item 6.   SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                           As of and For the Years Ended December 31,
                                                         -----------------------------------------------------------------------
                                                                        (In Thousands, Except Share and Per Share Data)
                                                             1997            1996          1995          1994            1993
                                                         ------------    -----------   -----------   ------------    -----------
<S>                                                      <C>             <C>           <C>           <C>             <C>       
OPERATIONS STATEMENT DATA:
Gross Written Premiums ................................  $    159,091    $   136,855   $   104,180   $     89,099    $    57,085

Gross Earned Premiums .................................  $    150,128    $   121,820   $    99,507   $     84,657    $    53,506

Net Written Premiums ..................................  $    111,797    $    83,994   $    62,072   $     55,398    $    40,645

Net Earned Premiums ...................................  $    100,555    $    72,050   $    58,188   $     52,085    $    37,484

Net Investment Income .................................         9,703          7,910         6,506          4,902          3,269
Net Realized Investment Gain (Loss) ...................           (16)           260           181         (1,697)         1,327
Other Income ..........................................           228            282           309            314          1,169
--------------------------------------------------------------------------------------------------------------------------------
     TOTAL REVENUE ....................................       110,470         80,502        65,184         55,604         43,249
--------------------------------------------------------------------------------------------------------------------------------

Net Loss and Loss Adjustment
   Expenses ...........................................        55,009         40,118        33,227         31,009         21,165
Acquisition Costs and Other
   Underwriting Expenses ..............................        31,344         22,210        17,105         15,541         12,991
Other Operating Expenses ..............................         1,909          1,386         2,564          1,347          3,038
Interest Expense ......................................          --             --            --             --              459
--------------------------------------------------------------------------------------------------------------------------------
     TOTAL LOSSES AND EXPENSES ........................        88,262         63,714        52,896         47,897         37,653
--------------------------------------------------------------------------------------------------------------------------------

Income Before Income Taxes ............................        22,208         16,788        12,288          7,707          5,596
     Total Income Tax Expense .........................         5,338          3,414         2,458          1,734          1,364
--------------------------------------------------------------------------------------------------------------------------------
     NET INCOME .......................................  $     16,870    $    13,374   $     9,830   $      5,973    $     4,232
--------------------------------------------------------------------------------------------------------------------------------

Weighted Average Common Shares
   Outstanding (1) ....................................    12,193,659     11,879,506    11,627,702     11,627,702      7,046,442
Weighted Average Share Equivalents
   Outstanding (1) ....................................     2,736,039      2,373,742     2,049,004      1,647,902      1,771,252
                                                         -----------------------------------------------------------------------
Weighted Average Share and Share
   Equivalents Outstanding (1) ........................    14,929,698     14,253,248    13,676,706     13,275,604      8,817,694
--------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (1) (2)
                                                         $       1.38    $      1.13   $      0.85   $       0.51    $      0.60
                                                         =======================================================================
DILUTED EARNINGS PER SHARE(1) (2)
                                                         $       1.13    $      0.94   $      0.72   $       0.45    $      0.48
                                                         =======================================================================
YEAR END FINANCIAL POSITION:
   Total Investments and Cash
   and Cash Equivalents ...............................  $    229,599    $   180,061   $   140,086   $    105,720    $    90,441
   Total Assets .......................................       288,126        225,938       174,148        140,718        116,135
   Unpaid Loss and Loss Adjustment
     Expenses .........................................       122,430         96,642        77,686         59,175         44,253
   Total Shareholders' Equity .........................       111,284         85,642        68,316         52,600         49,018
   Common Shares Outstanding(1) .......................    12,242,431     12,079,612    11,627,702     11,627,702     11,627,702
--------------------------------------------------------------------------------------------------------------------------------

INSURANCE OPERATING RATIOS
(STATUTORY BASIS):
   Net Loss and Loss Adjustment
     Expenses to Net Earned Premiums ..................         55.3%          55.7%         57.1%          59.5%          56.5%
   Underwriting Expenses to Net
     Written Premiums .................................         29.1%          31.1%         29.6%          29.9%          34.5%
--------------------------------------------------------------------------------------------------------------------------------
Combined Ratio ........................................         84.4%          86.8%         86.7%          89.4%          91.0%
--------------------------------------------------------------------------------------------------------------------------------
A.M. Best Rating ......................................            A              A             A              A             A-
                                                              (Excellent)    (Excellent)   (Excellent)    (Excellent)   (Excellent)
</TABLE>

(1)   1996, 1995, 1994 and 1993 restated to reflect a two for one split of the
      Company's common stock distributed in November 1997.

(2)   1996, 1995, 1994 and 1993 earnings per share amounts restated in
      accordance with the provisions of SFAS No. 128 adopted as of December 31,
      1997.


                                       17
<PAGE>   18
Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS


GENERAL

Operations

The Company reported record net income of $16.9 million for 1997, which is a
26.1% increase over its net income of $13.4 for 1996. This increase is
principally due to a 16.2% increase in gross written premiums, a 22.7% increase
in net investment income and profitable underwriting which resulted in a 85.9%
(GAAP basis) combined ratio (the sum of the net loss and loss adjustment
expenses and acquisition costs and other underwriting expenses divided by net
earned premiums). 1997 represented the fourth consecutive year since its 1993
initial public offering that the Company has reported growth in gross written
premiums and net income while experiencing a combined ratio under 90%, which is
substantially lower than the commercial property and casualty insurance industry
as a whole. The Company believes that its continued profitable growth is
attributable to the adherence to the Company's core philosophy of conservative
underwriting guidelines and pricing discipline.

The growth in gross written premiums primarily resulted from: the Company's
recent new product offerings; strengthening of the proprietary field marketing
organization to 100 professionals at year end 1997; and increasing product
distribution through the preferred agent program.

The Company's insurance subsidiaries are rated "A" (Excellent) by A.M. Best
Company and have been assigned an "A" claims paying ability rating by Standard &
Poor's.

Investments

The Company's investment objective is to realize relatively high levels of
investment income while generating competitive after-tax total rates of return
within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Company's A.M. Best and Standard & Poor's ratings. The Company utilizes
professional investment managers for its fixed maturity and equity investments.
These investments consist of diversified issuers and issues, and as of December
31, 1997 approximately 76% of the total invested assets (total investments plus
cash equivalents) consisted of investments in fixed maturity securities.

The Company increased its existing portfolio of fixed maturity securities by
investing in investment grade corporate debt during 1997 due to more favorable
after-tax yields. At the end of 1997 investment grade corporate debt represented
19.6% of total invested assets, compared to 6.0% as of the end of 1996. The
Company has also continued to increase its investments in common stock of
quality growth oriented mid- and large-cap companies seeking to achieve
diversification and capital appreciation in its invested assets. At December 31,
1997, common stocks comprised 20.9% of invested assets, compared to 15.8% as of
the end of 1996.

During 1997, the Company purchased certain collaterized mortgage and asset
backed securities, totaling $18.6 million in market value at year end. These
securities are short tranche securities possessing favorable prepayment risk
profiles. The Company had no other derivative financial instruments in its total
investments as of December 31, 1997.


RESULTS OF OPERATIONS
(1997 VERSUS 1996)

      Premiums: Gross written premiums grew $22.2 million (16.2%) to $159.1
million in 1997 from $136.9 million in 1996; gross earned premiums grew $28.3
million (23.2%) to $150.1 million in 1997 from $121.8 million in 1996; net
written premiums increased $27.8 million (33.1%) to $111.8 million in 1997 from
$84.0 million in 1996; and net earned premiums grew $28.5 million (39.5%) to
$100.6 million in 1997 from $72.1 million in 1996. The overall growth in
premiums and the varying growth rates for gross written premiums, gross earned
premiums, net written premiums and net earned premiums are attributable to a
number of factors including:


                                       18
<PAGE>   19
-     Overall premium growth is primarily attributable to: continued marketing
      efforts relating to commercial auto, commercial package, and specialty
      lines products, along with the continued development of the Company's
      Preferred Agent Program, initiated in 1996, wherein business relationships
      are formed with brokers specializing in certain of the Company's business
      niches thereby increasing the distribution of the Company's niche
      products; the increase of the Company's proprietary field organization to
      a total of 100 professionals, production underwriters and customer service
      representatives.

-     Net written and net earned premiums grew at higher rates than gross
      written and gross earned premiums primarily due to the renegotiation of
      the Company's reinsurance program effective January 1, 1997 whereby more
      favorable reinsurance rates were realized while substantially the same
      retentions and coverages were maintained.

      Net Investment Income: Net investment income approximated $9.7 million in
1997 and $7.9 million in 1996. The increase of $1.8 million (22.8%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities and the additional investment income as a
result of the relative percentage increase in corporate taxable securities
versus tax exempt municipal securities.

      Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $14.9 million (37.2%) to $55.0 million in 1997 from $40.1
million in 1996 and the loss ratio decreased to 54.7% in 1997 from 55.7% in
1996. The increase in net loss and loss adjustment expenses was due primarily to
the 39.5% growth in net earned premiums. Additionally, since more earned premium
was retained from the lower cost of reinsurance (see "Premiums", above), there
was relatively higher net earned premium growth on products with low loss
experience, the 37.2% increase in net loss and loss adjustment expenses was
lower than the 39.5% net earned premium growth.

      Acquisition Costs and Other Underwriting Expenses: Acquisition costs and
other underwriting expenses increased $9.1 million (41.0%), to $31.3 million in
1997 from $22.2 million in 1996. This increase was due primarily to the 39.5%
growth in net earned premiums.

      Income Tax Expense: The Company's effective tax rates for 1997 and 1996
were 24.0% and 20.3%, respectively. The effective rates differed from the 35%
statutory rate principally due to investment income earned on tax-exempt
securities. The increase in the effective tax rate is principally due to a
greater investment in taxable securities relative to tax-exempt securities
during 1997.

RESULTS OF OPERATIONS
(1996 VERSUS 1995)

      Premiums: Gross written premiums grew $32.7 million (31.4%) to $136.9
million in 1996 from $104.2 million in 1995; gross earned premiums grew $22.3
million (22.4%) to $121.8 million in 1996 from $99.5 million in 1995; net
written premiums increased $21.9 million (35.3%) to $84.0 million in 1996 from
$62.1 million in 1995; and net earned premiums grew $13.9 million (23.9%) to
$72.1 million in 1996 from $58.2 million in 1995. The overall growth in premiums
and the varying growth rates for gross written premiums, gross earned premiums,
net written premiums and net earned premiums are attributable to a number of
factors:

-     Overall premium growth is primarily attributable to the following factors:

      -       The prior year's growth in the field production underwriting
              organization enabling expansion of the Company's marketing efforts
              to non profit organizations, the health and fitness industry and
              selected professional liability products.

      -       The introduction of the Company's Preferred Agent Plan, wherein,
              business relationships were formed with brokers specializing in
              certain of the Company's business niches, thereby increasing the
              distribution of the Company's niche products.

      -       Continued favorable market conditions for certain leasing 
              products.


                                       19
<PAGE>   20
        -     Overall premium growth has been offset in part by designed
              reductions in premiums from certain rental products due primarily
              to inadequate pricing levels which are currently being experienced
              as a result of market competition. However, the Company
              anticipates an improvement in these market conditions in the near
              future. Additionally, there have been recent consolidations in the
              car rental industry the effect of which on the rental car
              insurance market, if any, are not known at this time.

      Net Investment Income: Net investment income approximated $7.9 million in
1996 and $6.5 million in 1995. The increase of $1.4 million (21.5%) is due
primarily to the increase in total investments as a result of cash flows
provided from operating activities.

      Net Realized Investment Gain (Loss): Net realized investment gains were
$.3 million in 1996 compared to $.2 million in 1995.

      Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $6.9 million (20.8%) to $40.1 million in 1996 from $33.2
million in 1995 and the loss ratio decreased to 55.7% in 1996 from 57.1% in
1995. The increase in net loss and loss adjustment expenses was due primarily to
the 23.9% growth in net earned premiums. Additionally, since there was
relatively higher net earned premium growth on products with low loss
experience, the percentage increase in net loss and loss adjustment expenses
(20.8%) was lower than the 23.9% net earned premium growth.

