SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 1996

                                       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 022316

                            PENN-AMERICA GROUP, INC.
             (Exact name of registrant as specified in its charter)


         Pennsylvania                                     23-2731409
(State or other jurisdiction of          (I.R.S. Employer Identification Number
incorporation or organization)

420 S. York Road
Hatboro, Pennsylvania                                           19040
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code:     (215) 443-3600

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                                (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. [X]

As of March 10,  1997,  the  aggregate  market value of the Common Stock held by
non-affiliates of the Registrant was approximately $32,776,540.  As of March 10,
1997, there were 6,691,138 shares of the Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions  of the  Registrant's  annual  report to  stockholders  for the  fiscal
year-ended December 31, 1996 are incorporated by reference in Parts I, II and IV
of this report.

Part III - Portions of the Registrant's  definitive Proxy Statement with respect
to the Registrant's  1997 Annual Meeting of Shareholders,  to be filed not later
than 120 days after the close of the Registrant's fiscal year.


<PAGE>

                            PENN-AMERICA GROUP, INC.
                           ANNUAL REPORT ON FORM 10-K
                                DECEMBER 31, 1996

                                                                           Page
                                     PART I
ITEM        1.      BUSINESS................................................ 3

ITEM        2.      PROPERTIES..............................................17

ITEM        3.      LEGAL PROCEEDINGS.......................................18

ITEM        4.      SUBMISSION OF MATTERS TO A VOTE OF
                    SECURITY-HOLDERS........................................18


                                     PART II

ITEM        5.      MARKET FOR REGISTRANT'S COMMON STOCK
                    AND RELATED STOCKHOLDER MATTERS.........................19

ITEM        6.      SELECTED FINANCIAL DATA.................................19

ITEM        7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........19

ITEM        8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............19

ITEM        9.      CHANGES IN AND DISAGREEMENTS WITH
                    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE..............................................19

                                    PART III

ITEM       10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT..............................................20

ITEM       11.      EXECUTIVE COMPENSATION..................................21

ITEM       12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT...................................21

ITEM       13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........21

                                     PART IV

ITEM       14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                    REPORTS ON FORM 8-K.....................................22

                                     Page 2

<PAGE>


                                     PART I

ITEM 1.           BUSINESS

(a) General

    Penn-America  Group,  Inc.  ("PAGI") is an insurance  holding  company which
engages,  through its wholly-owned  subsidiary  Penn-America  Insurance  Company
("Penn-America"),  in the property and casualty insurance business. Except where
the  context   otherwise   indicates  the  term  "Company"   includes  PAGI  and
Penn-America.

    On  February  21,  1997,   Penn-Star   Insurance  Company,  a  newly  formed
wholly-owned  subsidiary of Penn-America,  received its certificate of authority
from  the  Insurance  Department  of  Pennsylvania.  Penn-Star  will  eventually
directly write the non-standard  personal  automobile coverage that is currently
written by  Penn-America  once it is  admitted  in those  states  where the auto
business is currently  written.  In the meantime,  Penn-America will continue to
directly write the automobile coverage and will reinsure it through Penn-Star as
of April 1, 1997.

    The Company writes  commercial  property,  general liability and multi-peril
insurance and personal  automobile  insurance on a surplus lines or  nonstandard
basis.  Premium levels in the surplus lines or nonstandard  market are generally
higher than for comparable risks in the standard  insurance market.  The Company
focuses on smaller, main street businesses in this surplus lines market, such as
restaurants,  taverns,  retail businesses,  contractors and similar classes,  as
well as personal  automobile  from insureds that may not have access to standard
insurance and where management  believes the potential for loss is not excessive
and can be adequately quantified. The Company does not write unique or high risk
policies (e.g., medical malpractice, environmental and aviation liability).

    The Company currently markets its commercial  insurance products  nationally
through a select number of high quality general agents.  The Company's  personal
automobile   coverage  is  currently   written  in  the  states  of  Washington,
California,  Nevada, Kentucky and South Dakota. The Company's commercial general
agents have binding authority for the Company's  products based on comprehensive
guidelines  established  by  the  Company.  In  1996,  approximately  85% of the
Company's  policies  were issued on a binding  authority  basis.  The  remaining
commercial  business consists of larger or slightly more complex policies issued
on a submit basis from its agents. All personal  automobile  policies are issued
on a binding  authority basis. The Company's  general agency network provides it
with  significant  underwriting  support  and  marketing  expertise  through the
agents' strong business experience and relationships.

    The Company's  distribution strategy is to maintain a general agency network
with  fewer  and  more  productive  general  agents  than  its  competitors.  By
concentrating  its  resources on a more limited  number of general  agents,  the
Company  believes  it  enhances  not only the  volume and  quality  of  business
generated by the general agents,  but also the Company's  ability to monitor the
agents'   performance  with  respect  to  Company   underwriting   policies  and
guidelines.

    The Company has received a rating of A (Excellent),  financial size category
VI, by A.M. Best Company, Inc. ("Best") based upon recent operating performance.
According to Best, an A (Excellent)  rating is assigned to those  companies that
in  Best's  opinion,  after  an  extensive  review  of the  company's  financial
condition and operating  performance,  have demonstrated an excellent ability to
meet  their  respective  policyholder  and other  contractual  obligations  when
compared to the norms of the property and casualty  insurance  industry.  Best's
ratings are based upon factors  relevant to  policyholders  and are not directed
toward the protection of investors.

                                     Page 3

<PAGE>

The Company  believes  that an A  (Excellent)  rating is an important  factor in
marketing its products to its general agents.

    Prior to July  1993,  Penn-America  was a  wholly-owned  subsidiary  of Penn
Independent  Corporation ("Penn Independent"),  a company owned primarily by Mr.
Irvin Saltzman, Chairman of the Board of Directors of the Company. In July 1993,
in  anticipation  of an  initial  public  offering,  PAGI  was  incorporated  in
Pennsylvania  and the ownership of Penn-America  was transferred to PAGI,  which
resulted in Penn-America becoming a wholly-owned  subsidiary of PAGI. In October
1993,  PAGI  completed an initial  public  offering of  1,600,000  shares of its
Common Stock.

    On January 29, 1997, PAGI declared a three-for-two stock split on its common
shares for  shareholders of record on February 14, 1997,  payable as of March 7,
1997. All per share calculations  heretofore have been retroactively adjusted to
reflect this three-for-two stock split.

(b) Financial Information About Industry Segments

    The  Company is of the  opinion  that all of its  operations  are within one
industry  segment and that no  information  as to industry  segments is required
pursuant to Statement of Financial  Accounting  Standards  No. 14 or  Regulation
S-X.

(c) Lines of Business

    The  following  table  sets forth an  analysis  of gross  earned  premium by
specific product lines during the periods indicated:

<TABLE>
<CAPTION>
                                                               Year ended
                                           1996                    1995                  1994
                                    Amount      Percent     Amount      Percent    Amount    Percent
                                                         (dollars in thousands)
<S>                                 <C>            <C>     <C>            <C>     <C>          <C>  
     Commercial multi-peril         $29,345        38.7%   $23,781        37.7%   $17,171      37.6%
     Liability                       21,418        28.2     20,431        32.4     15,953      34.9
     Auto liability                  15,772        20.8     11,524        18.3      3,506       7.7
     Property                         5,556         7.3      4,957         7.9      4,105       8.9
     Auto physical damage             3,785         5.0      2,312         3.7      4,963      10.9
                                    -------       -----    -------       -----    -------     -----
     Total gross earned premium     $75,876       100.0%   $63,005       100.0%   $45,698     100.0%
                                    =======       =====    =======       =====    =======     =====
</TABLE>


o    Commercial  General Liability.  The Company's  commercial general liability
     insurance is written on an  occurrence  policy form (as opposed to a claims
     made policy form) and provides limits generally  ranging from $25,000 to $3
     million,  with the  majority  of such  policies  having  limits of  between
     $500,000 and $1 million.  The average premium written on policies currently
     in force is approximately  $1,200 and the standard  deductible is $500. The
     Company's  general  liability  policies pay defense and related expenses in
     addition to per occurrence and aggregate policy limits.  General  liability
     insureds include restaurants,  bars and taverns, retail operations,  garage
     liability, contractors and similar classes.

                                     Page 4

<PAGE>

o    Commercial Property. The Company's commercial property lines provide limits
     usually no higher than $3 million,  with almost all of the  policies  being
     written at limits below $1 million. The average premium written on policies
     currently in force is approximately  $1,100 and the standard  deductible is
     $500.  Properties  insured include  restaurants,  bars and taverns,  retail
     operations, vacant buildings and other similar classes.

o    Commercial  Multi-Peril.  The  Company  also  writes  the  same  commercial
     property  and general  liability  risks  together  as a  "package"  for its
     insureds,  generally referred to as "commercial multi-peril." The limits on
     these policies are the same as if written on a monoline basis.  The average
     premium written on such policies currently in force is approximately $2,200
     and the standard  deductible  is $500,  which  applies  separately  for the
     property  and  general  liability  coverage.  Consistent  with the  current
     industry trend,  the Company has been writing more  commercial  multi-peril
     policies over the last several years than individual property and liability
     policies.  The Company  expects this trend to continue in light of the fact
     that a substantial number of the Company's  commercial insureds customarily
     require both liability and property insurance  coverage,  together with the
     revisions to Insurance  Services  Office ("ISO") forms which make it easier
     and more efficient to write such multi-peril policies.

