SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

         For the fiscal year ended _____December 31, 2002_______________________

[ ]      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
           Incorporation or Organization)              Identification No.)

____________420 S. York Road, Hatboro, PA______________________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:

       Title of Each Class         Name of Each Exchange on Which Registered
       -------------------         -----------------------------------------

____Common  stock,  par value,  per  share_____________  New York Stock Exchange
_______________________  Securities  registered pursuant to Section 12(g) of the
Act:

____None_______________________________________________________________________
                                (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.

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2of the Act).
Yes __ _     No X

As of March 21, 2003, the aggregate market value of the outstanding Common Stock
held by non-affiliates of the Registrant was approximately  $100,192,443.  As of
March 21, 2003, there were 14,610,577 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, 2002 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  2002 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, 2002

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

ITEM        2.PROPERTIES.............................................. 21

ITEM        3.LEGAL  PROCEEDINGS...................................... 21

ITEM        4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS..... 21


                                     PART II
                                     -------

ITEM        5.      MARKET FOR REGISTRANT'S COMMON STOCK
                    AND RELATED STOCKHOLDER MATTERS................... 22

ITEM        6.      SELECTED FINANCIAL DATA........................... 22

ITEM        7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OFOPERATIONS...... 22

ITEM        7A.      QUATITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                     MARKET RISK...................................... 22

ITEM        8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 22

ITEM        9.      CHANGES IN AND DISAGREEMENTS WITH
                    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE........................................ 22

                                    PART III
                                    --------

ITEM       10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT.......................................  23

ITEM       11.      EXECUTIVE COMPENSATION...........................  23

ITEM       12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT............................  23

ITEM       13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...  23

ITEM       14.       CONTROLS AND PROCEDURES.........................  23

                                     PART IV
                                     -------

ITEM       15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                    REPORTS ON FORM  8-K.............................  24



                                     Page 2
<PAGE>





ITEM 1. BUSINESS

General

Penn-America Group, Inc. ("PAGI") is a specialty property and casualty insurance
holding company which,  through its subsidiary,  Penn-America  Insurance Company
("Penn-America") and its subsidiary,  Penn-Star Insurance Company  ("Penn-Star")
(collectively  the  "Company"),  markets and  underwrites  commercial  property,
general  liability  and  multi-peril  insurance  for  small  businesses  located
primarily  in small towns and  suburban  and rural  areas.  Penn-America  writes
business in all fifty states and the District of Columbia.

Penn-America's   insureds  consist  primarily  of  small  businesses   including
restaurants,  apartments, retail stores and non-residential service contractors.
In addition,  the Company has  developed  customized  products and coverages for
other small commercial insureds such as day-care facilities, fitness centers and
special  events.  The Company  selects  only  insurance  lines of  business  and
industry segments for which it reasonably can evaluate the probability of future
loss exposure.  Therefore,  the Company avoids high-hazard risks and high-hazard
lines of business such as medical malpractice and environmental  liability.  The
small  businesses that the Company targets and their retail brokers have limited
access to larger  standard lines insurers.  The industry calls this  underserved
market the "excess and surplus lines marketplace".

The excess and surplus lines  marketplace is a secondary or residual  market for
businesses that are unable to obtain coverage from standard lines carriers for a
variety of reasons, which include:

o the  "non-standard"  nature of the  insureds  is not within the  risk-taking
       appetite of standard lines carriers;
o the  relatively small account size generates  insufficient  premiums for the
       standard lines carriers to cover their overhead expenses;
o the  location of the  businesses in small towns or rural areas is too remote
       to be reached economically by the retail agent system of standard lines
       carriers; and
o the  retail  agents  produce  insufficient  premiums  to  warrant  a  direct
       appointment from a standard lines carrier.

The Company  believes these  challenges in its  marketplace  are balanced by the
benefits of operating in the excess and surplus lines marketplace which include:

o higher prices than the standard lines segment;

o more  flexibility  in  offering  coverage  forms,  particularly  in  designing
  exclusions for specific loss exposures; and

o lower premium taxes and guaranty fund assessments.