      Acquisition Costs and Other Underwriting Expenses: Acquisition costs and
other underwriting expenses increased $5.1 million (29.8%), to $22.2 million in
1996 from $17.1 million in 1995. The increase in acquisition costs and other
underwriting expenses exceeds the 23.9% growth in net earned premiums, due
primarily to increased commission expense as a result of the Company beginning
to market its niche products through preferred brokers.

      Other Operating Expenses: Other operating expenses decreased $1.2 million
(46.2%), to $1.4 million in 1996 compared to $2.6 million in 1995 principally
due to additional expenses related to the opening of new field offices in 1995.

      Income Tax Expense: The Company's effective tax rates for 1996 and 1995
were 20.3% and 20.0%, respectively. The effective rates differed from the 34%
statutory rate principally due to investment income earned on tax-exempt
securities.


GROWTH OPPORTUNITIES

The attainment of profitable new business continues to be a primary focus of the
Company. For 1998, the Company anticipates substantially growing its Preferred
Agent program, thereby further increasing the distribution of the Company's
niche products. In addition, the Company has grown its proprietary field
organization during 1997 to 100 professionals, including production underwriters
and customer service representatives and plans to further expand this
organization in 1998, thereby further strengthening its resources to prospect
the Company's existing niches for profitable new business. The Company also
seeks acquisition opportunities to purchase programs or books of business which
complement its niche markets or parallel its conservative underwriting and
pricing discipline. The Company is also exploring financing opportunities in
this regard; however, there is no assurance that an acquisition or financing
will occur.

Overall, due to the abundance of capital in the insurance industry, the current
business climate remains very competitive from a solicitation and pricing
standpoint. In the context of the current environment, the Company will not
sacrifice underwriting standards or pricing guidelines solely for premium volume
and will "walk away", if necessary, from writing business that does not meet
established underwriting standards and pricing guidelines as has occurred in the
commercial auto niche over the past three years. Additionally, in response to
the competitive market, the Company re-underwrote its errors and omissions
product during 1997 by increasing deductible requirements and modifying
underwriting guidelines in certain markets to reduce the size and risk profile
of the product. Management believes, though, that the Company's mixed marketing
strategy is a strength in this market environment, in that, it provides the
flexibility to quickly deploy the marketing efforts of the Company's direct
production underwriters from soft market segments to market segments with
emerging opportunities. Additionally,


                                       20
<PAGE>   21
through the mixed marketing strategy, the Company's production underwriters have
established relationships with approximately 4,000 brokers, thus facilitating a
regular flow of submissions.


LIQUIDITY AND CAPITAL RESOURCES

Philadelphia Insurance is a holding company whose principal assets currently
consist of 100% of the capital stock of the Insurance Subsidiaries and Maguire
Insurance Agency, Inc. Philadelphia Insurance's primary sources of funds are
dividends from its subsidiaries and payments to it pursuant to tax allocation
agreements with the Insurance Subsidiaries. For the year ended December 31,
1997, payments to Philadelphia Insurance pursuant to such tax allocation
agreements totaled $7.3 million. The payment of dividends to Philadelphia
Insurance from the Insurance Subsidiaries is subject to certain limitations
imposed by the insurance laws of the Commonwealth of Pennsylvania. Statutory
profits of the Insurance Subsidiaries from which dividends may be paid totaled
$59.7 million at December 31, 1997. Of this amount, the Insurance Subsidiaries
are entitled to pay a total of approximately $14.3 million of dividends in 1998
without obtaining prior approval from the Insurance Commissioner of the
Commonwealth of Pennsylvania.

Under certain reinsurance agreements, the Company is required to maintain
investments in trust accounts to secure its reinsurance obligations (primarily
the payment of losses and loss adjustment expenses on business it does not write
directly). At December 31, 1997, the investment and cash balances in such trust
accounts totaled approximately $14.6 million. In addition, various insurance
departments of states in which the Company operates require the deposit of funds
to protect policyholders within those states. At December 31, 1997, the balance
on deposit for the benefit of such policyholders totaled approximately $10.9
million.

The Company has reviewed all computer systems in operation within the Company
and determined them to be Year 2000 compliant except for its mainframe policy
administration computer system. The Company will begin the process of preparing
this computer system and related applications for the Year 2000 in the second
quarter 1998. The process involves modifying certain hardware and software.
Management expects to have substantially all hardware and software upgraded as
necessary, for compliance by year-end 1998. Management believes that its level
of preparedness is appropriate. The Company estimates the cumulative costs of
the process, which includes costs of modifying hardware and software, will not
have a material effect on its business, operations or financial condition. The
costs of the project and expected completion dates are based on management's
best estimates.

The Company has produced net cash from operations of $38.0 million in 1997,
$37.6 million in 1996 and $25.2 million in 1995. Management believes that the
Company has adequate liquidity to pay all claims and meet all other cash needs.

The Insurance Subsidiaries, which operate under a pooling agreement, require
policyholders' surplus to support premium writings. Guidelines of the National
Association of Insurance Commissioners (the "NAIC") suggests that a property and
casualty insurer's ratio of annual statutory net premium written to
policyholders' surplus should not exceed 3 to 1. The ratio of combined annual
statutory net premium written by the Insurance Subsidiaries to their combined
policyholders' surplus was 1.0 to 1.0 for both 1997 and 1996. Management
believes that the policyholders' surplus, which was $106.0 million at December
31, 1997 will be sufficient to support current and anticipated premium writings.
Risk-based capital is designed to measure the acceptable amount of capital and
surplus an insurer should have based on the inherent specific risks of each
insurer. Insurers failing to meet this benchmark level may be subject to
scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently contained in the
applicable Pennsylvania Insurance Company statutes, the Company's capital and
surplus is in excess of the prescribed risk-based capital requirements.

INFLATION

Property and casualty insurance premiums are established before the amount of
losses and loss adjustment expenses, or the extent to which inflation may affect
such amounts, is known. The Company attempts to anticipate the potential impact
of inflation in establishing its premiums and reserves. Substantial future
increases in inflation could result in future increases in interest rates which
in turn is likely to result in a decline in the market value of the Company's
investment portfolio and resulting unrealized losses and/or reductions in
shareholders' equity.


                                       21
<PAGE>   22
NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", specifying
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock. Under SFAS No. 128, basic
and diluted per share amounts shall be presented for net income on the face of
the statement of operations. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for years beginning after
December 15, 1997. This statement establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owners and distributions to owners. The Company will adopt
SFAS No. 130 and begin reporting comprehensive income in the first quarter of
1998.

In June 1997, the Financial Accounting Standards Board also issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for the disclosure of segment results. It requires that
segments be determined using the "management approach", which means the way
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in the
fourth quarter of 1998, and is still evaluating its impact on the Company's
segment disclosures.

FORWARD-LOOKING INFORMATION

From time-to-time, the Company may publish statements which are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new and
existing products, expectations for market segment and growth, and similar
matters. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company provides the following
cautionary remarks regarding important factors which, among others, could cause
the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements.

The risks and uncertainties that may affect the operations, performance,
development, results of the Company's business and the other matters referred to
above include, but are not limited to: (i) changes in the business environment
in which the Company operates, including inflation and interest rates; (ii)
changes in taxes, governmental laws and regulations; (iii) competitive product
and pricing activity; and (iv) difficulties of managing growth profitably.


                                       22
<PAGE>   23
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            Philadelphia Consolidated Holding Corp. and Subsidiaries
                   Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
         Financial Statements                                                                             Page
         --------------------                                                                             ----
<S>                                                                                                      <C>
         Report of Independent Accountants                                                                 24
         Consolidated Balance Sheets - As of December 31, 1997 and 1996                                    25
         Consolidated Statements of Operations - For the Years Ended December 31,
              1997, 1996 and 1995                                                                          26
         Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended
              December 31, 1997, 1996 and 1995                                                             27
         Consolidated Statements of Cash Flows - For the Years Ended December 31,
              1997, 1996 and 1995                                                                          28
         Notes to Consolidated Financial Statements                                                      29 - 41

         Financial Statement Schedules:
         ------------------------------

         Schedule
         --------

         I        Summary of Investments - Other Than Investments in
                  Related Parties As of December 31, 1997                                                  S-1

         II       Condensed Financial Information of Registrant As of
                  December 31, 1997 and 1996 and For Each of the Three
                  Years in the Period Ended December 31, 1997                                           S-2 - S-4

         IV       Reinsurance For the Years ended December 31, 1997,
                  1996 and 1995                                                                            S-5

         VI       Supplemental Information Concerning Property-
                  Casualty Insurance Operations As of and For the Years Ended
                  December 31, 1997, 1996 and 1995                                                         S-6
</TABLE>


                                       23
<PAGE>   24
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PHILADELPHIA CONSOLIDATED HOLDING
CORP.:


We have audited the accompanying consolidated balance sheets of Philadelphia
Consolidated Holding Corp. and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Philadelphia Consolidated Holding Corp. and Subsidiaries as of December 31, 1997
and 1996 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.


/s/ COOPERS & LYBRAND L.L.P.
----------------------------
    COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1998


                                       24
<PAGE>   25
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 AS OF DECEMBER 31,
                                                                            --------------------------
                                                                               1997             1996
                                                                               ----             ----
<S>                                                                         <C>              <C>
                                ASSETS
Investments:
  Fixed Maturities Available for Sale at Market
     (Amortized Cost $165,052 and $137,757)........................         $ 170,678        $ 141,236
  Equity Securities at Market (Cost $29,501 And $19,648)...........            46,988           27,342
                                                                            ---------        ---------
       Total Investments...........................................           217,666          168,578

Cash and Cash Equivalents..........................................            11,933           11,483
Accrued Investment Income..........................................             2,786            2,626
Premiums Receivable................................................            15,269            8,112
Prepaid Reinsurance Premiums and
     Reinsurance Receivables.......................................            18,573           18,078
Deferred Acquisition Costs.........................................            10,970            9,033
Property and Equipment.............................................             5,797            5,226
Other Assets.......................................................             5,132            2,802
                                                                            ---------        ---------
       TOTAL ASSETS................................................         $ 288,126        $ 225,938
                                                                            =========        =========

                 LIABILITIES AND SHAREHOLDERS' EQUITY
Policy Liabilities and Accruals:
  Unpaid Loss and Loss Adjustment Expenses.........................         $ 122,430        $  96,642
  Unearned Premiums................................................            42,116           33,154
                                                                            ---------        ---------
       Total Policy Liabilities and Accruals.......................           164,546          129,796

Other Liabilities..................................................             7,948            8,312
Deferred Income Taxes..............................................             4,348            1,240
Income Taxes Payable...............................................               --               948
                                                                            ---------        ---------
       TOTAL LIABILITIES...........................................           176,842          140,296
                                                                            ---------        ---------

Commitments and Contingencies


Shareholders' Equity (1):
  Preferred Stock, $.01 Par Value,
     10,000,000 Shares Authorized,
     None Issued and Outstanding...................................
  Common Stock, No Par Value, 50,000,000 Shares
     Authorized, 12,242,431 and 12,079,612 Shares Issued
     and Outstanding...............................................            42,788           41,167
  Notes Receivable from Shareholders...............................            (1,422)            (924)
  Unrealized Investment Appreciation (Depreciation),
     Net of Deferred Income Taxes..................................            15,023            7,374
  Retained Earnings................................................            54,895           38,025
                                                                            ---------        ---------
       TOTAL SHAREHOLDERS' EQUITY..................................           111,284           85,642
                                                                            ---------        ---------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................         $ 288,126        $ 225,938
                                                                            =========        =========
</TABLE>




(1)   1996 share information restated to reflect a two for one split of the
      Company's common stock distributed in November 1997, see Note 11.