     In all  of its  commercial  product  lines,  the  Company  is  continuously
     developing  specialized  programs for certain industry segments to meet the
     needs of its  marketplace.  Examples are programs for  independent  fitness
     centers, day care operations, artisan contractors, low-hazard miscellaneous
     professional  liability  coverages and special  events.  As a group,  these
     programs are a  significant  benefit to the  Company's  marketing  efforts,
     although  individually  they  do not  generate  a  material  amount  of the
     Company's gross written premiums.

o    Personal  Automobile.  The Company  currently  writes  personal  automobile
     policies in the states of  Washington,  California,  Nevada,  Kentucky  and
     South Dakota on a nonstandard  basis.  These risks typically do not qualify
     for  preferred or standard  insurance  because of a driver's  age,  driving
     record,  vehicle type or other factors. The personal automobile business is
     written at very low coverage  limits with the average premium written being
     approximately  $475.  The  policies in force at December  31, 1996  provide
     physical damage coverage of $35,000 or less, and the Company writes minimum
     state  statutory  liability  limits.  The Company writes this coverage on a
     one,  three,  six or twelve  month  policy  basis.  The  Company is seeking
     approval to write personal  automobile  insurance in selected other states,
     and  anticipates  writing in at least one and possibly  several  additional
     states during 1997.

 (d) Marketing and Distribution

     The Company  currently  markets  its  insurance  products  through a select
number of high quality  general  agents.  The Company  believes that it benefits
significantly   by  using  a  general  agency  system  because  it  obtains  the
significant underwriting and marketing expertise of the general agents, who have
strong  business  experience  and  relationships  in their local  territory.  In
addition,  the general  agency system allows the Company to avoid the expense of
maintaining  a national  sales  force.  This  enables  the  Company to focus its
efforts on reviewing  the  underwriting  decisions of the agents and  evaluating
submission  business,  rather than devoting greater  resources to making routine
underwriting  decisions.  Each general agent operates in a particular geographic
region.  The Company actively  competes for quality general agents to distribute
its products.

                                     Page 5

<PAGE>


     Prior to appointing a general agent,  the Company  extensively  reviews the
candidate's financial condition,  spread of risk, historical loss experience and
reputation, as well as the agent's results and practices with other insurers. An
on-site  review is made of the agent's  office,  including  an audit of selected
policy files and confirmation that the agent has sufficient  experience to merit
authority  to bind the  Company  only to  appropriate  risks.  The agent is also
interviewed  at the  Company's  office  in order to  confirm  the  compatibility
between the agent and the Company's  underwriting  staff.  Such a  comprehensive
review is  necessitated  by the Company's  philosophy of  establishing  an agent
relationship only if it has long-term potential.  These same standards of review
are applied to all agents regardless of affiliation.

     Once   appointed,   the  Company   provides   each  general  agent  with  a
comprehensive  agency manual which  enables the agent to begin writing  business
immediately.  The  manual  allows  the  agent  to  efficiently  write  coverages
consistent with the Company's comprehensive  underwriting guidelines. The agents
are  provided  carefully  detailed  limited  binding  authority,  based  on  the
simplified  ISO  rates  and  forms,  to write a  variety  of  property,  general
liability,  commercial  multi-peril and personal automobile  business,  provided
that the risks and terms  involved  in a  particular  coverage  are  within  the
guidelines  set forth in the agency  manual.  The Company has devoted  extensive
research to the  development of the detailed  agency manual to enable its agents
to  consistently  select and price  risks.  The  Company's  manual is  regularly
updated to be responsive to the realities of the changing marketplace.

     The Company also writes business on a submit basis from its general agents.
The  Company  devotes  substantial  personal  attention  and  resources  to  the
continuous monitoring and support of its general agents.

     The Company's  general  agents that operate under the name Delaware  Valley
Underwriting Agency ("DVUA") are wholly-owned  subsidiaries of Penn Independent,
the Company's  largest  shareholder.  DVUA generated  approximately  4.8% of the
Company's gross written premiums in 1996.

    The following table sets forth the geographic  distribution of the Company's
gross written premiums for the periods indicated:

<TABLE>
<CAPTION>
                       Year ended              Year ended             Year ended
                   December 31, 1996       December 31, 1995      December 31, 1994
                  Amount        Percent    Amount      Percent    Amount       Percent
             (in thousands)           (in thousands)         (in thousands)
<S>              <C>             <C>     <C>             <C>     <C>             <C>  
Pacific          $29,435         36.6%   $24,823         37.2%   $21,560         40.0%
South             15,677         19.5     12,519         18.7      9,601         17.8
Mid-Atlantic      10,665         13.2     10,607         15.8      8,976         16.6
New England        7,832          9.7      7,849         11.7      6,228         11.6
Southwest         11,693         14.5      7,949         11.9      5,601         10.4
Midwest            4,685          5.8      2,977          4.4      1,911          3.5
Mountain             509          0.7        229          0.3         49          0.1
                 =======        =====    =======        =====    =======        =====
                 $80,496        100.0%   $66,953        100.0%   $53,926        100.0%
                 =======        =====    =======        =====    =======        =====
</TABLE>


                                     Page 6
<PAGE>

(e) Underwriting and Pricing

    All  policies  written by the  Company are either  generated  by the general
agents  pursuant to their  binding  authority or on a submission  basis from the
general  agents  if  the  risk  falls  outside  of  that  authority.   In  1996,
approximately  85% of the commercial  policies  written by the Company were on a
binding  authority  basis,   generating   approximately  80%  of  the  Company's
commercial  lines gross written  premiums.  The personal  automobile  program is
written 100% on a binding  authority basis.  The Company has established  strict
underwriting guidelines within the terms of its agency manual which identify the
risks that (1) are within the binding authority of the general agents,  (2) must
be  submitted  to the  Company,  and (3) risks which are  prohibited  from their
binding authority. The agency manual was prepared and is continuously updated by
the Company's underwriting staff after extensive research,  including input from
its  reinsurers.  Generally,  the  Company  provides  its  agents  with  pricing
flexibility on a per policy basis,  with the objective that in the aggregate the
weighted  average  premium of all new policies and renewals  written by an agent
are at  approximately  120% and 110% of ISO,  respectively.  The Company's rates
generally  range from 50%-100%  higher than the rates of most standard  carriers
for comparable  risks,  who typically price lower than ISO rates.  The Company's
underwriting  staff carefully  monitors its general agents and performs  on-site
reviews and  underwriting  audits of its agents on a periodic  basis for quality
and compliance with Company guidelines.

    With respect to risks written by general agents under binding authority, the
Company  generally has 60 days from the effective date to cancel a policy if the
risk insured does not comply with the Company's underwriting guidelines.  In the
event an agent  exceeds its authority by binding the Company on a risk where the
agent had no authority to do so, the Company is at risk for that policy until it
receives the policy and effects a cancellation.  General agents must deliver all
policies to the Company within 35 days of the date written. The Company monitors
this activity closely through its computer system and underwriting department.

    The risks the Company writes on a submit basis are generally  similar to the
binding  authority  classes,   but  may  have  larger  loss  limits  or  greater
complexity.   In  determining  whether  to  accept  such  risks,  the  Company's
underwriting  staff will  review such  factors as the type of risk,  the agent's
knowledge and control of the risk,  potential  underwriting  profitability,  and
historical  data  regarding  any similar  risk  previously  underwritten  by the
Company.  During  this  process,  the  Company  will  quote a  proposed  premium
reflecting  relevant  ISO  rates,  if  available,  and  adjustments  that may be
warranted based on the individual  characteristics  of the particular  risk. The
underwriting  staff then assembles a complete  underwriting file with respect to
the  particular  submission  and  specific  approval  procedures  are  employed,
depending on the characteristics and magnitude of the particular risk.

(f) Claims Management and Administration

    The  Company's  approach to claims  management  is  designed to  investigate
reported incidents at the earliest juncture, to select, manage and supervise all
legal and adjustment aspects thereof,  and generally to service producing agents
and insureds throughout the claims process. The Company's general agents have no
authority  to settle  claims  or  otherwise  exercise  control  over the  claims
process.  All  commercial and personal lines claims are supervised and processed
centrally by the Company's claims management staff.

(g) Losses and Loss Adjustment Expenses

    The  Company is  directly  liable for losses and loss  adjustment  expenses
payments under the terms of


                                     Page 7
<PAGE>


insurance  policies  that it writes.  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 that 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 for both
reported and unreported claims, which are balance sheet liabilities representing
estimates of future amounts needed to pay claims and related expenses.

    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 payments.  The estimate of the amount of the ultimate loss is
based upon such  factors as the type of loss,  jurisdiction  of the  occurrence,
knowledge  of the  circumstances  surrounding  the claim,  severity of injury or
damage,  potential for ultimate exposure and policy  provisions  relating to the
claim.  The estimate of the amount of the loss adjustment  expense is determined
by management and reviewed by the Company's independent actuarial consultant and
includes the estimated expense of settling the claim,  including legal and other
fees,  and general  expenses of  administering  the claims  adjustment  process.
Annually,  management, in conjunction with its independent actuarial consultant,
establishes  reserves  on an  aggregate  basis to provide for  incurred  but not
reported losses ("IBNR"),  as well as future  developments on losses reported to
the Company.  The Company does not  discount  its loss  reserves  based upon the
expected time lag until payment.

    The  estimates  of  reserves  are  subject to the effect of trends in claims
severity and frequency and are  continually  reviewed.  As part of this process,
historical  data are  reviewed  and  consideration  is given to the  anticipated
effect of various factors,  including known and anticipated legal  developments,
changes in social attitudes,  inflation and economic  conditions.  As experience
develops  and other data become  available,  these  estimates  are  revised,  as
required, resulting in increases or decreases to existing reserves.  Adjustments
are reflected in results of operations in the period in which they are made.