The  Company  writes  business  on both an admitted  and  non-admitted  basis in
thirty-seven  states,  on only an  admitted  basis  in one  state  and on only a
non-admitted basis in twelve states and the District of Columbia.  The Company c
hooses in each state  whether to write  business on an admitted or  non-admitted
basis based upon the Company's  analysis of competition  in each state.  Writing
business on an admitted basis is highly regulated.  The regulations,  which vary
by state,  generally  govern  licensing,  underwriting  rules,  rates and policy
forms,  and require  insurance  companies to pay premium taxes and guaranty fund
assessments.  Writing  business on a non-admitted  basis is  significantly  less
regulated  and  provides  much more freedom in setting  rules,  rates and policy
forms and removes  insurance  companies  from premium  taxes and  guaranty  fund
assessment  liabilities.  Coverage  written  on a  non-admitted  basis  is  less
comprehensive  than coverage issued on an admitted basis. If the Company chooses
non-admitted  status,  the Company  could be at a  competitive  disadvantage  to
carriers  writing  on an  admitted  basis if those  competitors  choose to offer
coverages which are more comprehensive and attractive to an insured.

The Company  maintains an internet website at  http://www.penn-america.com.  The
Company makes  available free of charge on its website its annual report on form
10-K, its quarterly reports on 10-Q, current reports on


                                     Page 3
<PAGE>


Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) of the Securities  Exchange Act of 1934 as soon as reasonably  practicable
after it  electronically  files such  material  with,  or  furnishes  it to, the
Securities and Exchange Commission.

Penn-America Insurance Company was formed in 1975 by Irvin Saltzman, Chairman of
the Board of Directors, who began working in the insurance industry in 1947 when
he founded a general  agency.  The Company  completed an initial public offering
("IPO") on October 28, 1993,  at a price of $4.00 per share,  which was followed
by additional  offerings in July of 1997 and December of 2002,  where  4,537,500
and 2,990,000  shares were sold by the Company for net proceeds of approximately
$9.67  and  $7.99 per  share,  respectively.  Currently,  the  Saltzman  family,
substantially   through  their   ownership  of  Penn   Independent   Corporation
("Penn-Independent"),  owns approximately 32% of the Company's Common Stock. Jon
S. Saltzman, Irvin Saltzman's son, is a Director,  President and Chief Executive
Officer of the Company and has been employed by the Company since 1986. Prior to
1986, Jon Saltzman was employed by Penn Independent from 1976 to 1986.

Strategy

The Company's  primary  strategy is to produce a superior return to stockholders
by being the first-choice insurance carrier for a select group of general agents
who serve the specialized needs of the small business  marketplace.  The Company
accomplishes this primary strategy by focusing on the following:

     o    Serving  small  businesses  in small cities and towns.  This market is
          traditionally underserved by standard lines carriers who avoid writing
          this  business  for a variety of  reasons.  As a result,  the  Company
          generally  commands  higher  premiums and  generally has more coverage
          form flexibility than standard lines carriers.

     o    Using small and selective  general agency  distribution  network.  The
          Company's  distribution  strategy is to maintain strong  relationships
          with a select group of wholesale general agents. The Company currently
          has 57 general agents, who in turn, produce business through more than
          25,000 retail insurance brokers.  This distribution network allows the
          Company  to  maintain  low  overhead  costs  while  reaching  insureds
          nationwide.  The  Company  has  approximately  one-half  the number of
          general  agents as its nearest  competitor,  which allows it to create
          "franchise value" with each general agent by providing relative market
          exclusivity  and a high level of service and support.  In return,  the
          Company expects to become each general agents  first-choice  insurance
          carrier for the types of business it writes.

     o    Maintaining  a  disciplined   underwriting  process.  The  Company  is
          selective  in  establishing  relationships  with  general  agents  and
          engages in a comprehensive  review process before appointing a general
          agent. The Company extends only limited underwriting authority to each
          general  agent.  The Company  monitors and  controls the  underwriting
          process  of the  general  agents and audits  each  general  agent both
          remotely and on-site on a regular basis.

     o    Providing  innovative  technology to our general agents. The Company's
          technology  helps it to build  strong  relationships  with its general
          agents and  improve  the  quality  of its  underwriting  results.  The
          Company  enhances its franchise value by acting as a consultant to its
          general  agents'  information  technology  function.  The Company uses
          automation to improve operating efficiency,  providing automated forms
          and manuals and policy submission and insurance issuance systems. This
          technology  expedites  access to information  and allows the Company's
          general agents to react quickly in addressing  underwriting issues and
          concerns.

     o    Maintaining an experienced,  responsive management team. The Company's
          management  team is  experienced  in the  insurance  industry  and the
          excess  and   surplus   lines   marketplace   and  has   long-standing
          relationships   in  the  industry.   The  Company   maintains  a  flat
          organization  structure  which allows it to be highly  responsive  and
          flexible in interactions  with general agents. By operating in a small
          town,  the  Company  can  directly  relate to the  business  needs and
          challenges of its general agents and insureds.




