Exhibit 10.21 iii

BEAR STEARNS


DATE:                               December 23, 2002

TO:                                 Penn-America Group, Inc.
ATTENTION:                          Mr. Joe Morris
TELEPHONE:                          215-443-3612
FACSIMILE:                          215-443-3603

FROM:                               Derivatives Documentation
TELEPHONE:                          353-1-402-6225
FACSIMILE:                          353-1-402-6223

SUBJECT:                            Fixed Income Derivatives Confirmation

REFERENCE NUMBER(S):                BXNE111220



The purpose of this letter agreement is to confirm the terms and conditions of
the Transaction entered into on the Trade Date specified below (the
"Transaction") between Bear Steams Bank plc ("Bear Stearns") and Penn-America
Group, Inc. ("Counterparty"'). This letter agreement constitutes the sole and
complete "Confirmation," as referred to in the Master Agreement specified below,
with respect to this Transaction.


1.   This  Confirmation is subject to and incorporates the 2000 ISDA Definitions
     (the   "Definitions"),   as  published  by  the  International   Swaps  and
     Derivatives  Association,  Inc.  ("ISDA").  This Confirmation  supplements,
     forms a part of and is subject  to the ISDA  Master  Agreement  dated as of
     December 16, 2002 between Bear Stearns and Counterparty (the agreement,  as
     amended and supplemented from time to time, being referred to herein as the
     "Master  Agreement").  All  provisions  contained  in, or  incorporated  by
     reference to, the Master Agreement shall govern the Transaction  referenced
     in this Confirmation  except as expressly  modified herein. In the event of
     any  inconsistency  between this Confirmation and the Definitions or Master
     Agreement, this Confirmation shall prevail.


2.   The terms of the particular  Transaction to which this Confirmation relates
     are as follows:

Notional Amount:  USD 15,000,000

Trade Date:                December 19, 2002

Effective Date:            December 23, 2002

Termination Date:          December 4, 2007, subject to adjustment in accordance
                           with the Business Day Convention.




<PAGE>


Reference Number: BXNE111220
Penn-America Group, Inc.
December 23, 2002
Page 2 of 6

Fixed Amounts:

   Fixed Rate Payer:       Counterparty

   Fixed Rate Payer
   Payment                 Dates: The fourth calendar day of each March, June,
                           September and December during the Term of this
                           Transaction, commencing March 4, 2003 and ending on
                           the Termination Date, subject to adjustment in
                           accordance with the Business Day Convention.

   Fixed Rate:             7.40000%

   Fixed Rate Day
   Count Fraction:         30/360

Floating Amounts:

   Floating Rate Payer:    Bear Stearns

   Floating Rate Payer
   Payment Dates:          Same as Fixed Rate Payer Payment Dates.

   Floating Rate for initial
   Calculation Period:     1.4106%

   Floating Rate:          For the avoidance of doubt, with respect to any
                           Calculation Period, the Floating Rate inclusive of
                           Spread shall be capped at 12.5%.

   Floating Rate Option:   USD-LIBOR-BBA


   Designated Maturity:    3 months

   Spread:                 Plus 400 basis points

  Floating Rate Day
   Count Fraction:         Actual/360


   Reset Dates:            The first day of each Calculation Period


   Compounding:            Inapplicable


Business Days:             New York and London

Business Day Convention:   Modified Following




<PAGE>

Reference Number: BXNE111220
Penn-America Group, Inc.
December 23, 2002
Page 3 of 6


Deferral of
Swap Payments:             In the event that Counterparty invokes its right to
                           enter into an extension period for the payment of
                           dividends on its Trust Preferred Securities, as
                           specified in the preferred prospectus for such
                           securities, then, Counterparty shall have the right
                           (an "Election"), to defer payments of Fixed Amounts
                           and Floating Amounts hereunder at any time and from
                           time to time during the term of this Transaction and
                           without causing an Event of Default,, in respect of
                           up to twenty consecutive Floating Rate Payer Payment
                           Dates (and accordingly, in respect of up to 20
                           consecutive Fixed Rate Payer Payment Dates). An
                           Election shall be considered validly made and such
                           election shall be irrevocable by either party hereto,
                           if Counterparty delivers a notice of exercise to Bear
                           Steams by no later than 4:00 p.m. New York time on
                           the 5th Business Day preceding the first of the up to
                           twenty consecutive Floating Rate Payer Payment Dates
                           to which such Election Relates (the "Initial
                           Extension Date"). The notice of exercise may be given
                           orally and must include the "Final Intended Extension
                           Date" (which must occur on a Floating Rate Payer
                           Payment Date on or prior to the Termination Date and
                           which does not cause the relevant Election to relate
                           to more ten consecutive Floating Rate Payer Payment
                           Dates). Such notice should be confirmed in writing
                           within one Business Day, provided that the failure of
                           Bear Steams to provide such writing shall not affect
                           the validity of any notice of exercise that was
                           delivered orally pursuant to the terms set forth
                           herein. With respect to any Election, the "Final
                           Extension Date" shall mean the earlier to occur of
                           (i) the Final Intended Extension Date, (ii) the
                           Floating Rate Payer Payment Date, if any, on which
                           the Calculation Agent is aware that Counterparty pays
                           the deferred dividends to which the Election relates
                           on the Counterparty Trust Preferred Securities and
                           (iii) the Termination Date (including, for the
                           avoidance of doubt, the Optional Termination Date, if
                           applicable).