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


                                       25
<PAGE>   26
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                       ----------------------------------------------
                                                           1997             1996             1995
                                                       ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>
Revenue:
  Gross Earned Premiums .........................      $    150,128     $    121,820     $     99,507
  Ceded Earned Premiums .........................           (49,573)         (49,770)         (41,319)
                                                       ------------     ------------     ------------
  Net Earned Premiums ...........................           100,555           72,050           58,188
  Net Investment Income .........................             9,703            7,910            6,506
  Net Realized Investment Gain (Loss) ...........               (16)             260              181
  Other Income ..................................               228              282              309
                                                       ------------     ------------     ------------
       TOTAL REVENUE ............................           110,470           80,502           65,184
                                                       ------------     ------------     ------------

Losses and Expenses:                                                                     
  Loss and Loss Adjustment Expenses .............            61,839           44,720           40,661
  Net Reinsurance Recoveries ....................            (6,830)          (4,602)          (7,434)
                                                       ------------     ------------     ------------
  Net Loss and Loss Adjustment Expenses .........            55,009           40,118           33,227
  Acquisition Costs and Other                                                            
     Underwriting Expenses ......................            31,344           22,210           17,105
  Other Operating Expenses ......................             1,909            1,386            2,564
                                                       ------------     ------------     ------------
      TOTAL LOSSES AND EXPENSES .................            88,262           63,714           52,896
                                                       ------------     ------------     ------------

Income Before Income Taxes ......................            22,208           16,788           12,288
                                                       ------------     ------------     ------------

Income Tax Expense (Benefit):                                                            
  Current .......................................             6,521            3,596            2,760
  Deferred ......................................            (1,183)            (182)            (302)
                                                       ------------     ------------     ------------
      TOTAL INCOME TAX EXPENSE ..................             5,338            3,414            2,458
                                                       ------------     ------------     ------------
      NET INCOME ................................      $     16,870     $     13,374     $      9,830
                                                       ============     ============     ============
                                                                                         
Per Average Share Data:                                                                  
  BASIC EARNINGS PER SHARE(1) ...................      $       1.38     $       1.13     $       0.85
                                                       ============     ============     ============

  DILUTED EARNINGS PER SHARE(1) .................      $       1.13     $       0.94     $       0.72
                                                       ============     ============     ============
                                                                                         
                                                                                         
Weighted Average Common Shares Outstanding(1) ...        12,193,659       11,879,506       11,627,702
                                                                                         
Weighted Average Share Equivalents Outstanding(1)         2,736,039        2,373,742        2,049,004
                                                       ------------     ------------     ------------
Weighted Average Share and Share Equivalents                                             
  Outstanding(1) ................................        14,929,698       14,253,248       13,676,706
                                                       ============     ============     ============
</TABLE>


(1)   1996 and 1995 share information restated to reflect a two for one split of
      the Company's common stock distributed in November 1997, see Note 11.

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


                                       26
<PAGE>   27

            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES


                       CONSOLIDATED STATEMENTS OF CHANGES
                             IN SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                    For the Years Ended December 31,
                                                            ----------------------------------------------
                                                                 1997             1996             1995
                                                            ------------     ------------     ------------
<S>                                                         <C>              <C>              <C>
Common Shares (1):                                                  
  Balance at Beginning of Year .........................      12,079,612       11,627,702       11,627,702
  Issuance of Shares                                                                          
    Pursuant to Employee Stock Purchase Plan ...........          78,569          156,910             --
    Pursuant to Employee Stock Option Plan .............          84,250          295,000             --
                                                            ------------     ------------     ------------
      BALANCE AT END OF YEAR ...........................      12,242,431       12,079,612       11,627,702
                                                            ============     ============     ============
Common Stock:                                                                                 
  Balance at Beginning of Year .........................    $     41,167     $     39,057     $     39,096
  Issuance of Shares                                                                          
    Pursuant to Employee Stock Purchase Plan ...........             898            1,131             --
  Exercise of Employee Stock Options, Net of Tax Benefit             723              979             --
  Other ................................................            --               --                (39)
                                                            ------------     ------------     ------------
      BALANCE AT END OF YEAR ...........................          42,788           41,167           39,057
                                                            ------------     ------------     ------------
Notes Receivable from Shareholders:                                                           
  Balance at Beginning of Year .........................            (924)            --               --
  Notes Receivable Issued                                                                     
    Pursuant to Employee Stock Purchase Plan ...........            (873)          (1,131)            --
  Collection of Notes Receivable .......................             375              207             --
      BALANCE AT END OF YEAR ...........................          (1,422)            (924)            --   
Unrealized Investment Appreciation (Depreciation),                                            
  Net of Deferred Income Taxes:                                                               
    Balance at Beginning of Year .......................           7,374            4,608           (1,317)
    Change in Unrealized Investment Appreciation                                              
      (Depreciation), Net of Deferred Income Taxes .....           7,649            2,766            5,925
                                                            ------------     ------------     ------------
      BALANCE AT END OF YEAR ...........................          15,023            7,374            4,608
                                                            ------------     ------------     ------------
Retained Earnings:                                                                            
  Balance at Beginning of Year .........................          38,025           24,651           14,821
  Net Income ...........................................          16,870           13,374            9,830
                                                            ------------     ------------     ------------
      BALANCE AT END OF YEAR ...........................          54,895           38,025           24,651
                                                            ------------     ------------     ------------
      TOTAL SHAREHOLDERS' EQUITY .......................    $    111,284     $     85,642     $     68,316
                                                            ============     ============     ============
</TABLE>



(1)   1996 and 1995 share information restated to reflect a two for one split of
      the Company's common stock distributed in November 1997, see Note 11.

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


                                       27
<PAGE>   28
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 For the Years Ended December 31,
                                                              --------------------------------------
                                                                1997           1996           1995
                                                              --------       --------       --------
<S>                                                           <C>            <C>            <C>
Cash Flows from Operating Activities:
  Net Income ..............................................   $ 16,870       $ 13,374       $  9,830
  Adjustments to Reconcile Net Income to Net                                                
    Cash Provided by Operating Activities:                                                  
      Net Realized Investment (Gain) Loss .................         16           (260)          (181)
      Depreciation and Amortization Expense ...............      1,232            930            951
      Deferred Income Tax Benefit .........................     (1,183)          (182)          (302)
      Change in Premiums Receivable .......................     (7,157)          (214)           860
      Change in Other Receivables .........................       (655)        (5,747)        (5,748)
      Change in Deferred Acquisition Costs ................     (1,937)        (3,876)        (1,246)
      Change in Other Assets ..............................     (2,511)          (817)          (363)
      Change in Unpaid Loss and Loss Adjustment                                             
        Expenses ..........................................     25,788         18,956         18,511
      Change in Unearned Premiums .........................      8,962         15,035          4,673
      Change in Other Liabilities .........................       (575)          (184)        (1,696)
      Change in Income Taxes Payable ......................       (834)           548            (53)
                                                              --------       --------       --------
        Net Cash Provided by Operating Activities .........     38,016         37,563         25,236
                                                              --------       --------       --------

Cash Flows from Investing Activities:                                                       
  Proceeds from Sales of Investments in Fixed                                               
    Maturities Available for Sale .........................      5,564          2,594         12,543
  Proceeds from Maturity of Investments in Fixed                                            
    Maturities Available for Sale .........................      9,305          9,476          1,272
  Proceeds from Sale of Investments in Fixed                                                
    Maturities Held to Maturity ...........................       --             --              915
  Proceeds from Maturity of Investments in Fixed                                            
    Maturities Held to Maturity ...........................       --             --              932
  Proceeds from Sales of Investments in Equity                                              
    Securities ............................................      5,896          2,168          5,655
  Cost of Fixed Maturities Available for Sale                                               
    Acquired ..............................................    (42,309)       (32,783)       (47,101)
  Cost of Fixed Maturities Held to Maturity                                                 
    Acquired ..............................................       --             --             (301)
  Cost of Equity Securities Acquired ......................    (15,536)       (12,412)        (5,616)
  Other - Net .............................................       --             --           (3,000)
  Purchase of Property and Equipment, net .................     (1,609)        (1,989)        (1,319)
                                                              --------       --------       --------
        Net Cash Used for Investing Activities ............    (38,689)       (32,946)       (36,020)
                                                              --------       --------       --------

Cash Flows from Financing Activities:                                                       
  Exercise of Employee Stock Options, net of Tax Benefit ..        723            979           --
  Collection of Notes Receivable ..........................        375            207           --
  Proceeds from Shares Pursuant to Employee Stock                                           
        Purchase Plan .....................................         25           --             --
                                                              --------       --------       --------
        Net Cash Provided by Financing Activities .........      1,123          1,186           --
                                                              --------       --------       --------
 Net Increase (Decrease) in Cash and Cash Equivalents .....        450          5,803        (10,784)
 Cash and Cash Equivalents at Beginning of Year ...........     11,483          5,680         16,464
                                                              --------       --------       --------
 CASH AND CASH EQUIVALENTS AT END OF YEAR .................   $ 11,933       $ 11,483       $  5,680
                                                              ========       ========       ========
 Cash Paid During the Year for:                                                             
  Income Taxes ............................................   $  7,158       $  3,024       $  3,323

 Non-Cash Transactions:                                                                     
  Issuance of Shares Pursuant to Employee                                                   
    Stock Purchase Plan in exchange for Notes Receivable ..   $    873       $  1,131       $   --
</TABLE>



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


                                       28
<PAGE>   29
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

Philadelphia Consolidated Holding Corp. ("Philadelphia Insurance"), and its
subsidiaries (collectively the "Company") doing business as Philadelphia
Insurance Companies, include two Pennsylvania domiciled property and casualty
insurance companies, Philadelphia Indemnity Insurance Company and Philadelphia
Insurance Company ("Insurance Subsidiaries"), and an underwriting manager
Maguire Insurance Agency, Inc. The Company designs, markets, and underwrites
specialty commercial property and casualty insurance products for the rent a car
industry, automobile leasing industry, non-profit organizations, the health,
fitness and wellness industry, and selected classes of professional liability.
All marketing, underwriting, claims management, investment, and general
administration is provided by the underwriting manager.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
prepared in conformity with generally accepted accounting principles. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements requires making estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
prior years' amounts have been reclassified for comparative purposes.

(a)  INVESTMENTS

Investments classified as Available for Sale are carried at market value with
the change in unrealized appreciation (depreciation) credited or charged
directly to shareholders' equity, net of applicable deferred income taxes.
Income on fixed maturities is recognized on the accrual basis.

The decision to purchase or sell investments is based on management's assessment
of various factors such as foreseeable economic conditions, including current
interest rates and the interest rate risk, and the liquidity and capital
positions of the Company.

Investments in fixed maturities are adjusted for amortization of premiums and
accretion of discounts to maturity date, except for collaterized mortgage and
asset backed securities which are adjusted for amortization of premiums and
accretion of discounts over their estimated lives. Certain collaterized mortgage
and asset backed securities repayment patterns will change based on interest
rate movements and, accordingly, could impact future investment income if the
reinvestment of the repayment amounts are at lower interest rates than the
underlying securities. Collaterized mortgage and asset backed securities
amounted to $18,630,800 and $0 at December 31, 1997 and December 31, 1996,
respectively. The collaterized mortgage and asset back securities held as of
December 31, 1997 are short tranche securities possessing favorable prepayment
risk profiles.

Equity securities are carried at market value with the change in unrealized
appreciation (depreciation) credited or charged directly to shareholders'
equity, net of applicable deferred income taxes.

Realized investment gains and losses are calculated on the specific
identification basis and recorded as income when the securities are sold.

(b)  CASH AND CASH EQUIVALENTS

Cash equivalents, consisting of fixed maturity investments with maturities of
three months or less when purchased and money market funds, are stated at cost
which approximates market value.

(c) DEFERRED ACQUISITION COSTS

Policy acquisition costs, which include commissions, premium taxes, fees and
other costs of underwriting policies, are deferred and amortized over the same
period in which the related premiums are earned. Deferred acquisition costs are
limited to the estimated amounts recoverable after providing for losses and
expenses that are expected to be incurred, based


                                       29
<PAGE>   30
upon historical and current experience, as the premiums are earned. Amortization
of policy acquisition costs in the accompanying consolidated statements of
operations was $25,034,000, $17,739,000 and $13,662,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.

(d)  PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Costs incurred in developing information systems technology are capitalized and
included in property and equipment. These costs are amortized over their useful
lives from the dates the systems technology became operational. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in earnings.