                                     Page 4
<PAGE>

     o    Creating  shareholder  value through  strong  financial  results.  The
          underpinnings of the Company's strong financial results include:

     o    a  conservative  investment  strategy,  focused  largely on investment
          grade fixed income securities;

     o    a  conservative  loss  reserving   philosophy  designed  to  establish
          adequate reserves as soon as a loss is known;

     o    a reinsurance program with financially sound and reputable reinsurers;
          and

     o    a  discipline  of  underwriting  only risks on which the  Company  can
          reasonably expect to generate an underwriting profit.

       By focusing  on these  principles,  the  Company  believes it can deliver
       strong financial results and build shareholder value.

Marketing and Distribution

Penn-America  markets its products through  fifty-seven  general agents,  who in
turn produce business through more than 25,000 retail insurance  brokers located
throughout  the  United  States.  Penn-America  believes  that its  distribution
network  enables it to  effectively  access these  numerous  small  markets at a
relatively low fixed-cost through the marketing, underwriting and administrative
support of its general agents.  These general agents and their retail  insurance
brokers have local market  knowledge  and  expertise  that enable the Company to
access these markets more effectively.

Penn-America's  distribution strategy is to maintain strong relationships with a
select group of  high-quality  general  agents.  The Company  believes  that its
network of general agents is smaller than its competitors  because of a detailed
selection  process.  The Company  carefully  selects a limited number of general
agents based on their  experience  and  reputation  and strives to preserve each
agent's  franchise  value within its marketing  territory.  The Company seeks to
increase its written  premiums with these general agents and to develop  strong,
long-standing  relationships  by  providing a high level of service and support.
For example,  the Company  tries to respond to its general  agents'  request for
quotes  within  24  hours.  The  Company  also  supplies  Internet  and Web site
technology  support at no cost to the general agents. The Company believes these
activities   create   goodwill  with  the  general  agents  and  strengthen  its
relationship  with them.  The  Company's  strategy  has  resulted  in strong and
consistent  growth.  From 1992 to 2002, the Company's  commercial  gross written
premiums  grew from  $22.6  million to $157.4  million (a 21% annual  compounded
growth rate),  with only a modest  increase in the number of general agents from
thirty-eight (38) to fifty-seven (57).

The  following  table sets forth the  geographic  distribution  of the Company's
gross written premiums for the periods indicated:
<TABLE>
<CAPTION>
                                                                        Years ended December 31,


                                 -------------------------------------------------------------------------------------------
                                              2002                               2001                         2000
                                 -------------------------------    ------------------------    ----------------------------
(Dollars in Thousands)                 Amount          Percent     Amount       Percent              Amount       Percent
                                       -------         -------     -------      -------             -------       -------
<S>                                    <C>             <C>         <C>           <C>                 <C>            <C>
Pacific                                $23,050         14.6%       $15,613       15.9%               $19,961        18.2%
Midwest                                 29,727         18.9         17,338       17.6                 21,768        19.8
South                                   21,245         13.5         17,021       17.3                 16,539        15.1
Southwest                               17,579         11.2         12,306       12.5                 15,532        14.1
Mid-Atlantic                            34,819         22.1         17,633       17.9                 17,253        15.7
Mountain/Northwest                       9,739          6.2          8,088        8.2                 10,457         9.5
New England                             21,274         13.5         10,413       10.6                  8,281         7.6
                                       -------      ----------      -------      ---------            -------     --------
                                    $  157,433        100.0%     $  98,412       100.0%            $  109,791      100.0%
                                       =======      ==========      =======      =========            =======     ========

</TABLE>



                                     Page 5
<PAGE>


Underwriting

Core Commercial Business

The  Company  underwrites  its core  commercial  business,  which  excludes  the
Company's exited commercial  automobile business (see "Exited Lines",  below) on
Binding authority, Submit and Specialty lines bases:

Binding authority business  represents risks that may be quoted and bound by the
Company's general agents prior to the Company's underwriting review.

Submit business represents risks that must be submitted by the Company's general
agents to the Company prior to quoting or binding the account.

Specialty  lines business  represents  risks that meet specific,  pre-determined
industry-segment  and  territorial  parameters and may be quoted or bound by the
Company's general agents prior to the Company's underwriting review.