                           If an Election is validly made, then (i) Counterpart'
                           shall not pay the Floating Amount(s) that would
                           otherwise be payable on each Floating Rate Payer
                           Payment Date from and including the Initial Extension
                           Date to which such Election relates through and
                           including the Final Extension Date to which such
                           Election relates (the "Election Period"), (ii) Bear
                           Stearns shall not pay the Fixed Amount(s) that would
                           otherwise be payable on each Fixed Rate Payer Payment
                           Date during the Election Period to which such
                           Election relates, (iii) Counterparty shall pay~ the
                           Counterparty Extension Amount (as defined herein) to
                           Bear Stearns on the Final Extension Date to which
                           such Election relates and (iv) Bear Steams shall pay
                           the Bear Steams Extension Amount (as defined






<PAGE>









Reference Number: BXN7E1 11220
Penn-America Group, Inc.
December 23, 2002
Page 4 of 6


                           herein) to Counterparty on the Final Extension Date
                           to which such Election relates.

                           The "Counterparty Extension Amount" means, in respect
                           of the relevant Election, the amount calculated in
                           accordance with Section 6.1(c) of the Definitions,
                           determined as if (i) the Calculation Period were the
                           Election Period, (ii) the Compounding Dates were each
                           Floating Rate Payer Payment Date commencing on the
                           Floating Rate Payer Payment Date immediately
                           following the Initial Extension Date and ending on
                           the Floating Rate Payer Payment Date immediately
                           preceding the Final Extension Date, (iii) the
                           Notional Amount, Floating Rate Option, Floating Rate
                           Day Count Fraction, Designated Maturity, Spread,
                           Floating Rate Day Count Fraction had the meanings set
                           forth under Floating Amounts above and (iv) Reset
                           Dates were the first day of each Compounding Period.

                           The "Bear Steams Extension Amount" means, in respect
                           of the relevant Election, the sum of the Fixed
                           Amounts that would otherwise be payable on each Fixed
                           Rate Payer Payment Date during the Election Period to
                           which such Election relates through and including the
                           Final Extension Date to which such Election relates
                           plus the sum of the Fixed Compounding Period Amounts
                           (as defined herein) determined in respect of each
                           Fixed Rate Calculation Period during the Extension
                           Period. The "Fixed Compounding Period Amount" means,
                           for any Fixed Rate Calculation Period during the
                           Extension Period, the product of (a) the Reference
                           Amount (as defined herein) and (b) the Compounding
                           Rate (as defined herein) and (c) Actual/360. The
                           "Reference Amount" means, (i) in respect of the first
                           Fixed Rate Calculation Period in the Extension
                           Period, zero and (ii) in respect of each succeeding
                           Fixed Rate Calculation Period in the Extension
                           Period, an amount equal to the sum of the Fixed
                           Amounts that would otherwise be payable for each of
                           the previous Fixed Rate Calculation Periods plus the
                           sum of the Fixed Compounding Period Amounts
                           determined for each of the previous Fixed Rate
                           Calculation Periods. The "Compounding Rate" means, in
                           respect of the related Fixed Rate Calculation Period
                           in the Extension Period, the rate determined as if it
                           were a Floating Rate for such Calculation Period, the
                           first day of such Calculation Period were a Reset
                           Date, USD-LIBOR-BBA were the Floating Rate Option and
                           three months were the Designated Maturity.





<PAGE>



Reference Number: BXNEI 11220
Penn-America Group, Inc.
Deccmber 23, 2002
Page 5 of 6



3.   Account Details and
     Settlement Information:        Payments to Bear Stearns:






                                    Payments to Counterparty:
                                    Please provide to expedite payment:










Additional Provisions:

Non-Reliance. Each party represents to the other party that (a) it has not
received and is not relying upon any legal, tax, regulatory, accounting or other
advice (whether written or oral) of the other party regarding this Transaction,
other than representations expressly made by that other party in this
Confirmation and in the Master Agreement and (b) in respect of this Transaction,
(i) it has the capacity to evaluate (internally or through independent
professional advice) this Transaction and has made its own decision to enter
into this Transaction and (ii) it understands the terms, conditions and risks of
this Transaction and is willing to assume (financially and otherwise) those
risks. Counterparty acknowledges that Bear Stearns has advised Counterparty to
consult its own tax, accounting and legal advisors in connection with this
Transaction evidenced by this Confirmation and that the Counterparty has done
so.

This Confirmation may be executed in several counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.

Counterparty hereby agrees to check this Confirmation and to confirm that the
foregoing correctly sets forth the terms of the Transaction by signing in the
space provided below and returning to Bear Steams a facsimile of the
fully-executed Confirmation to 212-272-9857. For inquiries regarding U.S.
Transactions, please contact Sonya Nugent by telephone at 212-272-8273. For all
other inquiries please contact Niamh Ansley by telephone at 353-1-402-6224.
Originals will be provided for your execution upon your request.





<PAGE>


Reference Number: BXNE111220
Penn-America Group, Inc.
December 23, 2002
Page 6 of 6



We are very pleased to have executed tins Transaction with you and we look
forward to completing other transactions with you in the near future.

Very truly yours.

BEAR STEARNS BANK PLC



By:  /s/ Robert Canning
       Name:  Robert Canning
        Title: Authorized signatory

Counterparty, acting through its duly authorized signatory, hereby agrees to,
accepts and confirms the terms of the foregoing as of the Trade Date.


PENN-AMERICA GROUP, INC.




By:         /s/ Joseph F. Morris
    -------------------------------------------------
     As authorized agent or officer for Penn-America Group, Inc.
     Title:  SVP, CFO & Treasurer


crc