(e)  RESERVES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES

The liability for unpaid loss and loss adjustment expenses includes an amount
determined on the basis of claims adjusters' evaluations and an amount, based on
past experience, for losses incurred but not reported. Such liabilities are
necessarily based on estimates, and while management believes that the amount is
adequate, the ultimate liability may be in excess of, or less than, the amount
provided. The methods of making such estimates and establishing the resulting
liabilities are continually reviewed and updated and any adjustments resulting
therefrom are reflected in operations currently.

(f)  UNEARNED PREMIUMS

Premiums are generally earned on a pro rata basis over the terms of the
policies. Premiums applicable to the unexpired terms of the policies in-force
are reported as unearned premiums.

(g)  REINSURANCE CEDED

In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Amounts for reinsurance assets and liabilities are reported
gross.

(h)  INCOME TAXES

The Company files a consolidated federal income tax return. Deferred income
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to the differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the enactment date (see Note
8).

(i)  EARNINGS PER SHARE

Earnings per share and common stock equivalents outstanding have been
retroactively restated to reflect the increased number of common shares
resulting from a two for one stock split that was announced in October 1997 and
distributed to shareholders on November 5, 1997. A total of 6,119,716 additional
shares were issued as a result of the stock split. The par value of the
Company's stock remained unchanged.

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," specifying
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock. Under SFAS No. 128, basic
and diluted per share amounts shall be presented for net income on the face of
the statement of operations. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. The Company adopted the provisions of SFAS No.
128 as of December 31, 1997 and restated all prior period earnings per share
data to conform with the provisions of this Statement.


                                       30
<PAGE>   31
2.  STATUTORY INFORMATION

Accounting Principles. The Philadelphia Indemnity Insurance Company ("PIIC") and
the Philadelphia Insurance Company ("PIC") are domiciled in the Commonwealth of
Pennsylvania. PIIC and PIC are required to report to certain regulatory agencies
on the basis of Statutory Accounting Practices ("SAP"). The statutory financial
statements are prepared in accordance with accounting practices prescribed or
permitted by the Insurance Department of the Commonwealth of Pennsylvania.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as
Commonwealth laws, regulations and general administrative rules. Permitted
Statutory Accounting Practices encompass all accounting practices not so
prescribed.

Generally accepted accounting principles ("GAAP") differ in certain respects
from SAP prescribed or permitted by the Insurance Department of the Commonwealth
of Pennsylvania. The principal differences between SAP and GAAP are as follows:

      Under SAP, investments in debt securities are carried at amortized cost,
      while under GAAP, investments in debt securities classified as Available
      for Sale are carried at fair value;

      Under SAP, policy acquisition costs, such as commissions, premium taxes,
      fees, and other costs of underwriting policies are charged to current
      operations as incurred, while under GAAP, such costs are deferred and
      amortized on a pro rata basis over the period covered by the policy;

      Under SAP, certain assets, designated as "Non-admitted Assets" (such as
      prepaid expenses) are charged against surplus;

      Under SAP, federal income taxes are only provided on taxable income for
      which income taxes are currently payable, while under GAAP, deferred
      income taxes are provided with respect to temporary differences;

      Under SAP, certain reserves are established in amounts which differ from
      amounts which would be provided in conformity with GAAP.

Financial Information: The statutory capital and surplus of PIIC as of December
31, 1997 and 1996 was $75,894,000 and $60,175,000, respectively. Statutory net
income of PIIC for the years ended December 31, 1997, 1996 and 1995 was
$8,839,000, $5,626,000, and $5,416,000, respectively.

The statutory capital and surplus of PIC as of December 31, 1997 and 1996 was
$30,091,000 and $21,732,000, respectively. Statutory net income of PIC for the
years ended December 31, 1997, 1996 and 1995 was $5,494,000, $3,629,000, and
$3,587,000, respectively.

Dividend Restrictions: The Insurance Subsidiaries are subject to various
regulatory restrictions which limit the maximum amount of annual shareholder
dividends allowed to be paid. The maximum dividend which PIIC may pay to
Philadelphia Insurance during 1998 without prior approval is $8,839,000 and the
maximum dividend which PIC may pay to Philadelphia Insurance during 1998 without
prior approval is $5,494,000.

Risk-Based Capital: Risk-based capital is designed to measure the acceptable
amount of capital an insurer should have based on the inherent specific risks of
each insurer. Insurers failing to meet this benchmark capital level may be
subject to scrutiny by the insurer's domiciliary insurance department and
ultimately rehabilitation or liquidation. Based on the standards, PIIC's and
PIC's capital and surplus at December 31, 1997 is in excess of the prescribed
risk-based capital requirements.


                                       31
<PAGE>   32
3.  INVESTMENTS

The Company invests primarily in investment grade fixed maturities, the majority
of which are rated "A" or better by Standard and Poor's. The cost, gross
unrealized gains and losses, estimated market value and carrying value of
investments as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                       Gross          Gross         Estimated
                                                    Unrealized      Unrealized        Market           Carrying
                                       Cost (1)        Gains          Losses        Value (2)            Value
                                       ----            -----          ------        ---------            -----
<S>                                 <C>             <C>             <C>             <C>                <C>
DECEMBER 31, 1997                                                                                      
Fixed Maturities:                                                                                      
Available for Sale                                                                                     
   U.S. Treasury Securities and                                                                        
   Obligations of U.S.                                                                                 
   Government Corporations and      $ 15,391          $   273          $  9          $ 15,655          $ 15,655
   Agencies                                                                                            

   Obligations of States and         105,117            4,670            91           109,696           109,696
   Political Subdivisions                                                                              

   Corporate Debt Securities          44,544              801            18            45,327            45,327
---------------------------------------------------------------------------------------------------------------
   Total Fixed Maturities                                                                              
   Available for Sale                165,052            5,744           118           170,678           170,678
---------------------------------------------------------------------------------------------------------------
Equity Securities                     29,501           17,800           313            46,988            46,988
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS                   $194,553          $23,544          $431          $217,666          $217,666
===============================================================================================================

DECEMBER 31, 1996                                                                                      
Fixed Maturities:                                                                                      
Available for Sale                                                                                     
   U.S. Treasury Securities and                                                                        
   Obligations of U.S.                                                                                 
   Government Corporations and                                                                         
   Agencies                         $ 20,450          $   159          $ 52          $ 20,557          $ 20,557

   Obligations of States and         105,682            3,369           164           108,887           108,887
   Political Subdivisions                                                                              

   Corporate Debt Securities          11,625              236            69            11,792            11,792
---------------------------------------------------------------------------------------------------------------
   Total Fixed Maturities                                                                              
   Available for Sale                137,757            3,764           285           141,236           141,236
---------------------------------------------------------------------------------------------------------------
Equity Securities                     19,648            7,930           236            27,342            27,342
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS                   $157,405          $11,694          $521          $168,578          $168,578
===============================================================================================================
</TABLE>


(1)   Original cost of equity securities; original cost of fixed maturities
      adjusted for amortization of premiums and accretion of discounts.

(2)   Estimated market values have been based on quoted market prices.

The Company had no debt or equity investments in a single issuer totaling in
excess of 10% of shareholders' equity at December 31, 1997.


                                       32
<PAGE>   33
The cost and estimated market value of fixed maturity securities at December 31,
1997, by remaining contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
                                                                                                      Estimated
                                                                                                       Market
                                                                           Cost (1)                   Value (2)
                                                                        ----------------         --------------------
<S>                                                                     <C>                      <C>        
Due in One Year or Less                                                   $     4,075                 $     4,079
Due After One Year Through Five Years                                          40,460                      41,267
Due After Five Years through Ten Years                                         92,935                      96,509
Due After Ten Years                                                            27,582                      28,823
---------------------------------------------------------------------------------------------------------------------
                                                                          $   165,052                 $   170,678
=====================================================================================================================
</TABLE>


(1)   Original cost adjusted for amortization of premiums and accretion of
      discounts.

(2)   Estimated market values have been based on quoted market prices.

The sources of net investment income for the years ended December 31, 1997, 1996
and 1995 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 1997               1996                  1995
                                                            ---------------    ----------------    ----------------
<S>                                                         <C>                <C>                 <C>
Fixed Maturities:
   Available for Sale                                         $  8,978            $  7,377            $   4,583
   Held to Maturity                                                --                  --                 1,366
Equity Securities                                                  480                 257                  217
Cash and Cash Equivalents                                          602                 422                  479
-------------------------------------------------------------------------------------------------------------------
Total Investment Income                                         10,060               8,056                6,645
Investment Expense                                                (357)               (146)                (139)
-------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                         $  9,703            $  7,910             $  6,506
===================================================================================================================
</TABLE>


There are no investments in fixed maturity securities that were non-income
producing during the years ended December 31, 1997, 1996 and 1995. Investment
expense includes $164,000, $60,000, and $84,000 in advisory fees paid to a
related party in 1997, 1996 and 1995, respectively.

Realized pre-tax gains (losses) on the sale of investments for the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                  1997              1996                 1995
                                                            ---------------    ---------------      --------------
<S>                                                         <C>                <C>                  <C>
Fixed Maturities:
   Available for Sale
     Gross Realized Gains                                        $  22             $    47              $  403
     Gross Realized Losses                                         (52)                (28)                (43)
------------------------------------------------------------------------------------------------------------------
Net Gain (Loss)                                                    (30)                 19                 360
------------------------------------------------------------------------------------------------------------------
   Held to Maturity
     Gross Realized Losses                                         --                  --                  (57)
------------------------------------------------------------------------------------------------------------------
Net Loss                                                           --                  --                  (57)
------------------------------------------------------------------------------------------------------------------
Equity Securities
   Gross Realized Gains                                            628                 280                 223
   Gross Realized Losses                                          (614)                (39)               (345)
------------------------------------------------------------------------------------------------------------------
Net Gain (Loss)                                                     14                 241                (122)
------------------------------------------------------------------------------------------------------------------
TOTAL NET REALIZED
INVESTMENT GAIN (LOSS)                                           $ (16)            $   260              $  181
==================================================================================================================
</TABLE>



                                       33
<PAGE>   34
4.  RESTRICTED ASSETS

PIIC and PIC have investments, principally U.S. Treasury securities on deposit
with the various states in which they are licensed insurers. At December 31,
1997 and 1996 the carrying value on deposit totaled $10,912,000 and $7,070,000,
respectively.

5.  TRUST ACCOUNTS

The Company is required to maintain certain investments in trust accounts under
reinsurance agreements with unrelated insurance companies that cede insurance
risks to the Company. At December 31, 1997 and 1996 the Company had investments
with a carrying value of $2,403,000 and $2,868,000, respectively, in trust
accounts pursuant to a terminated quota share reinsurance agreement. Under the
terms of this agreement, net premiums received by the Company were invested and
held in a trust account to pay future claims. Interest income on these
investments is distributed to the parties to the quota share agreement on a
quarterly basis. The Company receives its interest in net trust investments in
accordance with a formula that specifies certain percentages of funds to be
released over a five-year period as losses are settled.

The Company also maintains investments in trust accounts under current
reinsurance agreements with unrelated insurance companies. These investments
collateralize the Company's obligations under the reinsurance agreements. The
Company possesses sole responsibility for investment and reinvestment of the
trust account assets. All dividends, interest, and other income resulting from
investment of these assets are owned by the Company, and are distributed on a
monthly basis. At December 31, 1997 and 1996 the carrying value of these trust
fund investments were $12,205,000 and $23,223,000, respectively.

The Company's share of the investments in the trust accounts is included in
investments and cash equivalents, as applicable, in the accompanying
consolidated balance sheets.