Binding authority business accounted for approximately 90% of the Company's core
commercial gross written premiums in 2002. Of this amount,  approximately 85% is
bound by general agents in accordance  with the Company's  underwriting  manual,
with the remaining 15% subject to the Company's  approval.  The Company provides
its general agents with a comprehensive,  regularly updated underwriting manual,
which also is available  online through a private intranet site called PennLINK.
This  manual  clearly   outlines  the  Company's  risk   eligibility,   pricing,
underwriting  guidelines and policy issuance instructions.  Penn-America closely
monitors the  underwriting  quality of its business through on-line system edits
and in-force account reviews.  The Company also periodically audits each agent's
office to determine if the Company's underwriting guidelines are followed in all
aspects of risk selection, underwriting compliance, policy issuance and pricing.
In addition to standard  commissions,  the Company provides strong incentives to
its general agents to produce  profitable  business through a contingent  profit
commission  structure  that  is tied  directly  to  underwriting  profitability.
Payments of these contingent  profit  commissions have been through the issuance
of shares of PAGI common  stock and cash.  Since  1996,  the Company has awarded
agents approximately  360,000 shares of PAGI common stock through its contingent
profit commission structure.

The Company  began  writing  business  on a Submit  basis in 1999 in response to
general  agents who had risks  similar to the  Company's  risk  profile but were
outside of their underwriting authority. This provides a market to the Company's
general agents for approximately 75 classes of business.  One hundred percent of
the business is quoted and bound by  Penn-America  underwriters;  general agents
have no binding  authority  for Submit  business.  This  business  accounted for
approximately 5% of core commercial gross written premiums in 2002.

Specialty lines business,  which accounted for approximately 5% of the Company's
core  commercial  gross  written  premiums  in  2002,   represents   specialized
underwriting  and marketing  programs for  individual  general agents based upon
specific  territorial  needs and  opportunities.  The  individual  general agent
typically is given  exclusive  marketing  authority  for the program  subject to
territorial  limitations.  The Company  continuously  is developing  specialized
programs for certain industry segments to meet the needs of these insureds.  For
example, Penn-America has developed programs for cargo and Alaska dwellings.

Exited Lines

The Company  exited  non-standard  personal  automobile  business in 1999.  As a
result,  there were no gross written premiums in 2002 for that line of business,
compared to $2,000 in 2001 and $2.8 million in 2000.

The Company offered commercial  automobile  coverage from 1998 through the first
quarter of 2001. In late 2000,  the Company  announced  that it was exiting this
line of business  due to  unsatisfactory  underwriting  results.  Gross  written
premiums for commercial  automobile  business  decreased to $33,000 in 2002 from
$1.1 million in 2001 and $11.5 million in 2000.


                                     Page 6
<PAGE>


Lines of Business

The following table sets forth an analysis of gross written premiums by specific
product lines during the periods indicated:
<TABLE>
<CAPTION>

                                                                      Years ended December 31,
                                    -------------------------------------------------------------------------------------
                                             2002                          2001                          2000
                                    ------------------------    ---------------------------    --------------------------
(Dollars in Thousands)                Amount      Percent          Amount       Percent         Amount         Percent

Core commercial lines
                                                $                              $
<S>                                   <C>          <C>            <C>          <C>            <C>               <C>
Special property                      16,013       10.2%          10,118       10.3%          $ 5,930           5.4%
CMP - property                        62,093       39.4           36,381       37.0            32,677          29.8
CMP - liability                       39,503       25.1           27,348       27.8            27,660          25.2
Other & product liability             39,791       25.3           23,483       23.8            29,268          26.6
                                     -------      ----------      -------      ----------      -------     ----------
Total core commercial                  100.0       98.9             87.0       157,400         97,330         95,535
 Exited lines

 Commercial auto liability                26            --           874           0.9          8,779            8.0

 Commercial auto physical damage               7            --       206           0.2          2,690            2.5

 Personal lines                             --              --         2                --      2,787            2.5
                                      ----------      ----------      ------      ----------    ------    ----------
             Total exited lines          1.1            13.0          33            --          1,082         14,256
                                      ----------      ----------      ------      ----------    ------     ----------
 Total gross written premiums      $   100.0%      $   100.0%      $ 100.0%         157,433    98,412        109,791
                                      ==========      ==========     ======      ==========     ======     ==========

</TABLE>


     o    The Company's  Commercial General Liability insurance is written on an
          occurrence  policy form, which generally  provides coverage for bodily
          injury or property  damage that arises during the policy period,  even
          though a claim is made  after the  policy  expires,  as  opposed  to a
          claims-made  policy form, which generally provides coverage for claims
          made against an insured during the policy period, irrespective of when
          the bodily injury or property damage occurred. The Company's insurance
          coverage  provides limits generally ranging from $25,000 to $3 million
          per  occurrence,  with the  majority of such  policies  having  limits
          between  $500,000  and $1 million.  The  Company's  general  liability
          policies  provide for defense and related  expenses in addition to per
          occurrence and aggregate policy limits.