    The  following  table sets forth a  reconciliation  of beginning  and ending
reserves as shown on the Company's  financial  statements (on a GAAP basis gross
of reinsurance)  for unpaid losses and loss adjustment  expenses for the periods
indicated:
<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                               1996         1995          1994
                                                                      (in thousands)
<S>                                                           <C>          <C>          <C>    
Reserves for unpaid losses and loss adjustment expenses,
   at beginning of year                                       $60,139      $44,796      $33,314
                                                             --------     --------     --------
Incurred losses and loss adjustment expenses:
   Provision for insured events of the current year            48,076       40,606       30,652
   Increase (decrease) in provision for insured
      events of prior years                                     3,744        3,377         (518)
                                                             --------     --------     --------
Total incurred losses and loss adjustment expenses             51,820       43,983       30,134
                                                             --------     --------     --------
Payments:
   Losses and loss adjustment expenses attributable
      to insured events of the current year                    17,931       13,054        9,855
   Losses and loss adjustment expenses attributable
      to insured events of prior years                         23,300       15,586        8,797
                                                             --------     --------     --------
Total payments                                                 41,231       28,640       18,652
                                                             --------     --------     --------
Reserves for unpaid losses and loss adjustment expenses,
   at end of year                                             $70,728      $60,139      $44,796
                                                             ========     ========     ========
</TABLE>

                                     Page 8
<PAGE>

    The Company has experienced an  (unfavorable)  development of gross reserves
of ($3.7) million and ($3.4) million in 1996 and 1995, and favorable development
of $518,000 in 1994,  respectively,  for prior year's insured events,  while the
net reserves had favorable development during that same time period of $804,000,
$1.0  million  and $2.3  million  in  1996,  1995 and  1994,  respectively.  The
unfavorable  development on the gross reserves  occurred  primarily on the gross
reserves  held as of December  31,  1993.  Prior to 1993,  the  Company  focused
primarily on net  reserving,  rather than direct  reserving,  consequently,  the
direct  IBNR   reserves   were   insufficient   to  cover  future   development.
Additionally,  the Montrose decision in California set precedent by establishing
that California was a "continuous trigger" state.  Therefore,  a loss occurrence
can be triggered on many dates and for multiple  policy periods rather than just
one. This decision  caused the Company to reevaluate our contractor  business in
California,  and was a primary  factor in the  reduction of  commercial  general
liability premium for 1996.

    The  following  table  represents  the  development  of unpaid loss and loss
adjustment  expense  reserves  during the ten years ended December 31, 1996. The
top of the table reflects the ten year development of the Company's reserves net
of reinsurance.  The bottom of the table  reconciles 1996, 1995, 1994, 1993, and
1992  ending  reserves  to the  gross  reserves  in the  Company's  consolidated
financial statements. Prior to 1992, the Company developed its reserves on a net
of reinsurance basis and restatement for those prior years is not presented. The
top line of the table shows the  estimated  reserve  for unpaid  losses and loss
adjustment  expenses at the balance sheet date for each of the indicated  years.
These  figures  represent  the  estimated  amount  of  unpaid  losses  and  loss
adjustment  expenses  for claims  arising in all prior years that were unpaid at
the balance  sheet date,  including  losses that had been  incurred  but not yet
reported.  The table  also  shows  the  re-estimated  amount  of the  previously
recorded  reserve 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.

                                     Page 9

<PAGE>
<TABLE>
<CAPTION>
                                                            Year ended December 31, (in thousands)
                                   1986     1987    1988     1989     1990     1991      1992    1993     1994      1995     1996
<S>                              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>    
Reserves for unpaid losses and   $12,200  $18,618  $21,741  $25,391  $25,352  $25,681  $26,110  $26,830  $35,307  $46,512  $55,656
     loss adjustment expenses,
     as stated

a.  Net cumulative paid as of
     1 year later                 $4,232   $4,641   $4,911   $8,655   $6,929   $6,605   $7,381   $6,852  $12,384  $17,210
     2 years later                 6,491    6,995   10,743   13,361   11,610   10,988   11,127   13,127   20,617
     3 years later                 7,884   11,728   14,132   16,952   14,667   13,325   15,546   18,656
     4 years later                 9,827   14,127   15,823   19,050   16,341   16,417   19,253
     5 years later                11,171   15,209   17,074   20,359   18,363   19,283
     6 years later                11,623   16,023   17,405   21,866   20,214
     7 years later                12,043   16,219   18,303   23,383
     8 years later                12,052   16,636   19,248
     9 years later                12,399   17,157
     10 years later               12,512

b.  Reserves re-estimated as
      of end of year
     1 year later                $13,734  $18,483  $21,036  $25,128  $23,468  $23,228  $24,478  $23,897  $33,601  $45,708
     2 years later                13,777   18,054   21,396   24,329   22,658   22,383   21,945   23,489   34,281
     3 years later                13,505   18,370   20,570   23,923   22,252   20,471   22,032   24,558
     4 years later                13,555   17,739   20,206   23,615   21,465   20,819   22,767
     5 years later                13,440   17,552   19,822   23,639   21,469   21,726
     6 years later                12,861   17,342   19,499   24,021   21,990
     7 years later                12,983   17,488   19,621   24,683
     8 years later                12,878   17,432   20,222
     9 years later                12,964   17,932
     10 years later               13,091

Net cumulative redundancy 
     (deficiency)                  ($891)    $686   $1,519     $708   $3,362   $3,955   $3,343   $2,272   $1,026     $804

Gross liability for unpaid 
     losses and loss adjustment
     expenses, as stated                                                               $31,703  $33,314  $44,796  $60,140  $70,728
Reinsurance recoverable                                                                  5,593    6,484    9,489   13,628   15,072
Net liability for unpaid losses
     and loss adjustment 
     expenses, as stated                                                               $26,110  $26,830  $35,307  $46,512  $55,656

Gross liability re-estimated
     - 1 year later                                                                    $30,609  $32,796  $48,173  $63,884
Reinsurance recoverable 
     re-estimated                                                                        6,131    8,899   14,572   18,191
Net liability re-estimated
     - 1 year later                                                                    $24,478  $23,897  $33,601  $45,693
                                 -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------
Gross liability re-estimated
     - 2 years later                                                                   $30,390  $36,243  $53,009
Reinsurance recoverable 
     re-estimated                                                                        8,445   12,574   18,728
Net liability re-estimated
     - 2 years later                                                                   $21,945  $23,699  $34,281
                                 -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------
Gross liability re-estimated
     - 3 years later                                                                   $33,992  $41,600
Reinsurance recoverable
     re-estimated                                                                       11,960   17,041
Net liability re-estimated
     - 3 years later                                                                   $22,032  $24,588
                                 -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------
Gross liability re-estimated
     - 4 years later                                                                   $38,165
Reinsurance recoverable
     re-estimated                                                                       15,399
Net liability re-estimated
     - 4 years later                                                                   $22,767
                                 -------  -------  -------  -------  -------  -------  -------  -------  -------  -------  -------
Gross cumulative redundancy
     (deficiency)                                                                      ($6,462) ($8,286) ($8,213) ($3,744)
</TABLE>

a.   Net cumulative paid "as of" equals the amounts of paid losses and loss
     adjustment expenses subsequent to the year in which the original reserves
     were established.

b.   Reserves re-estimated "as of" equals the amounts of unpaid losses and loss
     adjustment expenses which the company would have originally established
     based on experience as of the end of each succeeding year. These amounts
     were calculated as the sum of the cumulative paid amounts described in (a.)
     above plus the amounts of unpaid losses and loss adjustment expenses
     reevaluated at the end of each succeeding year end.

                                    Page 10
<PAGE>

    The cumulative  redundancy or deficiency  represents the aggregate change in
the reserve  estimates  over all prior years.  It should be emphasized  that the
table  presents a run-off of balance  sheet  reserves  rather  than  accident or
policy year loss development.  Therefore,  each amount in the table includes the
effects of changes in reserves for all prior years.

    The  following  table sets forth  ratios for the  Company  and the  industry
prepared in accordance with statutory accounting practices ("SAP") prescribed or
permitted by state insurance  authorities.  The statutory  combined ratio, which
reflects  underwriting  results  but not  investment  income,  is a  traditional
measure of the underwriting performance of a property and casualty insurer. This
ratio  is the sum of (i) the  ratio  of  incurred  losses  and  loss  adjustment
expenses to net earned  premium ("loss  ratio");  and (ii) the ratio of expenses
incurred for commissions,  premium taxes,  administrative and other underwriting
expenses to net written premium ("expense ratio").


                                              Year ended December 31,
                                             1996      1995      1994
The Company:
SAP Basis
Loss and loss adjustment expense ratio       62.7%     62.6%     62.2%
Expense ratio                                31.6      30.4      32.3
                                             ====      ====      ====
Combined ratio                               94.3%     93.0%     94.5%
                                             ====      ====      ====

                                                Year ended December 31,
                                             1996        1995       1994
Property and casualty insurance industry (1):
SAP Basis
Loss and loss adjustment expense ratio        79.8%      78.9%      81.2%
Expense ratio                                 26.2       26.3       26.0
Dividend ratio                                 1.0        1.3        1.3
                                             =====      =====      =====
Combined ratio                               107.0%     106.5%     108.5%
                                             =====      =====      =====

(1) Source:  Industry  Estimate for 1997, Best Week, P/C Supplement,  January 6,
1997 edition, including dividend ratios.

(h) Reinsurance

    Consistent  with industry  practice for  companies of its size,  the Company
purchases reinsurance through contracts called "treaties" to reduce its exposure
to liability on individual  risks, and to protect against  catastrophic  losses.
Reinsurance  involves an insurance company transferring or "ceding" a portion of
its  exposure on a risk to another  insurer  (the  "reinsurer").  The  reinsurer
assumes  the  exposure  in return  for a portion of the  premium.  The ceding of
liability to a reinsurer does not legally discharge the primary insurer from its
liability  for the full amount of the policies on which it obtains  reinsurance.
The primary  insurer  will be  required to pay the entire loss if the  reinsurer
fails to meet its obligations under the reinsurance agreement.

                                    Page 11
<PAGE>

    In formulating  its  reinsurance  programs,  the Company is selective in its
choice of reinsurers and considers numerous factors, the most important of which
are the  financial  stability of the  reinsurer,  its history of  responding  to
claims and its overall reputation.  In an effort to minimize its exposure to the
insolvency  of its  reinsurers,  the Company  evaluates  the  acceptability  and
monitors the  financial  condition of each  reinsurer  and, on an annual  basis,
conducts a detailed review.  The Company's policy is to use only reinsurers that
have Best ratings of at least A (Excellent) and are within a Best financial size
category of a least IX; ($250 million or greater in assets).