6.  PROPERTY AND EQUIPMENT

The following table summarizes property and equipment at December 31, 1997 and
1996 (dollars in thousands):

<TABLE>
<CAPTION>
                                                    December 31,                   
                                        --------------------------------------     Estimated Useful
                                               1997                1996              Lives (Years)
                                               ----                ----              -------------
<S>                                        <C>                 <C>                 <C> 
Furniture, Fixtures and Automobiles
                                           $   2,473           $   2,256                   5

Computer and Telephone Equipment               7,176               6,004                 3 - 7

Land and Building                              2,277               2,272                   40
Leasehold Improvements                           974                 812                   12
------------------------------------------------------------------------------
                                              12,900              11,344
Accumulated Depreciation and
Amortization                                  (7,103)             (6,118)
------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT                     $   5,797           $   5,226
==============================================================================
</TABLE>

Included in property and equipment are costs incurred in developing or
purchasing information systems technology of $2,516,500 and $2,447,600 in 1997
and 1996, respectively. Amortization of these costs was $180,200, $100,100, and
$115,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Depreciation expense excluding amortization of capitalized information systems
technology costs was $858,200, $530,000, and $395,000, for the years ended
December 31, 1997, 1996 and 1995, respectively.


                                       34
<PAGE>   35


7.  LIABILITY FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for Unpaid Loss and Loss Adjustment Expenses is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                            1997                  1996                  1995
                                                       ---------------       ---------------       ---------------
<S>                                                    <C>                   <C>                   <C>      
Balance at January 1                                      $  96,642             $  77,686             $  59,175
   Less Reinsurance Receivables                              10,919                 9,440                 5,580
                                                          ---------             ---------             ---------
   Net Balance at January 1                                  85,723                68,246                53,595
                                                          ---------             ---------             ---------

Incurred related to:
   Current Year                                              56,725                41,083                34,152
   Prior Years                                               (1,716)                 (965)                 (925)
                                                          ---------             ---------             ---------
Total Incurred                                               55,009                40,118                33,227
                                                          ---------             ---------             ---------

Paid related to:
   Current Year                                               9,512                 7,427                 6,186
   Prior Years                                               22,292                15,214                12,390
                                                          ---------             ---------             ---------
Total Paid                                                   31,804                22,641                18,576
                                                          ---------             ---------             ---------

Net Balance at December 31                                  108,928                85,723                68,246
   Plus Reinsurance Receivables                              13,502                10,919                 9,440
                                                          ---------             ---------             ---------
Balance at December 31                                    $ 122,430             $  96,642             $  77,686
                                                          =========             =========             =========
</TABLE>

As a result of changes in estimates of insured events of prior years, the
Company reduced losses and loss adjustment expenses incurred by $1,716,000,
$965,000 and $925,000 in 1997, 1996 and 1995, respectively. Such favorable
development was due to losses emerging at a lesser rate than had been originally
anticipated when the initial reserves for the applicable accident years were
estimated.

8.  INCOME TAXES

The composition of deferred tax assets and liabilities and the related tax
effects as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                          ----------------------------------------
                                                                                 1997                    1996
                                                                                 ----                    ----
<S>                                                                       <C>                         <C>
Assets:
Effect of Loss Reserve Discounting                                            $  5,735                $  4,725
Excess of Tax Over Financial Reporting Earned Premium                            2,709                   1,922
Other Assets                                                                       128                     127
------------------------------------------------------------------------------------------------------------------
Total Assets                                                                     8,572                   6,774
==================================================================================================================

Liabilities:
Deferred Policy Acquisition Costs, Deductible for Tax                            3,752                   3,074
Property and Equipment Basis                                                       494                     416
Tax Effect of Unrealized Appreciation of Securities                              8,089                   3,798
Other Liabilities                                                                  585                     726
------------------------------------------------------------------------------------------------------------------
 Total Liabilities                                                              12,920                   8,014
------------------------------------------------------------------------------------------------------------------
Net Deferred Income Tax Liability                                             $  4,348                $  1,240
==================================================================================================================
</TABLE>


                                       35
<PAGE>   36
The following table summarizes the differences between the Company's effective
tax rate for financial statement purposes and the Federal statutory rate
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                                 Amount of Tax           Percent
                                                                              -------------------    ----------------
<S>                                                                           <C>                    <C>  
For the year ended December 31, 1997:
Federal Tax at Statutory Rate                                                    $    7,773                35%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion                  (1,812)               (8)
Other, Net                                                                             (623)               (3)
---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE                                                               $    5,338                24%
=====================================================================================================================

For the year ended December 31, 1996:
Federal Tax at Statutory Rate                                                    $    5,708                34%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion                  (1,670)              (10)
Other, Net                                                                             (624)               (4)
---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE                                                               $    3,414                20%
=====================================================================================================================

For the year ended December 31, 1995:
Federal Tax at Statutory Rate                                                    $    4,178                34%
Nontaxable Municipal Bond Interest and Dividends Received Exclusion                  (1,303)              (11)
Other, Net                                                                             (417)               (3)
---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE                                                               $    2,458                20%
=====================================================================================================================
</TABLE>

As of December 31, 1997, the Company has approximately $0.9 million in net
operating loss carryforwards, which expire in 2000 and 2001, available to offset
future taxable income. Utilization of the loss carryfowards is limited to an
annual amount of $336,000. For financial reporting purposes, the tax benefit of
any utilization of these operating loss carryfowards is applied to reduce
goodwill ($114,000 in 1997) and does not reduce income tax expense.

Philadelphia Insurance has entered into tax sharing agreements with each of its
subsidiaries. Under the terms of these agreements, the income tax provision is
computed as if each subsidiary were filing a separate federal income tax return
including adjustments for the income tax effects of net operating losses and
other special tax attributes regardless of whether those attributes are utilized
in the Company's consolidated federal income tax return.

9.  REINSURANCE

In the normal course of business, the Company has entered into various
reinsurance contracts with unrelated reinsurers. The Company participates in
such agreements for the purpose of limiting loss exposure and diversifying
business. Reinsurance contracts do not relieve the Company from its obligation
to policyholders.

The loss and loss adjustment expense reserves ceded under such arrangements were
$13,502,000 and $10,919,000 at December 31, 1997 and 1996, respectively. The
Company evaluates the financial condition of its reinsurers to minimize its
exposure to losses from reinsurer insolvencies. The percentage of ceded
reinsurance reserves that are with companies rated "A" (Excellent) or better by
A.M. Best Company is 100% and 97% as of December 31, 1997 and 1996,
respectively. Additionally, approximately 2%, 4%, and 11% of the Company's net
written premiums for the years ended December 31, 1997, 1996 and 1995,
respectively, were assumed from an unrelated reinsurance company.


                                       36
<PAGE>   37
The effect of reinsurance on premiums written and earned is as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                                   WRITTEN               EARNED
                                                                                   -------               ------
<S>                                                                             <C>                 <C>  
For the Year Ended December 31, 1997:
Direct Business                                                                 $  157,060          $   147,514
Reinsurance Assumed                                                                  2,031                2,614
Reinsurance Ceded                                                                   47,294               49,573
---------------------------------------------------------------------------------------------------------------
NET PREMIUMS                                                                    $  111,797          $   100,555
===============================================================================================================
Percentage Assumed of Net                                                                                  2.6%
===============================================================================================================

For the Year Ended December 31, 1996:
Direct Business                                                                 $  132,611          $   117,354
Reinsurance Assumed                                                                  4,244                4,466
Reinsurance Ceded                                                                   52,861               49,770
---------------------------------------------------------------------------------------------------------------
NET PREMIUMS                                                                    $   83,994          $    72,050
===============================================================================================================
Percentage Assumed of Net                                                                                  6.2%
===============================================================================================================

For the Year Ended December 31, 1995:
Direct Business                                                                 $   97,519          $    92,046
Reinsurance Assumed                                                                  6,661                7,461
Reinsurance Ceded                                                                   42,108               41,319
---------------------------------------------------------------------------------------------------------------
NET PREMIUMS                                                                    $   62,072          $    58,188
===============================================================================================================
Percentage Assumed of Net                                                                                 12.8%
===============================================================================================================
</TABLE>

10.      SHAREHOLDERS' EQUITY

The Company has established non-qualified stock bonus and stock option plans.
Under the stock bonus plan, the Company has granted a total of 137,500 shares to
certain officers of the Company, of which all such shares have been issued and
are vested.

Under the Company's stock option plan, stock options may be granted for the
purchase of common stock at a price not less than the fair market value on the
date of grant. Options outstanding as of December 31, 1994 are exercisable over
a four to five year vesting period. Options issued in 1997, 1996 and 1995 are
exercisable after the expiration of five years following the grant date. Under
this plan, the Company has reserved 2,475,000 shares of common stock for
issuance pursuant to options granted under the plan.

In addition to stock options granted pursuant to the Company's stock option
plan, the Company's Board of Directors have granted previous awards of 2,613,492
stock options.

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at a fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for the
Company's compensation instruments is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.


                                       37
<PAGE>   38
The following is a summary of the Company's option activity, including weighted
average option information:
<TABLE>
<CAPTION>
                                         1997                             1996(2)                           1995(2)
                            -------------------------------    ------------------------------     -----------------------------
                                               Exercise                          Exercise                          Exercise
                                                Price                              Price                             Price
                              Options        Per Option(1)       Options       Per Option(1)       Options       Per Option(1)
                            ------------    ---------------    ------------    --------------     -----------    --------------
<S>                         <C>             <C>                <C>             <C>                <C>            <C>
Outstanding at beginning
of year                       3,572,292        $    3.86         3,200,642        $   2.84         3,184,742        $   2.81
Granted                           5,000        $   16.38           917,900        $   8.39            43,400        $   6.11
Exercised                       (84,250)       $    4.42          (292,500)       $   3.33           (20,000)       $   4.47
Canceled                        (20,000)       $    6.00          (253,750)       $   8.05            (7,500)       $   4.94
                            ------------                       ------------                       -----------
Outstanding at end of year    3,473,042        $    3.85         3,572,292        $   3.86         3,200,642        $   2.84
                            ============                       ============                       ===========

Exercisable at end of year    2,768,792                          2,819,218                         3,097,392

Weighted-average fair
 value of options granted  
 during the year           $       6.38                        $      2.87                        $     2.14
</TABLE>

<TABLE>
<CAPTION>
                                                                Exercise                       Exercisable
                                             Outstanding         Price          Remaining           at            Exercise
                                             At December          Per          Contractual       December           Price
Range of Exercise Prices                       31, 1997         Option(1)      Life (Years)      31, 1997       Per Option(1)
-------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                <C>            <C>             <C>              <C>     
$2.61                                         2,691,742         $   2.61           5.1           2,689,192        $   2.61
$4.75 to $7.31                                  108,400         $   5.52           3.9              79,600        $   5.37
$8.13 to $9.31                                  667,900         $   8.48           8.2                 --              --
$16.38                                            5,000         $  16.38           9.9                 --              --
                                              ---------                                          ---------
                                              3,473,042         $   3.85                         2,768,792        $   2.69
                                              =========                                          =========
</TABLE>


(1)   Weighted Average Exercise Price Per Option.

(2)   Restated to reflect a two for one split of the Company's common stock
      distributed in November 1997, see Note 11.

The Company has established a non-qualified Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The aggregate maximum number of shares that may be
issued pursuant to the Stock Purchase Plan is 500,000. Shares may be purchased
under the Stock Purchase Plan by eligible employees during designated one-month
offering periods established by the Compensation Committee of the Board of
Directors at a purchase price of the lesser of 85% of the fair market value of
the shares on the first business day of the offering period or the date the
shares are purchased. The purchase price of shares may be paid by the employee
over six years pursuant to the execution of a promissory note. The promissory
note(s) are collateralized by such shares purchased under the Stock Purchase
Plan and are interest free. Under the Stock Purchase Plan, the Company issued
78,569 and 52,144 shares in 1997 and 1996, respectively. The weighted average
fair value of those purchase rights granted in 1997 and 1996 was $1.94 and
$1.51, respectively.

In addition, the Company has also established a non-qualified Directors Stock
Purchase Plan ("Directors Plan") for the benefit of non-employee Directors. The
aggregate maximum number of shares that may be issued pursuant to the Directors
Plan is 50,000. Non-employee Directors, during monthly offering periods, may
designate a portion of his or her fees to be used for the purchase of shares
under the terms of the Directors Plan at a purchase price of the lesser of 85%
of the fair market value of the shares on the first business day of the offering
period or the last business day of the offering period. No shares have been
issued pursuant to the Directors Plan as of December 31, 1997.