     o    The Company's  Commercial  Property  lines provide  limits  usually no
          higher than $2 million per risk, with almost all of the policies being
          written at limits of $1 million per risk or less.

     o    The Company writes  Commercial  Multi-Peril  policies that provide the
          same  commercial  property  and general  liability  coverages  bundled
          together as a "package" for its insureds. The limits on these policies
          are the same as if written separately.

     o    The Company also offers  Commercial  Umbrella  policies to enhance its
          commercial  multi-peril  and commercial  general  liability  writings.
          Commercial  umbrella  insurance is written for limits up to $5 million
          per occurrence. For commercial umbrella coverage, Penn-America usually
          writes the primary $1 million liability limit.

     o    Commercial  Automobile  policies were written with liability limits up
          to $1 million per occurrence.

     o    Non-Standard  Personal Automobile policies were written with liability
          limits up to $100,000 per person and $300,000 per occurrence.


                                     Page 7
<PAGE>



Financial Information about Business Segments

The Company had two reportable  segments:  personal lines and commercial  lines.
The Company exited the  non-standard  personal  automobile  business in 1999 and
announced  that it would  run-off  its  remaining  portfolio  of such  business.
Beginning in 2003, the Company will no longer report on this segment  separately
since the amounts relating to the non-standard personal automobile business have
become  immaterial.  These  segments were managed  separately  because they have
different  customers,  pricing and  expense  structures.  The  Company  does not
allocate  assets  between  segments  because  assets  are  reviewed  in total by
management for decision-making.  The accounting policies of the segments are the
same as those more fully  described  in the  summary of  significant  accounting
policies in Note 1 to the Consolidated Financial Statements,  included herein by
reference.  The Company  evaluates  segment  profit based on profit or loss from
operating activities. Segment profit or loss from operations is pre-tax and does
not include unallocated expenses but does include investment income attributable
to insurance  transactions.  Segment  profit or loss therefore  excludes  income
taxes,  unallocated  expenses and investment income  attributable to equity. The
aforementioned  segment  information is presented in Note 10 to the Consolidated
Financial Statements incorporated herein by reference.

Pricing

In the commercial  property and casualty market, the rates and terms of coverage
provided by property and casualty  insurance  carriers are  frequently  based on
benchmarks and forms promulgated by the Insurance  Services Office ("ISO").  ISO
makes  available  to its members  advisory  rating,  statistical  and  actuarial
services,  policy language and other related  services.  ISO currently  provides
such services to more than 1,500  property and casualty  insurance  companies in
the United States.  One of the services that ISO provides is an  actuarial-based
estimate of the expected loss cost for risks in each of approximately 1,000 risk
classifications.  These benchmark loss costs reflect an analysis of the loss and
allocated loss  adjustment  expenses on claims  reported to ISO. ISO statistics,
however,  include  only  claims  and policy  information  reported  to ISO,  and
therefore do not reflect all of the loss  experience  for each class.  Also, the
historical  results  for a  particular  class may not be  sufficient  to provide
actuarially meaningful results.

The  Company   primarily  uses  ISO  loss  cost  rates  as  the  foundation  for
establishing its pricing  benchmarks for all lines of business in all 50 states.
The Company then develops "loss cost  multipliers,"  or LCMs, which are designed
to support its operating expenses,  acquisition  expenses and targeted return on
equity. The multiplication of LCMs by ISO loss cost rates produces the Company's
final  benchmark  rates.  As a general rule, the Company's final benchmark rates
are set at 110% to 150% of the  prescribed  ISO  benchmark  rates because of the
Company's strategy of providing insurance to underserved  markets. The Company's
final  benchmark  rates  are  regionalized  to  incorporate  variables  such  as
historical loss  experience,  the types and lines of business  written and state
regulatory  considerations.  For business that the Company writes on an admitted
basis,  it must  obtain  advance  regulatory  approval  of rates in a number  of
states.  The Company  provides its general agents with pricing  flexibility on a
per-policy basis, with the objective that in the aggregate, the weighted average
premium of all new and renewal  commercial  policies  written by a general agent
must equal the Company's final benchmark rates.




                                     Page 8
<PAGE>




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 to provide a high  level of  service  and
support to general agents,  retail insurance brokers 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.  The Company's  claims
management staff  supervises and processes all claims.  The Company has a formal
claims  review  process,  and all claims  greater  than  $25,000 are reviewed by
senior claims management.