    In May of 1996, the Company  transferred all of its commercial  casualty and
property treaty reinsurance  programs to General  Reinsurance  Corporation ("Gen
Re") from National  Reinsurance  Corporation which had previously  provided this
coverage.  In so doing, the Company maintained all of its existing net retention
limits of $500,000  (including  indemnity  and/or loss  adjustment  expense) for
casualty insurance and $200,000 for property insurance,  with a combined Company
retention for any one loss resulting from a common occurrence involving both the
property  and  casualty  coverage  on a  single  risk of  $500,000.  Gen Re also
provides  casualty  contingent  excess  coverage  for the Company  which  covers
exposures  such as extra  contractual  obligations,  losses  in excess of policy
limits  (bad  faith,  errors  &  omissions)  and the  event  of two or more of a
Company's  insureds  bringing a liability  action  against  each other (known as
CLASH coverage).

    In 1996 and  1995 the  Company  was  covered  for  catastrophe  losses  by a
consortium of reinsurers, all of which have a Best rating of A or better, led by
Gen Re. Under the terms of the Gen Re  agreement,  the  Company's  1996 and 1995
retention  was $1.1 and $1 million,  respectively.  A  consortium  led by Gen Re
covers the next $14 and $13.9 million, respectively, of losses, with the Company
subject to a 5% participation at various layers of reinsurance coverage. In 1994
the Company  purchased  catastrophe  coverage  from  Employers Re for all of its
property lines (including  automobile physical damage) to limit its retention in
a case involving multiple losses such as windstorm or hurricane.  In such event,
the Company retains $500,000 of the loss and Employers Re covers 95% of the next
$9,500,000 (up to a $10 million limit).

    The Company may write  individual  risks with limits greater than the treaty
limits on a per policy basis by using facultative  reinsurance.  The facultative
reinsurers must also meet Penn-America's  stringent guidelines and have at least
a Best rating of A and financial size category of IX.

The  following  table  reflects  the amount of premiums  written and ceded under
reinsurance treaties:

                               Year ended December 31,
                             1996         1995       1994
                                  (in thousands)
Gross written premiums     $80,496     $66,953     $53,926
Total premiums ceded         7,027       5,667       5,583


(i) Investments

    Insurance  company  investments  are  subject to laws and  regulations  that
prescribe the kind, quality and concentration of investments.  In general, these
laws and regulations permit investments,  within 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.

                                    Page 12
<PAGE>

    Penn-America's  investment  portfolio is under the direction of its Board of
Directors  acting  through an Investment  Committee.  The  Investment  Committee
establishes and monitors the Company's investment  policies,  which are intended
to  maximize  after-tax  income  while  maintaining  a high level of quality and
liquidity in its portfolio for insurance  operations.  The investment  portfolio
consists primarily of fixed maturity,  United States Government and governmental
agency  securities and corporate  bonds.  Although  Penn-America is permitted to
invest in real estate  mortgages and real estate,  the Company does not actively
participate in these markets and does not currently have any such investments in
its portfolio.

    The  Investment  Committee  has  retained  Carl  Domino  Associates  Limited
("CDA"), a registered  investment  advisor,  to recommend purchases and sales of
securities.  CDA has  limited  discretionary  authority  to  independently  make
investment decisions in accordance with the investment policy established by the
Board of Directors.

The following table shows the  classifications  of the Company's  investments at
December 31, 1996:
<TABLE>
<CAPTION>
                                                                             Amount
                                                                            reflected
                                                                  Fair      on balance    Percent of
                                                                  value       sheet         total
                                                                     (In thousands)
<S>                                                                <C>          <C>           <C> 
Fixed Maturities:
          Available for sale
                 U.S. Treasury securities and obligations of
                    U.S. government agencies                      $20,503      $20,503        18.2%
                 Corporate securities                              16,167       16,167        14.4
                 Mortgage-backed securities                         8,281        8,281         7.3
                 Public utilities                                   4,003        4,003         3.6
                                                                 --------     --------       -----
          Total available for sale                                 48,954       48,954        43.5
                                                                 --------     --------       -----

          Held to maturity
                 U.S. Treasury securities and obligations of
                    U.S. government agencies                       28,685       28,727        25.5
                 Corporate securities                               9,266        9,294         8.3
                 Public utilities                                   6,010        6,056         5.4
                 Other securities                                     150          150         0.1
                                                                 --------     --------       -----
          Total held to maturity                                   44,111       44,227        39.3
                                                                 --------     --------       -----
          Total fixed maturities                                   93,065       93,181        82.8
                                                                 --------     --------       -----
Equity investments:
          Common stock                                              4,130        4,130         3.7
          Preferred stock                                           8,260        8,260         7.3
                                                                 --------     --------       -----
          Total equity investments                                 12,390       12,390        11.0
                                                                 --------     --------       -----

Short-term investments                                              7,000        7,000         6.2
                                                                 ========     ========       =====
          Total investments                                      $112,455     $112,571       100.0%
                                                                 ========     ========       =====
</TABLE>

                                    Page 13
<PAGE>


The following  table sets forth the  composition  of the Company's  portfolio of
fixed maturity investments by rating at December 31, 1996:
<TABLE>
<CAPTION>
                                                      Amortized   Percentage  Cumulative
                                                         Cost    of portfolio percentage
                                                         (in thousands)
             Ratings (1)
<S>                                                    <C>            <C>        <C>  
AAA (including U.S. government obligations)            $59,604        63.8%      63.8%
AA                                                       2,999         3.2       67.0
AA-                                                      5,300         5.7       72.7
A+                                                       9,061         9.7       82.4
A                                                       10,325        11.0       93.4
A-                                                       5,034         5.4       98.8
BBB                                                        998         1.0       99.8
Non rated                                                  150         0.2      100.0
                                                       -------       -----      -----
                                             Total     $93,471       100.0%     100.0%
                                                       =======       =====      =====
</TABLE>
(1)   Ratings are  assigned  primarily  by Standard & Poor's with the  remaining
      ratings  assigned by Moody's and  converted to the  equivalent  Standard &
      Poor's ratings.

    The following table sets forth investment results of the Company for each of
the years in the three years ended December 31, 1996:

                                         1996         1995          1994
                                                (in thousands)
Interest on fixed maturities            $6,108       $4,615       $3,294
Dividends on equity securities             691          533          564
Interest on short-term investments         380          291          139
Other                                       61           42           35
                                       -------      -------      -------
Total investment income                  7,240        5,481        4,032
Investment expense                        (535)        (414)        (397)
                                       -------      -------      -------
Net investment income                   $6,705       $5,067       $3,635
                                       =======      =======      =======

(j) Competition

    The property  and  casualty  insurance  industry is highly  competitive  and
includes several thousand insurers, ranging from large companies offering a wide
variety of products  worldwide  to smaller,  specialized  companies  in a single
state or region and  offering in some cases only a single  product.  The Company
competes  with a  significant  number of these  insurers in  attracting  quality
agents and in selling  insurance  products.  Some of the  Company's  existing or
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

                                    Page 14
<PAGE>

Company.  The  Company  competes  with  other  insurers  and  surplus  lines  or
nonstandard  insurers,  new  forms  of  insurance  organizations  (such  as risk
retention  groups),  and  alternative  self-insurance  mechanisms.  The  Company
believes  that in  order to be  successful  in its  market,  it must be aware of
pricing cycles, must be able to minimize the impact of the cycle by good expense
control and good customer  service,  and must continuously  identify  profitable
opportunities.

(k) Regulation

    General.  The Company is subject to regulation under the insurance statutes,
including  insurance  holding company  statutes,  of the various states in which
Penn-America does business. These statutes are generally designed to protect the
interests  of  insurance   policyholders,   as  opposed  to  the   interests  of
shareholders, and they relate to such matters as the standards of solvency which
must be met and  maintained;  the  licensing of insurers and their  agents;  the
nature and limitations of investments; deposits of securities for the benefit of
policyholders;  approval of policy forms and premium rates; periodic examination
of the affairs of insurance  companies;  annual and other reports required to be
filed  on  the   financial   condition  of  insurers  or  for  other   purposes;
establishment and maintenance of reserves for unearned premiums and losses;  and
requirements regarding numerous other matters. All insurance companies must file
annual  statements  with certain  state  regulatory  agencies and are subject to
regular and special financial and other examinations by those agencies. The last
regulatory   financial   examination  of  Penn-America   was  completed  by  the
Pennsylvania  Insurance  Department  in 1995 covering the five year period ended
December 31, 1994.

    Penn-America  is  licensed  as an  admitted  insurer  in 22 states and is an
approved  non-admitted  (surplus  lines) insurer in the other 28 states plus the
District of Columbia.  All surplus lines insurance is written  through  licensed
surplus  lines  insurance  agents and brokers who are required to certify that a
certain number of licensed  admitted  insurers will not write a particular  risk
prior to placing that risk with the surplus lines insurer.

    Insurance  Holding  Company  Laws.  Pennsylvania,  Penn-America's  state  of
domicile,  and California,  where Penn-America is considered to be "commercially
domiciled" by that state's insurance  department,  have laws governing  insurers
and  insurance  holding  companies  such as the Company.  The  Pennsylvania  and
California  statutes  generally require insurers and insurance holding companies
to register and file reports  concerning  their  capital  structure,  ownership,
financial  condition and general  business  operations.  Under both statutes,  a
person generally must obtain the respective Insurance  Department's  approval to
acquire,  directly  or  indirectly,  10%  or  more  of  the  outstanding  voting
securities  of the Company or its  insurance  subsidiary.  In both  states,  the
insurance department's  determination of whether to approve any such acquisition
is based on a variety of factors,  including  an  evaluation  of the  acquirer's
financial  condition,  the competence of its management and whether  competition
would be reduced.  All transactions  within a holding company's system affecting
an insurer must be fair and reasonable, and the insurer's policyholders' surplus
following  any such  transaction  must be both  reasonable  in  relation  to its
outstanding  liabilities  and  adequate  for its  needs.  Notice  to  applicable
regulators  is  required  prior  to the  consummation  of  certain  transactions
affecting insurance subsidiaries of the holding company system.