                                       38
<PAGE>   39
Since the Company has adopted the disclosure-only provisions of SFAS No. 123, no
compensation cost has been recognized for the Company's compensation
instruments. The following represents pro forma information as if the Company
recorded compensation costs using the fair value of the issued compensation
instruments (the results may not be indicative of the actual effect on net
income in future years) (in thousands, except per average common share data):

<TABLE>
<CAPTION>
                                                                   1997             1996(1)         1995(1)
                                                               ------------      ------------    ------------
<S>                                                            <C>               <C>             <C>       
Net Income As Reported                                          $   16,870        $   13,374      $    9,830
Assumed Stock Compensation Cost                                        354               281              22
                                                                ----------        ----------      ----------
Pro Forma Net Income                                            $   16,516        $   13,093      $    9,808
                                                                ==========        ==========      ==========
Diluted Earnings Per Average Common Share as Reported           $     1.13        $     0.94      $     0.72
                                                                ==========        ==========      ==========
Pro Forma Diluted Earnings Per Average Common Share             $     1.11        $     0.92      $     0.72
                                                                ==========        ==========      ==========
</TABLE>

(1)   Per share information restated to reflect a two for one split of the
      Company's common stock distributed in November 1997, see Note 11.

The fair value of options at date of grant was estimated using the Black-Scholes
valuation model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                     1997            1996         1995
                                                                 ------------    ------------ ------------
<S>                                                              <C>             <C>          <C>  
Expected Stock Volatility                                            25.9%           20.0%        19.3%
Risk Free Interest Rate                                               5.8%            5.8%         6.4%
Expected Option Life-Years                                            6.0             6.0          6.0
Expected Dividends                                                    0.0%            0.0%         0.0%
</TABLE>

11.   COMMON STOCK SPLIT

On October 16, 1997, the Board of Directors approved a two for one split of the
Company's common stock payable to shareholders of record on October 27, 1997 for
distribution on November 5, 1997. Weighted average common shares outstanding,
common stock equivalents, and earnings per share have been restated to reflect
this stock split.

12.  PROFIT SHARING

The Company has a defined contribution Profit Sharing Plan, which includes a
401K feature, covering substantially all employees. Under the plan, employees
may contribute up to an annual maximum of the lesser of 15% of eligible
compensation or the applicable Internal Revenue Code limit in a calendar year.
The Company makes a matching contribution in an amount equal to 50% of the
participant's pretax contribution, subject to a maximum of 6% of the
participant's eligible compensation. The Company may also make annual
discretionary profit sharing contributions at each plan year end. Participants
are fully vested in the Company's contribution upon completion of 7 years of
service. The Company's contributions to the plan were $474,300, $322,400, and
$267,500 in 1997, 1996 and 1995, respectively.


                                       39
<PAGE>   40
13.  COMMITMENTS AND CONTINGENCIES

The Company is subject to routine legal proceedings in connection with its
property and casualty insurance business. The Company is not involved in any
pending or threatened legal or administrative proceedings which management
believes can reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations.

The Company currently leases office space to serve as its headquarters location
and 38 field offices for its production underwriters. Rental expense for these
operating leases was $916,700, $736,700, and $187,800 for the years ended
December 31, 1997, 1996 and 1995, respectively.

At December 31, 1997, the future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
Year Ending December 31:
<S>                                                           <C>       
1998                                                          $1,256,000
1999                                                           1,067,000
2000                                                             837,000
2001                                                             704,000
2002 and Thereafter                                              756,000
================================================================================
TOTAL MINIMUM PAYMENTS REQUIRED                               $4,620,000
================================================================================
</TABLE>

14.  SUMMARY OF QUARTERLY FINANCIAL INFORMATION - UNAUDITED

The following quarterly financial information for each of the three months ended
March 31, June 30, September 30 and December 31, 1997 and 1996 is unaudited.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the results of operations for
such periods, have been made for a fair presentation of the results shown (in
thousands, except share and per share data):

<TABLE>
<CAPTION>
                                                                Three Months Ended(1)
                                        ------------------------------------------------------------------
                                           March 31,        June 30,       September 30,    December 31,
                                             1997             1997             1997             1997
                                        ---------------  ---------------  ---------------  ---------------
<S>                                     <C>              <C>              <C>              <C>        
Net Earned Premiums                       $    22,388      $    25,163      $    26,492      $    26,512
Net Investment Income                     $     2,211      $     2,404      $     2,535      $     2,553
Net Loss and Loss Adjustment Expenses     $    12,481      $    13,832      $    14,429      $    14,267
Acquisition Costs and Other
  Underwriting Expenses                   $     6,946      $     7,858      $     8,429      $     8,111
Net Income                                $     3,622      $     3,992      $     4,468      $     4,788

Basic Earnings Per Share                  $      0.30      $      0.33      $      0.37      $      0.39
Diluted Earnings Per Share                $      0.25      $      0.27      $      0.30      $      0.32

Weighted Average Common Shares
  Outstanding                              12,133,216       12,175,688       12,223,940       12,240,286
Weighted Average Share Equivalents
  Outstanding                               2,570,174        2,674,217        2,815,533        2,792,963
                                          -----------      -----------      -----------      -----------
Weighted Average Share and Share
Equivalents Outstanding                    14,703,390       14,849,905       15,039,473       15,033,249
                                          ===========      ===========      ===========      ===========
</TABLE>


                                       40
<PAGE>   41
<TABLE>
<CAPTION>
                                                                Three Months Ended(1)                      
                                        ------------------------------------------------------------------ 
                                           March 31,        June 30,       September 30,    December 31,   
                                             1996             1996             1996             1996       
                                        ---------------  ---------------  ---------------  --------------- 
<S>                                     <C>              <C>              <C>              <C>             
Net Earned Premiums                       $    15,817     $    17,190       $    20,323      $    18,720
Net Investment Income                     $     1,846     $     1,885       $     2,041      $     2,138
Net Loss and Loss Adjustment Expenses     $     8,674     $     9,089       $    12,120      $    10,235
Acquisition Costs and Other               
  Underwriting Expenses                   $     5,107     $     5,836       $     5,920      $     5,347   
Net Income                                $     2,715     $     3,057       $     3,462      $     4,140

Basic Earnings Per Share                  $      0.23     $      0.26       $      0.29      $      0.34
Diluted Earnings Per Share                $      0.19     $      0.22       $      0.24      $      0.29

Weighted Average Common Shares
  Outstanding                              11,627,702      11,754,382        12,055,068       12,081,944
Weighted Average Share Equivalents
  Outstanding                               2,372,724       2,394,441         2,128,804        2,387,123
                                          -----------     -----------       -----------      -----------
Weighted Average Share and Share
Equivalents Outstanding                    14,000,426      14,148,823        14,183,872       14,469,067
                                          ===========     ===========       ===========      ===========
</TABLE>

(1)   All periods, except for the three months ended December 31, 1997, were
      restated to reflect a two for one split of the Company's common stock
      distributed in November 1997, see Note 11.


                                       41
<PAGE>   42
Item 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          Not applicable.

                                    PART III

Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later that 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information concerning the Company's director and executive
          officers required by this Item is incorporated by reference to the
          Proxy Statement under the caption "Management-Directors and Executive
          Officers".

Item 11.  EXECUTIVE COMPENSATION

          The information required by this Item is incorporated by reference to
          the Proxy Statement under the captions "Executive Compensation","Stock
          Option Exercises and Holdings" and "Directors Compensation".

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information required by this Item is incorporated by reference to
          the Proxy Statement under the caption "Security Ownership of Certain
          Beneficial Owners and Management".

Item 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information required by this Item is incorporated by reference to
          the Proxy Statement under the caption "Additional Information
          Regarding the Board".


                                     PART IV

Item 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements and Exhibits

          1. The Financial Statements and Financial Statement Schedules listed 
in the accompanying index on page 23 are filed as part of this Report.

          2. Exhibits: The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as part of, or
incorporated by reference into, this Report.

<TABLE>
<CAPTION>
Exhibit No.                Description
-----------                -----------
<S>      <C>               <C>
3.1      *                 Articles of Incorporation of Philadelphia Insurance, as amended to date.

3.1.1    *                 Amendment to Articles of Incorporation of Philadelphia Insurance.

3.2      *                 By-laws of Philadelphia Insurance, as amended to date.

10.1     * (1)             Amended and Restated Key Employees' Stock Option Plan.

10.1.1   ********(1)       Amended and Restated Key Employees' Stock Option Plan.

10.2     * (1)             Key Employees' Stock Bonus Plan.

10.2.1   * (1)             Excerpt of Board of Directors and Shareholders Resolution amending Key Employees' Stock
                           Bonus Plan.

10.6     *                 Casualty Excess of Loss Reinsurance Agreement No. 14P-106,401,402, effective January 1, 1990, with 
                           Swiss Re, as amended to date.

10.7     *                 Property Quota Share Reinsurance Agreement No. 14P-202, effective December 9, 1989, with Swiss
                           Re, as amended to date.
</TABLE>


                                       42
<PAGE>   43
<TABLE>
<S>      <C>               <C>
10.8     *                 Casualty Quota Share Reinsurance Agreement No. 14P-201, effective January 1, 1989, with 
                           Swiss Re, as amended to date.

10.9     *                 Retrocession Contract No. 80101, effective October 1, 1990, with Swiss Re, as amended to date, together
                           with related Casualty Quota Share Reinsurance Agreement No. X21-201, as amended to date.

10.10    *                 Retrocession Contract No. 81100/81101, effective October 1, 1990, with Swiss Re, as amended to date, 
                           together with related Property Quota Share Reinsurance Agreement No. DP2AB, effective
                           October 1, 1990, as amended to date.

10.11    *                 Retrocession Contract No. 80100/80103, effective October 1, 1990, with Swiss Re, as amended to date,
                           together with related Casualty Quota Share Reinsurance Agreement No. DC2ABC, effective
                           October 1, 1990, as amended to date.

10.12    *                 Agreement of Reinsurance no. B367, dated June 11, 1991, with General Reinsurance Corporation,
                           as amended to date.

10.13    *                 Agreement of Reinsurance No. A271, dated July 2, 1993, with General Reinsurance Corporation.

10.14    *                 General Agency Agreement, effective December 1, 1987, between MIA and Providence Washington Insurance 
                           Company, as amended to date, together with related Quota Share
                           Reinsurance Agreements, as amended to date.

10.15    *                 E & O Insurance Policy effective July 20, 1993.

10.15.1  *******           E & O Insurance Policy effective July 20, 1996.

10.15.2  *********         E & O Insurance Policy effective July 20, 1997.

10.16    *                 Minutes of the Board of Directors Meeting dated October 20, 1992, and excerpts from the Minutes of the
                           Board of Directors Meeting dated November 16, 1992.

10.17    * (1)             Letter dated July 9, 1993 from James J. Maguire, confirming verbal agreements concerning
                           options.

10.18    * (1)             James J. Maguire Stock Option Agreements.

10.18.1  *** (1)           Amendment to James J. Maguire Stock Option Agreements.

10.19    * (1)             Wheelways Salary Savings Plus Plan Summary Plan Description.

10.20    *                 Key Man Life Insurance Policies on James J. Maguire

10.21    *                 Reinsurance Pooling Agreement dated August 14, 1992, between PIIC and PIC.

10.22    *                 Tax Sharing Agreement, dated July 16, 1987, between Philadelphia Insurance and PIC, as amended to date.

10.23    *                 Tax Sharing Agreement, dated November 1, 1986, between Philadelphia Insurance and PIIC, as amended 
                           to date.

10.24    * (1)             Management Agreement dated May 20, 1991, between PIIC and MIA, as amended to date.

10.24.1  *******(1)        Management Agreement dated May 20, 1991, between PIIC and MIA, as amended September 25,    1996.

10.25    * (1)             Management Agreement dated October 23, 1991, between PIC and MIA, as amended to date.

10.25.1  *******(1)        Management Agreement dated October 23, 1991, between PIC and MIA, as amended
                           September 25, 1996.

10.26    *                 General Mutual Release and Settlement of All Claims dated July 2, 1993, with the Liquidator of 
                           Integrity Insurance Company.