Insurance Loss Reserves

The Company is directly liable for losses and loss adjustment expenses under the
terms of the insurance policies that it writes. In many cases, several years may
lapse 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 as balance
sheet liabilities for both reported and unreported claims.

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.  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. Loss adjustment  expenses
are determined as a percentage of expected  indemnity losses based on historical
patterns adjusted to reflect current experience.

In addition to case reserves,  management  establishes  reserves on an aggregate
basis to provide  for  incurred  but not  reported  losses  and loss  adjustment
expenses,  commonly  referred to as "IBNR." To  establish  reserves for IBNR the
Company must estimate the ultimate liability based primarily on past experience.
The Company applies a variety of traditional  actuarial  techniques to determine
its  estimate of  ultimate  liability.  The  techniques  recognize,  among other
factors,  the  Company's and the  industry's  experience,  historical  trends in
reserving patterns and loss payments, the impact of claim inflation, the pending
level of unpaid claims, the cost of claim settlements,  the line of business mix
and the economic  environment in which property and casualty insurance companies
operate.

The Company  continually  reviews these estimates and, based on new developments
and  information,  the Company  includes  adjustments  of the probable  ultimate
liability in the operating  results for the periods in which the adjustments are
made. In general, initial reserves are based upon the actuarial and underwriting
data utilized to set pricing levels and are reviewed as additional  information,
including claims experience,  becomes  available.  The establishment of loss and
loss  adjustment  expense  reserves  makes no provision  for the  broadening  of
coverage by legislative action or judicial  interpretation,  or the emergence of
new types of losses not sufficiently represented in our historical experience or
that cannot yet be quantified.  The Company regularly  analyzes its reserves and
reviews pricing and reserving  methodologies so that future adjustments to prior
year reserves can be minimized.  However,  given the complexity of this process,
reserves will require continual updates and the ultimate liability may be higher
or lower than  previously  indicated.  The Company  does not  discount  its loss
reserves.




                                     Page 9
<PAGE>





Activity in the  liability  for unpaid  losses and loss  adjustment  expenses is
summarized as follows:
<TABLE>
<CAPTION>

                                                          Year ended December 31,
                                               -----------------------------------------------
                                                       2002         2001             2000
                                               --------------    ------------    -------------
                                                               (in thousands)

<S>                                             <C>              <C>                <C>
Balance, beginning of year                      $ 119,598        $   115,314        $ 93,719
Less reinsurance recoverable                       25,552            24,093           18,086
                                               --------------    ------------    -------------
Net balance, beginning of year                     94,046            91,221           75,633
Incurred related to:
     Current year                                  72,702            60,885           66,214
     Prior years                                    2,406                36            9,164
                                               --------------    ------------    -------------
Total incurred                                     75,108            60,921           75,378

Paid related to:
     Current year                                  22,906            19,913           26,273
     Prior years                                   36,050            38,183           33,517
                                               --------------    ------------    -------------
Total paid                                         58,956            58,096           59,790

Net balance, end of year                          110,198            94,046           91,221
Plus reinsurance recoverable                       27,549            25,552           24,093
                                               --------------    ------------    -------------
Balance, end of year                            $ 137,747         $ 119,598        $ 115,314
                                               ==============    ============    =============
</TABLE>


In 2002, the Company  increased  incurred  losses and loss  adjustment  expenses
attributable  to insured  events of prior years by  $2,406,000.  The increase is
attributable  to an increase in estimates for loss and loss  adjustment  expense
reserves by $5,100,000 for  commercial  liability  lines of business,  partially
offset by  reductions  in estimates by $2,700,000  for the  commercial  property
lines of business.

The  Company's  change in estimates in 2002 for the  commercial  property  lines
resulted  from lower than  expected  costs per claim than for the 2001  accident
year.  As of  December  31,  2001,  the Company  anticipated  an increase in the
average cost per claim of approximately 11% to $9,200 for the 2001 accident year
as compared to $8,300 for the 2000 accident year. During 2002, the 2001 accident
year  developed  more  favorably  than  originally  anticipated,  as the average
settlement per claim declined to approximately $8,000. Consequently, the Company
reduced its estimates by $2,700,000 in 2002.

The Company's  change in estimates in 2002 for the  commercial  liability  lines
resulted  primarily  from an increase of $2,300,000  due to a lengthening of the
selected  development  patterns  on all  accident  years as the number of claims
closed in 2000 varied from the Company's historical experience. The remainder of
the change is primarily  due to increases in estimates for claims  expenses,  as
paid development patterns during 2002 were in excess of expectations at December
31, 2001.