    Dividend Restrictions. As an insurance holding company, PAGI is dependent on
dividends and other permitted payments from Penn-America to provide cash for the
payment of any cash  dividends  to its  shareholders  and  repayment of its loan
obligation  and related  interest  expense.  The payment of dividends to PAGI by
Penn-America  is subject to state  regulations,  primarily the insurance laws of
Pennsylvania and

                                    Page 15

<PAGE>

California.  Generally,  these laws  provide  that,  unless  prior  approval  is
obtained,  dividends  of a  property  and  casualty  insurance  company  in  any
consecutive  12-month  period  shall  not  exceed  the  greater  of  100% of its
statutory  net income for the most recent  calendar year or 10% of its statutory
policyholders'  surplus  as of  the  preceding  year  end.  See  Note  10 to the
consolidated  financial  statements for disclosures of statutory  policyholders'
surplus and the maximum annual dividends  payable by Penn-America  without prior
approval.  Insurance  regulators  have  broad  powers to  prevent  reduction  of
statutory surplus to inadequate levels, and there is no assurance that dividends
of the  maximum  amounts  calculated  under  any  applicable  formula  would  be
permitted.

    Insurance  Guaranty Funds.  Under  insolvency or guarantee laws in states in
which  Penn-America is licensed as an admitted insurer,  organizations have been
established  (often  referred to as guaranty funds) with the authority to assess
admitted  insurers  up to  prescribed  limits  for the  claims of  policyholders
insured by insolvent,  admitted  insurance  companies.  Surplus lines  insurance
companies are generally not subject to such  assessments,  but neither are their
policyholders eligible to file claims against the guaranty funds.

    Additional  Legislation or Regulations.  New regulations and legislation are
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.  Regulations
adopted in November 1993 by the National Association of Insurance  Commissioners
("NAIC") and a number of states,  have  imposed  higher  minimum  policyholders'
surplus  requirements  and  risk  based  capital  rules  on  domestic  insurance
companies. These regulations require insurers generally to improve their capital
positions to remain competitive.

    Difficulties with insurance  availability and  affordability  have increased
legislative   activity  at  both  the  Federal  and  state  levels.  Some  state
legislatures  and  regulatory  agencies  have enacted  measures to limit midterm
cancellations  and require  advance notice of renewal  intentions.  In addition,
Congress  is  investigating  possible  avenues  for  Federal  regulation  of the
insurance industry.  The Company believes that none of the legislation mentioned
above will not have a material effect on its financial position.

(l) Employees

    As of March 10,  1997,  the Company had 96  employees.  The  Chairman of the
Board of Directors of the Company and certain other  Directors  devote a portion
of their time to the  management  of Penn  Independent,  the  Company's  largest
shareholder. See Item 13; "Certain Relationships and Related Transactions".  The
Company is not a party to any collective bargaining agreements and believes that
its employee relations are good.


ITEM 2. PROPERTIES

    The Company leases  approximately  22,000 square feet in a stone and masonry
office  building  located in Hatboro,  Pennsylvania.  The office  building  also
houses Penn Independent and its subsidiaries.  The Company leases the space from
Mr. Irvin Saltzman,  Chairman of the Board of Directors of the Company, pursuant
to a lease  agreement which expires on June 30, 2000, and provides for an annual
rental  payment of $260,232,  which amount is  considered by the Company and Mr.
Irvin  Saltzman to be at fair market value.  See Item 13 "Certain  Relationships
and Related Transactions."

                                    Page 16

<PAGE>


ITEM 3. LEGAL PROCEEDINGS

    The Company is subject to routine legal  proceedings in the normal course of
operating  its  insurance  business.  The  Company is not  involved in any legal
proceedings  which  reasonably  could be expected to have a  materially  adverse
impact on the Company's financial condition or results of operations.


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

    No matter  was  submitted  during  the  fourth  quarter of 1996 to a vote of
holders of the Company's Common Stock.

                                    Page 17
<PAGE>

                                     PART II

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

    The "Market for Common Stock and Related Security Holder Matters" section on
page 25 of the  Company's  annual  report  to  stockholders  for the year  ended
December 31,  1996,  which is included as Exhibit (13) to this Form 10-K Report,
is incorporated herein by reference.


ITEM 6. SELECTED FINANCIAL DATA

    The  "Selected  Consolidated  Financial  Data"  section  on  page  8 of  the
Company's  Annual Report to  stockholders  for the year ended December 31, 1996,
which is  included as Exhibit  (13) to this Form 10-K  Report,  is  incorporated
herein by reference.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    The  "Management's  Discussion  and  Analysis of Results of  Operations  and
Financial  Condition" section on pages 9 to 13 of the Company's Annual Report to
stockholders  for the year ended December 31, 1996, which is included as Exhibit
(13) to this Form 10-K Report, is incorporated herein by reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The  consolidated  financial  statements  on pages 14 to 24 of the Company's
Annual Report to  stockholders  for the year ended  December 31, 1996,  which is
included as Exhibit (13) to this Form 10-K Report,  are  incorporated  herein by
reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.

                                    Page 18
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The  Director's  information  will be contained in the Company's  definitive
Proxy   Statement   with  respect  to  the  Company's  1997  Annual  Meeting  of
Shareholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the Company's fiscal year, and is hereby  incorporated
by reference thereto.

    Executive Officers of the Registrant as of March 10, 1997 are as follows:

Irvin Saltzman             74    Chairman of the Board of Directors of PAGI
                                 and Penn-America

Jon S. Saltzman            39    President and Chief Executive Officer of PAGI
                                 and Penn-America, and Director

Rosemary R. Ferrero, CPA   41    Vice President - Finance,  Secretary and 
                                 Treasurer of PAGI, Vice President, Secretary
                                 and Chief Financial Officer of Penn-America

John M. DiBiasi, CPCU      42    Executive Vice President, Underwriting and
                                 Marketing of Penn-America

Thomas J. Reed             52    Senior Vice President, Claims of Penn-America


     Mr. Irvin Saltzman is the founder of Penn-America and of Penn  Independent,
and for more than five years was the Chief Executive Officer and Chairman of the
Board of both  corporations.  Mr.  Saltzman  has been  Chairman  of the Board of
Directors of PAGI since its formation in July 1993. Mr. Saltzman has been active
in the insurance industry since 1947.

     Mr. Jon S. Saltzman has been President and Chief Executive  Officer of PAGI
since its  formation in July 1993.  He has been  President  and Chief  Executive
Officer of  Penn-America  since June 1993. Mr.  Saltzman was President and Chief
Operating  Officer of Penn-America from June 1989 until June 1993, was Executive
Vice President and Chief Operating  Officer of Penn-America from June 1988 until
June 1989 and was Vice President,  Marketing of  Penn-America  from January 1986
until June 1988. Mr. Saltzman is Mr. Irvin Saltzman's son.

    Ms.  Ferrero  has been Vice  President-Finance  of PAGI  since  March  1995,
Treasurer  of PAGI since  August  1994 and Vice  President  and Chief  Financial
Officer  of  Penn-America  since May 1994.  She has been  Secretary  of PAGI and
Penn-America since January 1997. Prior to joining Penn-America,  Ms. Ferrero was
employed by Coopers and Lybrand for over 18 years as a Senior Financial Services
Manager in their audit practice.

     Mr. DiBiasi has been Executive Vice President,  Underwriting  and Marketing
of Penn-America since May 1994.  Previously,  Mr. DiBiasi had served in the same
capacity as Vice President  since January 1989.  From January 1988 until January
1989 he was Manager, Marketing Research and Product Development of Penn-

                                    Page 19
<PAGE>

America.  From 1983 until joining  Penn-America  in 1988, Mr. DiBiasi was Senior
Manager,   Commercial  Lines  of  American  Reliance  Insurance  Companies,   of
Lawrenceville, New Jersey. Mr. DiBiasi was employed by Insurance Services Office
(ISO) from 1977 to 1983.

     Mr. Reed has been Senior Vice President,  Claims of Penn-America  since May
1995 and was Vice  President,  Claims  from 1987 to May 1995.  Prior to  joining
Penn-America, Mr. Reed was the Claims Manager for the Philadelphia office of The
Hartford Group.


ITEM 11. EXECUTIVE COMPENSATION

    This  information  will  be  contained  in the  Company's  definitive  Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders,  to
be filed with the Securities and Exchange  Commission  within 120 days following
the end of the Company's  fiscal year, and is hereby  incorporated  by reference
thereto.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    This  information  will  be  contained  in the  Company's  definitive  Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders,  to
be filed with the Securities and Exchange  Commission  within 120 days following
the end of the Company's  fiscal year, and is hereby  incorporated  by reference
thereto.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    This  information  will  be  contained  in the  Company's  definitive  Proxy
Statement with respect to the Company's 1997 Annual Meeting of Shareholders,  to
be filed with the Securities and Exchange  Commission  within 120 days following
the end of the Company's  fiscal year, and is hereby  incorporated  by reference
thereto.

                                    Page 20
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)  The  following  consolidated  financial  statements,   financial  statement
schedules and exhibits are filed as part of this report:

1. Consolidated Financial Statements

                                                                         Page*
   Consolidated Balance Sheets at December 31, 1996 and 1995                14
   Consolidated Statements of Earnings for the years ended 
     December 31, 1996, 1995, and 1994                                      15
   Consolidated  Statements  of  Stockholders'  Equity for 
     the years ended  December 31, 1996, 1995 and 1994                      16
                         
   Consolidated Statements of Cash Flows for the years ended
     December 31, 1996, 1995, and 1994                                      17
   Notes to Consolidated Financial Statements                            18-23
   Independent Auditors' Report                                             24

    The following consolidated financial statement schedules for the years 1996,
1995 and 1994 are submitted herewith:

2. Financial Statement Schedules

   Schedule I.       Summary of Investments - Other Than Investments 
                     in Related Parties
   Schedule II.      Condensed Financial Information of Parent Company
   Schedule III.     Supplementary Insurance Information
   Schedule IV       Reinsurance
   Schedule VI.      Supplemental Insurance Information Concerning 
                     Property and Casualty Subsidiaries
   Independent Auditors' Consent and Report on Schedules (filed as Exhibit 23).