10.27    *                 Settlement Agreement and General Release with Robert J. Wilkin, Jr., dated August 18, 1993.

10.28    **                Lease tracking portfolio assignment agreement.

10.29    **** (1)          James J. Maguire Split Dollar Life Insurance Agreement, Collateral Assignment and Joint and Last 
                           Survivor Flexible Premium Adjustable Life Insurance Policy Survivorship Life.
10.30    *****             Allenbrook Software License Agreement, dated September 26, 1995.

10.31    *****             Sublease Agreement dated August 24, 1995 with CoreStates Bank, N.A.

10.32    *****             Lease Agreement dated August 30, 1995 with The Prudential Insurance Company of America.

10.33    ******(1)         Employee Stock Purchase Plan.

10.34    ******(1)         Cash Bonus Plan.

10.35    ******(1)         Executive Deferred Compensation Plan.

10.36    ********(1)       Directors Stock Purchase Plan

10.37    *********         Lease Agreement dated May 8, 1997 with Bala Plaza, Inc.

10.38    *********         Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997, together with Property
                           Per Risk Excess of Loss Reinsurance Agreement effective January 1, 1997 and Property Facultative
                           Excess of Loss Automatic  Reinsurance Agreement effective January 1, 1997.
</TABLE>


                                       43
<PAGE>   44
<TABLE>
<S>      <C>               <C>     
10.39    *********         Automobile Leasing Residual Value Excess of Loss Reinsurance Agreement effective January 1, 1997,
                           together with Second Casualty Excess of Loss Reinsurance Agreement, effective January 1, 1997.

11       *********         Statement regarding computation of earnings per share.

21       *                 List of Subsidiaries of the Registrant.

23       *********         Consent of Coopers & Lybrand L.L.P.

24       *                 Power of Attorney.

27       *********         Financial Data Schedule.

99.1     *********         Report of Independent Accountants of Coopers & Lybrand L.L.P. on Financial Statement
                           Schedules.
</TABLE>


*             Incorporated by reference to the Exhibit filed with the 
              Registrant's Form S-1 Registration Statement under the Securities
              Act of 1933 (Registration No. 33-65958).

**            Filed as an Exhibit to the Company's Annual Report on Form 10-K
              for the year ended December 31, 1993 and incorporated by
              reference.

***           Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended September 30, 1994 and incorporated
              by reference.

****          Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended March 31, 1995 and incorporated by
              reference.

*****         Filed as an Exhibit to the Company's Annual Report on Form 10-K
              for the year ended December 31, 1995 and incorporated by
              reference.

******        Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended September 30, 1996 and incorporated
              by reference.

*******       Filed as an Exhibit to the Company's Annual Report on Form 10-K
              for the year ended December 31, 1996 and incorporated by
              reference.

********      Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended June 30, 1997 And incorporated by
              reference.

*********     Filed herewith. 

(1)           Compensatory Plan or Arrangement, or Management
              Contract.

(b) Reports on Form 8-K:

            No reports on Form 8-K were filed during the fourth quarter of 1997.


                                       44
<PAGE>   45

                                   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.

                       Philadelphia Consolidated Holding Corp.

                       By:   /s/ James J. Maguire
                          -----------------------
                       James J. Maguire
                       Chairman of the Board of Directors, President,
                       and Chief Executive Officer

                       March 12, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                    Signature                               Title                                      Date
                    ---------                               -----                                      ----
<S>                                        <C>                                                    <C> 
              /s/ James J. Maguire                 Chairman of the Board of                       March 12, 1998
        --------------------------------   Directors, President and Chief Executive
                 James J. Maguire           Officer (Principal Executive Officer)



                                            Vice President, Secretary, Treasurer,
               /s/ Craig P. Keller               and Chief Financial Officer                      March 12, 1998
        --------------------------------          (Principal Financial and
                   Craig P. Keller                    Accounting Officer)



               /s/ Sean S. Sweeney             Senior Vice President, Director                    March 12, 1998
        --------------------------------
                  Sean S. Sweeney



            /s/ James J. Maguire, Jr.              Vice President, Director                       March 12, 1998
        --------------------------------
              James J. Maguire, Jr.



           /s/ William J. Henrich, Jr.                     Director                               March 12, 1998
        --------------------------------
              William J. Henrich, Jr.



             /s/ Paul R. Hertel, Jr.                       Director                               March 12, 1998
        --------------------------------
                Paul R. Hertel, Jr.



               /s/ Roger L. Larson                         Director                               March 12, 1998
        --------------------------------
                  Roger L. Larson



              /s/ Thomas J. McHugh                         Director                               March 12, 1998
        --------------------------------
                 Thomas J. McHugh



              /s/ Michael J. Morris                        Director                               March 12, 1998
        --------------------------------
                 Michael J. Morris



            /s/ J. Eustace Wolfington                      Director                               March 12, 1998
        --------------------------------
               J. Eustace Wolfington
</TABLE>


                                       45
<PAGE>   46
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 Schedule I - Summary of Investments - Other than Investments in Related Parties
                             As of December 31, 1997
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
COLUMN A                                                        COLUMN B                 COLUMN C            COLUMN D
                                                                                        Estimated         Amount at which
                                                                                          Market       shown in the Balance
Type of Investment                                               Cost *                   Value                Sheet
---------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                      <C>            <C>
Fixed Maturities:
Bonds:
   United States Government and Government 
   Agencies and Authorities                                    $   15,391                $ 15,655            $ 15,655
   States, Municipalities and Political Subdivisions              105,117                 109,696             109,696
   Public Utilities                                                 3,367                   3,456               3,456
   All Other Corporate Bonds                                       39,775                  40,483              40,483
Redeemable Preferred Stock                                          1,402                   1,388               1,388
                                                               ----------                --------            --------
                 Total Fixed Maturities                           165,052                 170,678             170,678
                                                               ----------                --------            --------
Equity Securities:
Common Stocks:
   Banks, Trust and Insurance Companies                            15,202                  12,485              12,485
   Industrial, Miscellaneous and all other                         14,299                  34,503              34,503
                                                               ----------                --------            --------
                  Total Equity Securities                          29,501                  46,988              46,988
                                                               ----------                --------            --------
                  Total Investments                            $  194,553                $217,666            $217,666
                                                               ==========                ========            ========
</TABLE>


*    Original cost of equity securities; original cost of fixed maturities
     adjusted for amortization of premiums and accretion of discounts.


                                      S-1
<PAGE>   47
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                                   Schedule II
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                                 Balance Sheets
                        (In Thousands, Except Share Data)


<TABLE>
<CAPTION>
                                                                       As of December 31,
                                                                    -----------------------
                                                                      1997           1996
                                                                      ----           ----
<S>                                                                 <C>            <C>
                          ASSETS
Investments:
     Fixed Maturities Available for Sale at Market                  $      30      $     30
     Equity Securities at Market                                         --            --
                                                                    ---------      --------
                     TOTAL INVESTMENTS                                     30            30

Cash and Cash Equivalents                                                  (3)          345
Mortgage Loans (a)                                                      1,125         1,125
Equity in and Advances to Unconsolidated Subsidiaries (a)             109,540        84,072
Goodwill less Accumulated Amortization of $1,495 and $1,313               589           771
Other Assets                                                             --              10
                                                                    ---------      --------
                     TOTAL ASSETS                                   $ 111,281      $ 86,353
                                                                    =========      ========
           LIABILITIES AND SHAREHOLDERS' EQUITY

Income Taxes Payable (Recoverable)                                  $    (162)     $    536
Other Liabilities                                                         159           175
                                                                    ---------      --------
                     TOTAL LIABILITIES                                     (3)          711
                                                                    ---------      --------
Commitments and Contingencies

Shareholders' Equity (b):
      Preferred Stock, $.01 Par Value, 10,000,000 Shares
      Authorized, None Issued and Outstanding
      Common Stock, No Par Value, 50,000,000 Shares
      Authorized; 12,242,431 and 12,079,612 Shares Issued and
      Outstanding                                                      42,788        41,167
Notes Receivable from Shareholders                                     (1,422)         (924)
Unrealized Investment Appreciation (Depreciation), Net of
      Deferred Income Taxes                                            15,023         7,374
Retained Earnings                                                      54,895        38,025
                                                                    ---------      --------
                     TOTAL SHAREHOLDERS' EQUITY                       111,284        85,642
                                                                    ---------      --------
                     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $ 111,281      $ 86,353
                                                                    =========      ========
</TABLE>




(a)   These items have been eliminated in the Company's Consolidated Financial
      Statements.

(b)   1996 share information restated to reflect a two for one split of the
      Company's common stock distributed in November 1997.

See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.


                                      S-2
<PAGE>   48
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                             Schedule II, Continued
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                            Statements of Operations
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                  For the Years Ended December 31,
                                                                 ----------------------------------
                                                                    1997         1996        1995
                                                                    ----         ----        ----
<S>                                                              <C>           <C>         <C>
Revenue:
         Dividends from Subsidiaries (a)                         $   --        $  --       $ 6,000
         Net Investment Income                                         10           11          63
         Net Realized Investment Gain, (Loss) (b)                    --            672         (10)
                                                                 --------      -------     -------
                     TOTAL REVENUE                                     10          683       6,053
                                                                 --------      -------     -------

Expenses:
         Goodwill Amortization                                         68           79          89
         Other                                                        472          417         291
                                                                 --------      -------     -------
                     TOTAL EXPENSES                                   540          496         380
                                                                 --------      -------     -------

Income, (Loss) Before Income Taxes and Equity in Earnings of
 Unconsolidated Subsidiaries                                         (530)         187       5,673
Income Tax Expense (Benefit)                                         (162)          74        (125)
                                                                 --------      -------     -------
Income, (Loss) Before Equity in Earnings of Unconsolidated
  Subsidiaries                                                       (368)         113       5,798
Equity in Earnings of Unconsolidated Subsidiaries                  17,238       13,261       4,032
                                                                 --------      -------     -------
  NET INCOME                                                     $ 16,870      $13,374     $ 9,830
                                                                 ========      =======     =======
</TABLE>




(a)   This item has been eliminated in the Company's Consolidated Financial
      Statements.

(b)   $665 of this amount has been eliminated in the Company's Consolidated
      Financial Statements for 1996.




See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.


                                      S-3
<PAGE>   49
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                             Schedule II, Continued
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                            Statements of Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                    For the Years Ended December 31,
                                                                                ----------------------------------------
                                                                                    1997          1996          1995
                                                                                    ----          ----          ----
<S>                                                                               <C>           <C>           <C> 
Cash Flows From Operating Activities:

      Net Income                                                                  $ 16,870      $ 13,374      $ 9,830
      Adjustments to Reconcile Net Income to Net
      Cash Provided (Used) by Operating Activities:
           Net Realized Investment (Gain), Loss                                       --            (672)          10
           Equity in Earnings of Unconsolidated Subsidiaries                       (17,238)      (13,261)      (4,032)
           Goodwill Amortization                                                        68            79           89
           Change in Other Liabilities                                                 (16)           25          150
           Change in Other Assets                                                       10            (9)         (38)
           Change in Income Taxes Payable                                             (584)          (88)        (343)
                                                                                  --------      --------      -------
                  Net Cash Provided (Used) by Operating Activities                    (890)         (552)       5,666
                                                                                  --------      --------      -------
Cash Flows From Investing Activities:
      Proceeds From Sales of Investments in Equity Securities                         --           2,335        2,139
      Cost of Fixed Maturities Available for Sale Acquired                            --            --            (30)
      Cost of Equity Securities Acquired                                              --            (119)        (509)
      Net Transfers to Subsidiaries (a)                                               (581)       (2,678)      (7,118)
                                                                                  --------      --------      -------
                  Net Cash Used by Investing Activities                               (581)         (462)      (5,518)
                                                                                  --------      --------      -------
Cash Flows From Financing Activities:
      Exercise of Employee Stock Options, Net of Tax Benefit                           723           979         --
      Collection of Notes Receivable                                                   375           207         --
      Proceeds from Shares Pursuant to Employee Stock Purchase Plan                     25          --           --
                                                                                  --------      --------      -------
                  Net Cash Provided by Financing Activities                          1,123         1,186         --
                                                                                  --------      --------      -------
Net Increase (Decrease) in Cash and Equivalents                                       (348)          172          148
Cash and Cash Equivalents at Beginning of Year                                         345           173           25
                                                                                  --------      --------      -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                          $     (3)          345      $   173
                                                                                  ========      ========      =======
Cash Dividends Received From Unconsolidated Subsidiaries                          $   --        $   --        $ 6,000
                                                                                  ========      ========      =======
Non-Cash Transactions:
      Issuance of Shares Pursuant to Employee Stock Purchase Plan in exchange
      for Notes Receivable                                                        $    873      $  1,131      $   --
</TABLE>



(a)   These items have been eliminated in the Company's Consolidated Financial
      Statements.