In 2001, the Company  increased  incurred  losses and loss  adjustment  expenses
attributable to insured events of prior years by $36,000.  This increase related
entirely  to the  commercial  automobile  line of  business.  Additionally,  the
Company increased its estimate for loss and loss adjustment  expense reserves by
$1,800,000  for  commercial  multi-peril  liability and reduced its estimates by
$1,400,000  for  non-standard  personal  automobile  and $400,000 in  commercial
multi-peril property.

The  Company  increased  its  estimate  in 2001 for the  commercial  multi-peril
liability line of business by $1,800,000  due to the  development of outstanding
claim reserves on claims occurring primarily in 1998 and 1999. In 2001, incurred
losses on the 1998 and 1999 accident  year  increased  approximately  $1,300,000
more than anticipated based on historical  development patterns. The increase is
primarily  attributed to higher than expected average settlement costs per claim
for the 1998 and 1999 accident  years.  This increase was offset almost entirely
by  a  reduction  in  the  Company's  estimate  for  the  non-standard  personal
automobile line of business due to favorable  settlements on closed claims.  The
decrease is attributed primarily to lower than expected average settlement costs
per claim for the 1998 and 1999 accident years.

In 2000, the Company  increased  incurred  losses and loss  adjustment  expenses
attributable  to insured  events of prior years by  $9,164,000.  The increase is
primarily attributable to changes in the Company's estimates for

                                    Page 10

<PAGE>

losses  and loss  adjustment  expense  reserves  of  $1,400,000  for  commercial
automobile,  $3,900,000 for commercial  multi-peril liability and $3,400,000 for
other liability lines of business.

The Company began writing commercial  automobile coverage for vehicles and light
trucks  in 1998.  The  initial  estimates  for 1998  and  1999  were  based on a
relatively low level of claims reported to the Company. As of December 31, 1999,
the Company's  expectations of claim  reporting  patterns were based on industry
experience, since limited Company experience was available. In 2000, the Company
received more claims than  initially  expected for accident years 1998 and 1999.
Consequently,  the Company  increased its estimate by $1,400,000 in 2000. In the
fourth quarter of 2000, the Company  exited the  commercial  automobile  line of
business due to unsatisfactory underwriting results.

The change in estimates in 2000 for the commercial  multi-peril line of business
resulted  principally  from an unexpected  increase in reported liquor liability
claims on policies written in 1998 and 1999. In 2000, the Company  increased its
estimate by $3,900,000. In 2000, the Company revised its underwriting guidelines
to reduce significantly its exposure to liquor liability for bars and taverns in
certain states. Ultimately, this revision limited liquor liability coverage only
to certain states and certain insureds.

The  change  in  estimates  in  2000  for  the  other  liability  line  resulted
principally from construction defect claims, which were new types of claims that
were not  anticipated  when the Company  wrote these  policies  between 1991 and
1996. In 2000, the Company received an increased  number of construction  defect
claims predominantly  related to insureds who operated as sub-contractors in the
state of California.  Prior to 2000,  most  construction  defect  litigation was
targeted at general contractors and housing developers. However, as their policy
limits became eroded to the vast number of litigants, plaintiff attorneys sought
additional  recoveries from  sub-contractors.  Consequently,  with the increased
number  of  claims  reported   combined  with  expected  cost  to  defend  these
construction defect claims, the Company increased its estimate by $3,400,000.

While the Company has increased loss and loss  adjustment  expense  reserves for
prior year insured events in each of the last three years,  the Company believes
that  its loss and  loss  adjustment  expense  reserves  at  December  31,  2002
represent  its  best  estimate  of  amounts   required  to  settle  its  related
liabilities for two primary reasons.  First, a significant  portion of the prior
year  reserve  increases  related  to  business  the  Company  no longer  writes
including  non-standard  personal and commercial  automobile  lines of business,
residential  contractors and sub-contractors  and restaurants,  bars and taverns
with  significant  exposure to liquor  liability  losses.  Second,  in 2000, the
Company  implemented  improvements in the loss reserving process,  including the
development of monthly and quarterly loss and loss  adjustment  expense  reserve
analyses and the creation of a Reserve Committee that meets quarterly.