   All other  schedules  are omitted  because they are not  applicable  or the
   required  information  is included  in the  financial  statements  or notes
   thereto.


* Refers to the respective  page of  Penn-America  Group's 1996 Annual Report to
Stockholders.  The Consolidated  Financial Statements and Independent  Auditors'
Report  on  pages  14 to 24 are  incorporated  herein  by  reference.  With  the
exception of the portions of such Annual  Report  specifically  incorporated  by
reference in this Item and Items 5, 6, 7 and 8, such Annual  Report shall not be
deemed filed as part of this Form 10-K or otherwise  subject to the  liabilities
of Section 18 of the  Securities  and  Exchange  Act of 1934.  *  Constitutes  a
compensatory  plan or  arrangement  required  to be filed as an  exhibit to this
form.

                                    Page 21
<PAGE>

3.  Exhibits

Exhibit No.    Description

  3.1          Articles of  Incorporation  of the  Registrant.  Incorporated  by
               reference  to  Exhibit  3.1  to  the  Registrant's   Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

  3.2          Bylaws of the  Registrant.  Incorporated  by reference to Exhibit
               3.2 to the Registrant's  Registration  Statement on Form S-1 (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 2, 1993.

 10.2          Agency   Agreement   between   Penn-America   Insurance   Company
               ("Penn-America")  and Carnegie  General  Agency.  Incorporated by
               reference  to  Exhibit  10.2  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

 10.3          1993 Casualty Excess of Loss Reinsurance  Agreement with National
               Reinsurance  Corporation.  Incorporated  by  reference to Exhibit
               10.3 to the Registrant's  Registration Statement on Form S-1 (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 2, 1993.

 10.3(i)       Endorsement  Nos.  4  through  6  (Termination   Endorsement)  to
               Casualty  Excess  of Loss  Reinsurance  Agreement  with  National
               Reinsurance Corporation.

 10.4          1993  Underlying  Homeowners  and Dwelling Fire Property Per Risk
               Excess of Loss  Reinsurance  (Run-off  Business)  Agreement  with
               National  Reinsurance  Corporation.  Incorporated by reference to
               Exhibit 10.4 to the Registrant's  Registration  Statement on Form
               S-1  (No.  33-66892)  filed  with  the  Securities  and  Exchange
               Commission on August 2, 1993.

 10.5          1993  Property Per Risk Excess of Loss  (Commercial)  Reinsurance
               Agreement with Employers Reinsurance Corporation. Incorporated by
               reference  to  Exhibit  10.5  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

 10.5(i)       Endorsement   No.  3  to   Property   Per  Risk  of  Excess  Loss
               (Commercial)  Reinsurance  Agreement with  Employers  Reinsurance
               Corporation.  Filed with the Registrant's Report on Form 10-K for
               the period ending December 31, 1994 which has been filed with the
               Securities and Exchange Commission.

 10.6          1993  Property  Catastrophe  Excess  Reinsurance  Agreement  with
               Employers Reinsurance  Corporation.  Incorporated by reference to
               Exhibit 10.6 to the Registrant's  Registration  Statement on Form
               S-1  (No.  33-66892)  filed  with  the  Securities  and  Exchange
               Commission on August 2, 1993.

                                    Page 22
<PAGE>

Exhibit No.    Description

 10.6(i)       Endorsement  No. 6 to  Property  Catastrophe  Excess  Reinsurance
               Agreement with Employers Reinsurance  Corporation.  Filed with to
               the  Registrant's  Report  on Form  10-K  for the  period  ending
               December  31, 1994 which has been filed with the  Securities  and
               Exchange Commission.

 10.6(ii)      Stipulation  of  Termination  of  Property   Catastrophe   Excess
               Reinsurance  Agreement  with  Employers  Reinsurance  Corporation
               effective January 1, 1995. Filed with the Registrant's  Report on
               Form 10-K for the period ending  December 31, 1994 which has been
               filed with the Securities and Exchange Commission.

 10.7          Agreement   dated  August  20,  1993  between  Penn   Independent
               Corporation ("Penn Independent") and the Registrant regarding the
               reimbursement  of  certain  employment  costs.   Incorporated  by
               reference to Exhibit 10.7 to Amendment No. 1 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 26, 1993.

 10.7(i)       Amendment,   effective  January  1,  1995,  to  August  20,  1993
               Agreement  between Penn Independent and Registrant  regarding the
               sharing  of certain  operating  costs.  Filed  with  Registrant's
               Report on Form 10-K for the period ended  December 31, 1995 which
               has been filed with the Securities and Exchange Commission.

 10.7(ii)      Amendments dated January 1, 1996 and March 1, 1996, to August 20,
               1993 Agreement between Penn Independent and Registrant  regarding
               the sharing of certain operating costs.

 10.8          Agreement dated August 20, 1993 between Penn  Independent and the
               Registrant  regarding  the  sharing of certain  operating  costs.
               Incorporated  by reference to Exhibit 10.8 to Amendment  No. 1 to
               the  Registrant's   Registration   Statement  on  Form  S-1  (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 26, 1993.

 10.9          Restated  Investment  Advisory  Agreement  effective July 1, 1990
               between   Penn   America   and  Carl  Domino   Associates,   L.P.
               Incorporated  by reference  to Exhibit  10.9 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 2, 1993.

* 10.10        1993 Stock Incentive  Plan.  Incorporated by reference to Exhibit
               10.10  to  Amendment  No.  4  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on September 29, 1993.

*  Constitutes a  compensatory  plan or  arrangement  required to be filed as an
exhibit to this form.

                                    Page 23
<PAGE>

Exhibit No.    Description

 10.10(i)      Penn-America  Group,  Inc. 1993 Stock  Incentive Plan, as amended
               and restated April 4, 1994.  Incorporated by reference to Exhibit
               4.1 to the Registrant's  Registration  Statement on Form S-8 (No.
               33-82728)  filed with the Securities  and Exchange  Commission on
               August 11, 1994.

 10.11(ii)     Lease  effective  June 30,  1995  between  Registrant  and  Irvin
               Saltzman.  Filed  with  Registrant's  Report on Form 10-K for the
               period  ended  December  31,  1995  which has been filed with the
               Securities and Exchange Commission.

 10.12         Demand   Promissory   Note  dated  January  12,  1993  from  Penn
               Independent    Financial   Services,    Inc.   to   Penn-America.
               Incorporated  by reference to Exhibit  10.12 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 26, 1993.

 10.13         Promissory  Note dated  December 29, 1993 from the  Registrant to
               Penn Independent. Filed with Registrant's Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.13(i)      Amendment No.1 dated November 30, 1995, to Demand Promissory Note
               dated January 12, 1993 from Penn Independent  Financial Services,
               Inc. to Penn-America.

 10.14         1995  Multiple  Line  Excess  of  Loss  (Casualty  and  Property)
               Reinsurance  Agreement  with  National  Reinsurance  Corporation.
               Filed with Registrant's  Report on Form 10-K for the period ended
               December  31, 1995 which has been filed with the  Securities  and
               Exchange Commission.

 10.14(i)      Endorsement  No. 1 to Multiple  Line  Excess of Loss  Reinsurance
               Agreement with National Reinsurance Corporation,  effective as of
               January 1, 1995. Filed with Registrant's  Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.14(ii)     Endorsement  No. 2 to Multiple  Line  Excess of Loss  Reinsurance
               Agreement with National Reinsurance Corporation,  effective as of
               January 1, 1995. Filed with Registrant's  Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.14(iii)    1996  Property & Liability  Reinsurance  Agreement  with  General
               Reinsurance Corporation effective May 1, 1996.

                                    Page 24
<PAGE>


Exhibit No.    Description

 10.15         1995 Property  Catastrophe  Excess of Loss Reinsurance  Agreement
               with the  subscribing  Reinsurers.  Filed  with the  Registrant's
               Report on Form 10-K for the period ending December 31, 1994 which
               has been filed with the Securities and Exchange Commission.

 10.15(i)      1996 Property  Catastrophe  Excess of Loss Reinsurance  Agreement
               with the subscribing Reinsurers.

 10.16         Penn-America Group, Inc. 1995 Key Employee Incentive Compensation
               Plan,  incorporated  as  Part  I  to  Registrant's   Registration
               Statement on Form S-8 (No.  333-00050)  filed with the Securities
               and Exchange Commission on January 4, 1996.

 10.17         Penn-America  Insurance Company's Agency Award and Profit Sharing
               Plan,  incorporated  as  Exhibit 4 to  Registrant's  Registration
               Statement on Form S-3 (No.  333-00046)  filed with the Securities
               and Exchange Commission on January 4, 1996.

10.18          Stipulation of Termination of Property and Liability Reinsurance
               Agreement with National Reinsurance Corporation effective May 1,
               1996.

 13.           1996 Annual Report to Shareholders.

 21.           As of December 31, 1996,  the  Registrant's  only  subsidiary  is
               Penn-America Insurance Company, a Pennsylvania Corporation.

 23.           Independent Auditor's Consent and Report on Schedules.

 28.1          Loan and Security Agreement, Term Note and Stock Pledge Agreement
               dated December 20, 1995 between Registrant and PNC Bank
               (successor to Midlantic Bank, N.A). Filed with Registrant's
               Report on Form 10-K for the period ending December 31, 1995 which
               has been filed with the Securities and Exchange Commission.


(b)  Reports on Form 8-K

     No reports  were  filed on Form 8-K  during the last  quarter of the fiscal
     year covered by this report.