See Notes to Consolidated Financial Statements included in Item 8, pages 29-41.


                                      S-4
<PAGE>   50
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                            Schedule IV - Reinsurance
                                 Earned Premiums
              For the Years Ended December 31, 1997, 1996, and 1995
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
COLUMN A                                     COLUMN B          COLUMN C        COLUMN D         COLUMN E           COLUMN F
-------------------------------------------------------------------------------------------------------------------------------
                                                              Ceded to       Assumed from                       Percentage of
                                           Gross Amount        Other            Other                         Amount Assumed to
                                                              Companies       Companies       Net Amount             Net
-------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>            <C>              <C>             <C>
1997

Property and Casualty Insurance              $147,514          $49,573          $2,614         $100,555              2.6%

===============================================================================================================================

1996

Property and Casualty Insurance              $117,354          $49,770          $4,466         $ 72,050              6.2%

===============================================================================================================================

1995

Property and Casualty Insurance              $ 92,046          $41,319          $7,461         $ 58,188             12.8%

===============================================================================================================================
</TABLE>


                                      S-5
<PAGE>   51
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
          Schedule VI - Supplemental Information Concerning Property -
                         Casualty Insurance Operations
         As of and For the Years Ended December 31, 1997, 1996, and 1995
                             (Dollars in Thousands)




<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                                                 CLAIMS AND CLAIMS
                                                                                                 ADJUSTMENT EXPENSES
                                                                                                 INCURRED RELATED TO
                                  RESERVE FOR
                                    UNPAID                                                                              
                       DEFERRED   CLAIMS AND   DISCOUNT IF                                                              
                        POLICY      CLAIM         ANY                     NET        NET        (1)           (2)       
  AFFILIATION WITH   ACQUISITION  ADJUSTMENT   DEDUCTED IN   UNEARNED    EARNED   INVESTMENT  CURRENT        PRIOR      
     REGISTRANT         COSTS      EXPENSES      COLUMN C    PREMIUMS   PREMIUMS    INCOME      YEAR          YEAR      

      COLUMN A         COLUMN B    COLUMN C      COLUMN D    COLUMN E   COLUMN F   COLUMN G          COLUMN H           
<S>                  <C>          <C>          <C>           <C>        <C>       <C>         <C>            <C>
CONSOLIDATED                                                                                                            
PROPERTY - CASUALTY                                                                                                     
ENTITIES                                                                                                                

December 31, 1997      $10,970     $122,430        $0        $42,116    $100,555    $9,703    $56,725        ($1,716)   
December 31, 1996      $ 9,033     $ 96,642        $0        $33,154    $ 72,050    $7,910    $41,083        ($  965)   
December 31, 1995      $ 5,157     $ 77,686        $0        $18,119    $ 58,188    $6,506    $34,152        ($  925)   
</TABLE>


<TABLE>
<CAPTION>
                        AMORTIZATION                            
                        OF DEFERRED     PAID CLAIMS   
  AFFILIATION WITH         POLICY        AND CLAIM                           
     REGISTRANT         ACQUISITION     ADJUSTMENT      NET WRITTEN           
                           COSTS         EXPENSES        PREMIUMS            

      COLUMN A            COLUMN I       COLUMN J        COLUMN K            
<S>                     <C>             <C>             <C>
CONSOLIDATED                                                                 
PROPERTY - CASUALTY                                                          
ENTITIES                                                                     

December 31, 1997         $31,344        $31,804         $111,797            
December 31, 1996         $22,210        $22,641         $ 83,994            
December 31, 1995         $17,105        $18,576         $ 62,072            
</TABLE>


                                      S-6
<PAGE>   52
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

                                  Exhibit Index

                      For the Year Ended December 31, 1997


<TABLE>
<CAPTION>
Exhibit No.           Page No.       Description
-----------           --------       -----------
<S>                   <C>            <C>                                                                           
3.1      *                           Articles of Incorporation of Philadelphia Insurance, as amended to date.

3.1.1    *                           Amendment to Articles of Incorporation of Philadelphia Insurance.

3.2      *                           By-laws of Philadelphia Insurance, as amended to date.
10.1     * (1)                       Amended and Restated Key Employees' Stock Option Plan.


10.1.1   ********(1)                 Amended and Restated Key Employers' Stock Option Plan.

10.2     * (1)                       Key Employees' Stock Bonus Plan.

10.2.1   * (1)                       Excerpt of Board of Directors and Shareholders Resolution amending Key Employees' Stock
                                     Bonus Plan.

10.6     *                           Casualty Excess of Loss Reinsurance Agreement No. 14P-106,401,402, effective
                                     January 1, 1990, with Swiss Re, as amended
                                     to date.

10.7     *                           Property Quota Share Reinsurance Agreement No. 14P-202, effective December 9,
                                     1989, with Swiss Re, as amended to date.

10.8     *                           Casualty Quota Share Reinsurance Agreement No. 14P-201, effective January 1, 1989,
                                     with Swiss Re, as amended to date.

10.9     *                           Retrocession Contract No. 80101, effective October 1, 1990, with Swiss Re, as
                                     amended to date, together with related Casualty Quota Share Reinsurance Agreement
                                     No. X21-201, as amended to date.

10.10    *                           Retrocession Contract No. 81100/81101, effective October 1, 1990, with Swiss Re, as amended to
                                     date, together with related Property Quota Share Reinsurance Agreement No. DP2AB, effective 
                                     October 1, 1990, as amended to date.

10.11    *                           Retrocession Contract No. 80100/80103, effective October 1, 1990, with Swiss Re, as amended to
                                     date, together with related Casualty Quota Share Reinsurance Agreement No. DC2ABC, effective 
                                     October 1, 1990, as amended to date.

10.12    *                           Agreement of Reinsurance no. B367, dated June 11, 1991, with General Reinsurance Corporation,
                                     as  amended to date.

10.13    *                           Agreement of Reinsurance No. A271, dated July 2, 1993, with General Reinsurance Corporation.

10.14    *                           General Agency Agreement, effective December 1, 1987, between MIA and Providence Washington
                                     Insurance Company, as amended to date, together with related Quota Share Reinsurance 
                                     Agreements, as amended to date.

10.15    *                           E & O Insurance Policy effective July 20, 1993.

10.15.1  *******                     E & O Insurance Policy effective July 20, 1996.

10.15.2  *********    Page 55 of 235 E & O Insurance Policy effective July 20, 1997.

10.16    *                           Minutes of the Board of Directors Meeting dated October 20, 1992, and excerpts from the
                                     Minutes of the Board of Directors Meeting dated November 16, 1992.

10.17    * (1)                       Letter dated July 9, 1993 from James J. Maguire, confirming verbal agreements concerning
                                     options.

10.18    * (1)                       James J. Maguire Stock Option Agreements.

10.18.1  *** (1)                     Amendment to James J. Maguire Stock Option Agreements.

10.19    * (1)                       Wheelways Salary Savings Plus Plan Summary Plan Description.

10.20    *                           Key Man Life Insurance Policies on James J. Maguire
</TABLE>


                                     (E-1)

                                  P. 52 
<PAGE>   53
<TABLE>
<CAPTION>
Exhibit No.           Page No.          Description
-----------           --------          -----------
<S>                   <C>               <C>
10.21    *                              Reinsurance Pooling Agreement dated August 14, 1992, between PIIC and PIC.

10.22    *                              Tax Sharing Agreement, dated July 16, 1987, between Philadelphia Insurance and
                                        PIIC, as amended to date.

10.23    *                              Tax Sharing Agreement, dated November 1, 1986, between Philadelphia Insurance and
                                        PIIC, as amended to date.

10.24    * (1)                          Management Agreement dated May 20, 1991, between PIIC and MIA, as amended to date.

10.24.1  *******(1)                     Management Agreement dated May 20, 1991, between PIIC and MIA, as amended
                                        September 25, 1996.

10.25    * (1)                          Management Agreement dated October 23, 1991, between PIC and MIA, as amended to
                                        date.

10.25.1                                 *******(1) Management Agreement dated
                                        October 23, 1991, between PIC and MIA,
                                        as amended September 25, 1996.

10.26    *                              General Mutual Release and Settlement of All Claims dated July 2, 1993, with the
                                        Liquidator of Integrity Insurance Company.

10.27    *                              Settlement Agreement and General Release with Robert J. Wilkin, Jr., dated August
                                        18, 1993.

10.28    **                             Lease tracking portfolio assignment agreement.

10.29    **** (1)                       James J. Maguire Split Dollar Life Insurance Agreement, Collateral Assignment and
                                        Joint and Last Survivor Flexible Premium Adjustable Life Insurance Policy
                                        Survivorship Life.

10.30    *****                          Allenbrook Software License Agreement, dated September 26, 1995.

10.31    *****                          Sublease Agreement dated August 24, 1995 with CoreStates Bank, N.A.

10.32    *****                          Lease Agreement dated August 30, 1995 with The Prudential Insurance Company of
                                        America.

10.33    ******(1)                      Employee Stock Purchase Plan.

10.34    ******(1)                      Cash Bonus Plan.

10.35    ******(1)                      Executive Deferred Compensation Plan.

10.36    ********(1)                    Directors Stock Purchase Plan.

10.37    *********    Page 68 of 235    Lease Agreement dated May 8, 1997 with Bala Plaza, Inc.

10.38    *********    Page 78 of 235    Casualty Excess of Loss Reinsurance Agreement effective January 1, 1997, together
                                        with Property Per Risk Excess of Loss Reinsurance Agreement effective January 1, 1997 and
                                        Property Facultative Excess of Loss Automatic Reinsurance Agreement
                                        effective January 1, 1997.

10.39    *********    Page 169 of 235   Automobile Leasing Residual Value Excess of Loss Reinsurance Agreement effective
                                        January 1, 1997, together with Second Casualty Excess of Loss Reinsurance
                                        Agreement, effective January 1, 1997.

11       *********    Page 228 of 235   Statement regarding computation of earnings per share.

21       *                              List of Subsidiaries of the Registrant.

23       *********    Page 230 of 235   Consent of Coopers & Lybrand L.L.P.

24       *                              Power of Attorney

27       *********    Page 234 of 235   Financial Data Schedule.

99.1     *********    Page 232 of 235   Report of Independent Accountants of Coopers & Lybrand L.L.P. on Financial
                                        Statement Schedules.
</TABLE>


*          Incorporated by reference to the Exhibit filed with the Registrant's
           Form S-1 Registration Statement under the Securities Act of 1933
           (Registration No. 33-65958).

**         Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the year ended December 31, 1993 and incorporated by reference.

***        Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
           for the quarterly period ended September 30, 1994 and incorporated by
           reference.

****       Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
           for the quarterly period ended March 31, 1995 and incorporated by
           reference.


                                     (E-2)


                                  P. 53
<PAGE>   54

*****      Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the year ended December 31, 1995 and incorporated by reference.

******     Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
           for the quarterly period ended September 30, 1996 and incorporated by
           reference.

*******    Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the year ended December 31, 1996 and incorporated by reference.

********   Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
           for the quarterly period ended June 30, 1997 and incorporated by
           reference.

*********  Filed herewith.

(1)        Compensatory Plan or Arrangement, or Management Contract.

(b) Reports on Form 8-K:

          No reports on Form 8-K were filed during the fourth quarter of 1997.


                                     (E-3)


                                  P. 54