                                    Page 25
<PAGE>

                            PENN-AMERICA GROUP, INC.
 Schedule I - Summary of Investments - Other than Investments in Related Parties
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                December 31, 1996
                                                         Amortized              Amount shown on
                                                           Cost      Fair Value  Balance Sheet
<S>                                                        <C>          <C>          <C>   
Fixed maturities:
      Available for sale
         U.S. treasury securities and obligations of
           U.S. government agencies                       $20,767      $20,503      $20,503
         Corporate securities                              16,053       16,167       16,167
         Mortgage-backed securities                         8,376        8,281        8,281
         Public utilities                                   4,048        4,003        4,003
                                                         --------     --------     --------
      Total available for sale                             49,244       48,954       48,954
                                                         --------     --------     --------

      Held to maturity
         U.S. treasury securities and obligations of
           U.S. government agencies                       $28,727       28,685       28,727
         Corporate securities                               9,294        9,266        9,294
         Public utilities                                   6,056        6,010        6,056
         Other securities                                     150          150          150
                                                         --------     --------     --------
      Total held to maturity                               44,227       44,111       44,227
                                                         --------     --------     --------
Total fixed maturities                                     93,471       93,065       93,181
                                                         --------     --------     --------

Equity investments:
              Common stocks                                 2,503        4,130        4,130
              Preferred stocks                              8,094        8,260        8,260
                                                         --------     --------     --------
      Total equity investments                             10,597       12,390       12,390
                                                         --------     --------     --------

Short term investments:                                     7,000        7,000        7,000
                                                         --------     --------     --------
      Total investments                                  $111,068     $112,455     $112,571
                                                         ========     ========     ========
</TABLE>

                                    Page 26
<PAGE>

                            PENN-AMERICA GROUP, INC.
         Schedule II--Condensed Financial Information of Parent Company
                            Condensed Balance Sheets
                        (in thousands except share data)
  (share and per share data restated for 3-for-2 stock split in January, 1997)
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                             1996               1995
<S>                                                                      <C>               <C>
ASSETS
     Cash                                                                       $369               $77
     Investment in subsidiary, equity method                                  50,669            46,352
     Other assets                                                                514               240
                                                                        ------------      ------------
           Total assets                                                      $51,552           $46,669
                                                                        ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Accounts payable and accrued expenses                                      $215              $269
     Note payable, affiliate                                                      --               150
     Note payable, bank                                                        9,000            10,000
                                                                        ------------      ------------
            Total liabilities                                                  9,215            10,419
                                                                        ------------      ------------

Stockholders' equity:
     Preferred stock, $ .01 par value; authorized 2,000,000 shares;
         none issued
     Common stock, $.01 par value; authorized 10,000,000 shares;
         issued and outstanding 1996; 6,676,131 and 1995; 4,430,000
         shares, respectively                                                     67                44
     Additional paid-in capital                                               21,844            21,608
     Unrealized investment gains, net                                            993             1,501
     Retained earnings                                                        19,533            13,251
                                                                        ------------      ------------
                                                                              42,437            36,404
     Unearned compensation from restricted stock awards                         (100)             (154)
                                                                        ------------      ------------
         Total stockholders' equity                                           42,337            36,250
                                                                        ------------      ------------
         Total liabilities and stockholders' equity                           51,552           $46,669
                                                                        ============      ============
</TABLE>
                                    Page 27
<PAGE>

                            PENN-AMERICA GROUP, INC.
         Schedule II--Condensed Financial Information of Parent Company
                        Condensed Statements of Earnings
                      (in thousands except per share data)
       (per share data restated for 3-for-2 stock split in January, 1997)
<TABLE>
<CAPTION>
                                                 Year ended December 31,
                                            1996         1995          1994
<S>                                        <C>          <C>            <C> 
Dividend income                            $3,258       $1,300         $450
Other                                          10           --           --
Operating expenses                         (1,653)      (1,121)        (600)
Income tax benefit                            552          380          203
                                          -------      -------      -------
Income before equity in undistributed
     net income of subsidiary               2,167          559           53
Equity in undistributed net earnings
     of subsidiary                          4,826        5,467        3,358
                                          -------      -------      -------

Net earnings                               $6,993       $6,026       $3,411
                                          =======      =======      =======

Net earnings per share                      $1.05        $0.91        $0.51
                                          =======      =======      =======

Cash dividends per share                    $0.11        $0.06           --
                                          =======      =======      =======
</TABLE>

                                    Page 28
<PAGE>

                            PENN-AMERICA GROUP, INC.
         Schedule II - Condensed Financial Information of Parent Company
                       Condensed Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                              Year ended
                                                                              December 31,
                                                                    1996          1995          1994
<S>                                                                <C>           <C>           <C>   
Cash flows from operating activities:
     Net earnings                                                  $6,993        $6,026        $3,411
     Adjustments to reconcile net earnings to net
         cash provided by operating activities:
     Equity in undistributed net earnings of subsidiary            (4,826)       (5,467)       (3,358)
            Increase (decrease) in :
                Accounts payable and accrued expenses                 (54)           30            18
                Other, net                                           (352)         (129)          (87)
                Amortization                                          133            83            56
                                                                 --------      --------      --------
                   Net cash provided by operating activities        1,894           543            40
                                                                 --------      --------      --------

Cash flows from financing activities:
     Expenses related to 1993 Initial Stock Offering                   --            --           (29)
     Repayment of note payable, bank                               (1,000)       (1,000)           --
     Proceeds of note payable, bank                                    --        10,000         1,000
     Issuance of common stock                                         259            --            --
     Repayment of note payable, affiliate                            (150)         (200)
     Equity contributions to subsidiary                                --        (9,000)       (1,000)
     Dividends paid                                                  (711)         (398)           --
                                                                 --------      --------      --------
                   Net cash used by financing activities           (1,602)         (598)          (29)
                                                                 --------      --------      --------

Increase (decrease) in cash and cash equivalents                      292           (55)           11

Cash and cash equivalents, beginning of period                         77           132           121
                                                                 --------      --------      --------
Cash and cash equivalents, end of period                             $369           $77          $132
                                                                 ========      ========      ========
</TABLE>

                                    Page 29
<PAGE>

                            PENN-AMERICA GROUP, INC.
               Schedule III - Supplementary Insurance Information
                    Years Ended December 31, 1996, 1995, 1994
                                 (in thousands)
<TABLE>
<CAPTION>
                                      Liability                                                Amortization
                                     for Unpaid                                                     of
                          Deferred   Losses and                                        Losses    Deferred
                           Policy       Loss                                 Net      and Loss    Policy        Other
                         Acquisition  Adjustment  Unearned     Earned    Investment  Adjustment Acquisition  Underwriting  Premiums
                            Costs     Expenses    Premiums    Premiums     Income     Expenses     Costs      Expenses     Written
<S>                      <C>        <C>         <C>         <C>          <C>        <C>         <C>          <C>        <C>    
Net of reinsurance:
Year Ended:
    December 31, 1996      $7,231     $55,656     $28,197     $69,081      $6,705     $43,292     $17,785      $4,349     $73,469
    December 31, 1995       5,716      46,512      23,807      57,228       5,067      35,835      14,237       4,356      61,286
    December 31, 1994       4,821      35,307      19,750      39,985       3,635      24,855       9,381       3,600      48,343

Gross:
Year Ended:
    December 31, 1996      $7,231     $70,728     $30,865     $75,876      $6,705     $51,820     $17,785      $4,349     $80,496
    December 31, 1995       5,716      60,139      26,245      63,005       5,067      43,983      14,237       4,356      66,953
    December 31, 1994       4,821      44,796      22,296      45,698       3,635      30,134       9,381       3,600      53,926
</TABLE>

                                    Page 30

<PAGE>

                            PENN-AMERICA GROUP, INC.
                            Schedule IV - Reinsurance
                  Years Ended December 31, 1996, 1995 and 1994
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                         Percentage
                                       Ceded to    Assumed                 of Amount
                            Gross        Other    from Other              Assumed to
                            Amount     Companies  Companies   Net Amount     Net
<S>                         <C>          <C>       <C>         <C>            <C>
          1996
Premiums
    Property and
    liability insurance     $80,496      $7,027      --        $73,469           0
                            -------     -------     ---        -------     -------
             Total
             Premiums       $80,496      $7,027      --        $73,469           0
                            =======     =======     ===        =======     =======

          1995
Premiums
    Property and
    liability insurance     $66,953      $5,667      --       $61,286           0
                            -------     -------     ---        -------     -------
             Total
             Premiums       $66,953      $5,667      --       $61,286           0
                            =======     =======     ===       =======     =======

          1994
Premiums
    Property and
    liability insurance     $53,926      $5,583      --       $48,343           0
                            -------     -------     ---        -------     -------
             Total
             Premiums       $53,926      $5,583      --       $48,343           0
                            =======     =======     ===       =======     =======
</TABLE>

                                    page 31
<PAGE>

                            PENN-AMERICA GROUP, INC.
           Schedule VI - Supplemental Insurance Information Concerning
                       Property and Casualty Subsidiaries
                  Years Ended December 31, 1996, 1995 and 1994
                                 (in thousands)
<TABLE>
<CAPTION>
                                      Liability                                 Loss and Loss
                                      for Unpaid         Discount            Adjustment Expenses
                                      Losses and          if Any,            (Benefits) Incurred              Paid Losses
                                         Loss            Deducted                 Related to                    and Loss
                                      Adjustment           from           Current          Prior               Adjustment
                                       Expenses          Reserves           Year            Year                Expenses
<S>                                  <C>                               <C>               <C>                 <C>     
Year Ended
       December 31, 1996               $ 70,728                          $ 48,076          $ 3,744             $ 41,233
       December 31, 1995                 60,139                            40,606            3,377               28,640
       December 31, 1994                 44,796                            30,652             (518)              18,652
</TABLE>


                                    Page 32
<PAGE>

                                   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.

                                      Penn-America Group, Inc.

    Date:  March   , 1997             By: /s/ Jon S. Saltzman
                                          Jon S. Saltzman,
                                          President and Chief Executive Officer

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

/s/ Irvin Saltzman       Chairman of the Board of Directors      March   , 1997
Irvin Saltzman           and Director

/s/ Jon S. Saltzman      President, Chief Executive Officer and  March   , 1997
Jon S. Saltzman          Director (Principal Executive Officer)

/s/ James E. Heerin, Jr. Director                                March   , 1997
James E. Heerin, Jr.

/s/ Robert A. Lear       Director                                March   , 1997
Robert A. Lear

/s/ Rosemary R. Ferrero  Vice President-Finance, Secretary and   March   , 1997
Rosemary R. Ferrero      Treasurer (Principal Financial and
                         Accounting Officer)

/s/ David P. Cohen       Director                                March   , 1997
David P. Cohen

/s/ Charles Ellman       Director                                March   , 1997
Charles Ellman

/s/ M. Moshe Porat       Director                                March   , 1997
M. Moshe Porat

/s/ Jami Saltzman-Levy   Director                                March   , 1997
Jami Saltzman-Levy

/s/Lawrence J. Schoenberg Director                               March   , 1997
Lawrence J. Schoenberg

<PAGE>

                                  Exhibit Index

Exhibit No.    Description

  3.1          Articles of  Incorporation  of the  Registrant.  Incorporated  by
               reference  to  Exhibit  3.1  to  the  Registrant's   Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

  3.2          Bylaws of the  Registrant.  Incorporated  by reference to Exhibit
               3.2 to the Registrant's  Registration  Statement on Form S-1 (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 2, 1993.

 10.2          Agency   Agreement   between   Penn-America   Insurance   Company
               ("Penn-America")  and Carnegie  General  Agency.  Incorporated by
               reference  to  Exhibit  10.2  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

 10.3          1993 Casualty Excess of Loss Reinsurance  Agreement with National
               Reinsurance  Corporation.  Incorporated  by  reference to Exhibit
               10.3 to the Registrant's  Registration Statement on Form S-1 (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 2, 1993.

 10.3(i)       Endorsement  Nos.  4  through  6  (Termination   Endorsement)  to
               Casualty  Excess  of Loss  Reinsurance  Agreement  with  National
               Reinsurance Corporation.

 10.4          1993  Underlying  Homeowners  and Dwelling Fire Property Per Risk
               Excess of Loss  Reinsurance  (Run-off  Business)  Agreement  with
               National  Reinsurance  Corporation.  Incorporated by reference to
               Exhibit 10.4 to the Registrant's  Registration  Statement on Form
               S-1  (No.  33-66892)  filed  with  the  Securities  and  Exchange
               Commission on August 2, 1993.

 10.5          1993  Property Per Risk Excess of Loss  (Commercial)  Reinsurance
               Agreement with Employers Reinsurance Corporation. Incorporated by
               reference  to  Exhibit  10.5  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on August 2, 1993.

 10.5(i)       Endorsement   No.  3  to   Property   Per  Risk  of  Excess  Loss
               (Commercial)  Reinsurance  Agreement with  Employers  Reinsurance
               Corporation.  Filed with the Registrant's Report on Form 10-K for
               the period ending December 31, 1994 which has been filed with the
               Securities and Exchange Commission.

 10.6          1993  Property  Catastrophe  Excess  Reinsurance  Agreement  with
               Employers Reinsurance  Corporation.  Incorporated by reference to
               Exhibit 10.6 to the Registrant's  Registration  Statement on Form
               S-1  (No.  33-66892)  filed  with  the  Securities  and  Exchange
               Commission on August 2, 1993.

<PAGE>

Exhibit No.    Description

 10.6(i)       Endorsement  No. 6 to  Property  Catastrophe  Excess  Reinsurance
               Agreement with Employers Reinsurance  Corporation.  Filed with to
               the  Registrant's  Report  on Form  10-K  for the  period  ending
               December  31, 1994 which has been filed with the  Securities  and
               Exchange Commission.

 10.6(ii)      Stipulation  of  Termination  of  Property   Catastrophe   Excess
               Reinsurance  Agreement  with  Employers  Reinsurance  Corporation
               effective January 1, 1995. Filed with the Registrant's  Report on
               Form 10-K for the period ending  December 31, 1994 which has been
               filed with the Securities and Exchange Commission.

 10.7          Agreement   dated  August  20,  1993  between  Penn   Independent
               Corporation ("Penn Independent") and the Registrant regarding the
               reimbursement  of  certain  employment  costs.   Incorporated  by
               reference to Exhibit 10.7 to Amendment No. 1 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 26, 1993.

 10.7(i)       Amendment,   effective  January  1,  1995,  to  August  20,  1993
               Agreement  between Penn Independent and Registrant  regarding the
               sharing  of certain  operating  costs.  Filed  with  Registrant's
               Report on Form 10-K for the period ended  December 31, 1995 which
               has been filed with the Securities and Exchange Commission.

 10.7(ii)      Amendments dated January 1, 1996 and March 1, 1996, to August 20,
               1993 Agreement between Penn Independent and Registrant  regarding
               the sharing of certain operating costs.

 10.8          Agreement dated August 20, 1993 between Penn  Independent and the
               Registrant  regarding  the  sharing of certain  operating  costs.
               Incorporated  by reference to Exhibit 10.8 to Amendment  No. 1 to
               the  Registrant's   Registration   Statement  on  Form  S-1  (No.
               33-66892)  filed with the Securities  and Exchange  Commission on
               August 26, 1993.

 10.9          Restated  Investment  Advisory  Agreement  effective July 1, 1990
               between   Penn   America   and  Carl  Domino   Associates,   L.P.
               Incorporated  by reference  to Exhibit  10.9 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 2, 1993.

* 10.10        1993 Stock Incentive  Plan.  Incorporated by reference to Exhibit
               10.10  to  Amendment  No.  4  to  the  Registrant's  Registration
               Statement on Form S-1 (No.  33-66892)  filed with the  Securities
               and Exchange Commission on September 29, 1993.

*  Constitutes a  compensatory  plan or  arrangement  required to be filed as an
exhibit to this form.

<PAGE>

Exhibit No.    Description

 10.10(i)      Penn-America  Group,  Inc. 1993 Stock  Incentive Plan, as amended
               and restated April 4, 1994.  Incorporated by reference to Exhibit
               4.1 to the Registrant's  Registration  Statement on Form S-8 (No.
               33-82728)  filed with the Securities  and Exchange  Commission on
               August 11, 1994.

 10.11(ii)     Lease  effective  June 30,  1995  between  Registrant  and  Irvin
               Saltzman.  Filed  with  Registrant's  Report on Form 10-K for the
               period  ended  December  31,  1995  which has been filed with the
               Securities and Exchange Commission.

 10.12         Demand   Promissory   Note  dated  January  12,  1993  from  Penn
               Independent    Financial   Services,    Inc.   to   Penn-America.
               Incorporated  by reference to Exhibit  10.12 to the  Registrant's
               Registration  Statement on Form S-1 (No. 33-66892) filed with the
               Securities and Exchange Commission on August 26, 1993.

 10.13         Promissory  Note dated  December 29, 1993 from the  Registrant to
               Penn Independent. Filed with Registrant's Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.13(i)      Amendment No.1 dated November 30, 1995, to Demand Promissory Note
               dated January 12, 1993 from Penn Independent  Financial Services,
               Inc. to Penn-America.

 10.14         1995  Multiple  Line  Excess  of  Loss  (Casualty  and  Property)
               Reinsurance  Agreement  with  National  Reinsurance  Corporation.
               Filed with Registrant's  Report on Form 10-K for the period ended
               December  31, 1995 which has been filed with the  Securities  and
               Exchange Commission.

 10.14(i)      Endorsement  No. 1 to Multiple  Line  Excess of Loss  Reinsurance
               Agreement with National Reinsurance Corporation,  effective as of
               January 1, 1995. Filed with Registrant's  Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.14(ii)     Endorsement  No. 2 to Multiple  Line  Excess of Loss  Reinsurance
               Agreement with National Reinsurance Corporation,  effective as of
               January 1, 1995. Filed with Registrant's  Report on Form 10-K for
               the period ended  December 31, 1995 which has been filed with the
               Securities and Exchange Commission.

 10.14(iii)    1996  Property & Liability  Reinsurance  Agreement  with  General
               Reinsurance Corporation effective May 1, 1996.

<PAGE>


Exhibit No.    Description

 10.15         1995 Property  Catastrophe  Excess of Loss Reinsurance  Agreement
               with the  subscribing  Reinsurers.  Filed  with the  Registrant's
               Report on Form 10-K for the period ending December 31, 1994 which
               has been filed with the Securities and Exchange Commission.

 10.15(i)      1996 Property  Catastrophe  Excess of Loss Reinsurance  Agreement
               with the subscribing Reinsurers.

 10.16         Penn-America Group, Inc. 1995 Key Employee Incentive Compensation
               Plan,  incorporated  as  Part  I  to  Registrant's   Registration
               Statement on Form S-8 (No.  333-00050)  filed with the Securities
               and Exchange Commission on January 4, 1996.

 10.17         Penn-America  Insurance Company's Agency Award and Profit Sharing
               Plan,  incorporated  as  Exhibit 4 to  Registrant's  Registration
               Statement on Form S-3 (No.  333-00046)  filed with the Securities
               and Exchange Commission on January 4, 1996.

10.18          Stipulation of Termination of Property and Liability Reinsurance
               Agreement with National Reinsurance Corporation effective May 1,
               1996.

 13.           1996 Annual Report to Shareholders.

 21.           As of December 31, 1996,  the  Registrant's  only  subsidiary  is
               Penn-America Insurance Company, a Pennsylvania Corporation.

 23.           Independent Auditor's Consent and Report on Schedules.

 28.1          Loan and Security Agreement, Term Note and Stock Pledge Agreement
               dated December 20, 1995 between Registrant and PNC Bank
               (successor to Midlantic Bank, N.A). Filed with Registrant's
               Report on Form 10-K for the period ending December 31, 1995 which
               has been filed with the Securities and Exchange Commission.