In the first quarter of 2003, the Company received an unexpected increase in the
number of new  claims  reported  relating  to four  policies  issued to a single
insured between January 1, 1980 and April 1, 1983. The insured is a manufacturer
of safety  equipment,  including  industrial  masks, and the new claims reported
allege existing and potential  bodily injury due to a medical  condition  called
silicosis.  This is the only  insured  with which the  Company  has open  claims
relating to this type of injury.  The  original  policies  covered  products and
completed  operations  only and were  issued  with a $500,000  indemnity  policy
aggregate limit of liability and a $5,000 insured  deductible per claim. At this
time,  it is  not  possible  to  evaluate  the  probability  of a  favorable  or
unfavorable outcome on these claims. The Company believes that the amount of any
losses or loss adjustment  expenses,  if any, will not have a material effect on
the Company's financial position or results of operations.


Incurred losses and loss adjustment  expenses include estimates recorded as loss
and loss  adjustment  expense  reserves  on the balance  sheet for the  ultimate
payment  on both  reported  and  unreported  claims.  The  Company  changes  its
estimates for loss and loss adjustment expenses


                                    Page 11
<PAGE>

reserves  as new  events  occur,  as more  loss  experience  is  acquired  or as
additional  information  is  received.  Estimates  for loss and loss  adjustment
expense reserves result from a continuous review process and the change in these
estimates,  as required by SFAS No. 60,  Accounting  and  Reporting by Insurance
Enterprises,  is recorded in the period  that the change in these  estimates  is
made.

The following  table  presents  accident year loss and loss  adjustment  expense
ratios  (the sum of losses and loss  adjustment  expenses  divided  by  premiums
earned)  for the ten most  recent  accident  years  (the  year in which the loss
occurred),  as recorded as of December 31 for 1993  through  2002,  after giving
effect to the increase in loss and loss adjustment  expenses relating to changes
in estimates of insured events of prior years. These "accident year" loss ratios
differ from the loss ratios  included in the Company's  financial  statements in
that the latter  loss ratios are based upon the year in which we  recognize  the
loss for accounting  purposes,  regardless of when the loss actually occurred or
was reported to the Company.

<TABLE>
<CAPTION>


                                                             As of December 31,
                      ---------------------------------------------------------------------------------------
Accident Year            1993    1994     1995     1996     1997    1998     1999     2000     2001     2002
--------------------- -------- ------- -------- -------- -------- ------- -------- -------- -------- --------

<C>                      <C>     <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>
1993                     69.5    68.0     66.1     67.3     69.7    68.9     70.9     70.2     71.3     72.2
1994                             69.5     66.2     65.3     66.3    66.0     69.1     72.0     71.8     72.6
1995                                      65.6     63.0     61.9    62.3     63.9     65.4     65.1     66.0
1996                                               63.8     62.1    64.7     68.1     68.3     69.4     69.4
1997                                                        62.6    60.6     62.4     62.0     62.1     64.2
1998                                                                62.2     63.6     65.8     65.0     65.7
1999                                                                         63.8     68.2     70.0     72.3
2000                                                                                  72.4     70.2     70.5
2001                                                                                           68.5     63.8
2002                                                                                                    63.2

</TABLE>

The following  table presents the development of unpaid loss and loss adjustment
expenses  during the ten years ended  December  31,  2002.  The top of the table
reflects the ten-year development of the Company's reserves, net of reinsurance.
The bottom of the table  reconciles  1992  through  2002 ending  reserves to the
gross reserves in the Company's consolidated financial statements.  The top line
of the table shows the  estimated  reserve  for unpaid loss and loss  adjustment
expenses  at the  balance  sheet  date for each of the  indicated  years.  These
figures  represent  the  estimated  amount  of unpaid  loss and loss  adjustment
expenses  for claims  arising in 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  available  about the  frequency  and  severity of
claims.

The net cumulative  deficiency  presented in the following table  represents the
difference between the unpaid loss and loss adjustment expense reserves recorded
as of December 31 of the respective calendar year and the re-estimation of these
reserves as of December  31, 2002.  While each year of the table  reflects a net
cumulative  deficiency,  approximately  75% to 100% of each years net cumulative
deficiency  was  recognized  by the  Company  in three  distinct  calendar  year
periods:  1999, 2000 and 2002. Please refer to "Insurance Loss Reserves" on page
9 for details  regarding  the prior year  reserve  adjustments  made in calendar
periods 2000 and 2002.  In 1999,  the Company  increased  incurred loss and loss
adjustment expenses attributable to insured events of prior years by $8,419,000.
The increase is primarily attributable to changes in estimates for loss and loss
adjustment  expenses for the non-standard  personal automobile line of business.
During 1999,  the Company  received a significant  number of claims  relating to
accidents incurred prior to 1999, resulting in an increase in loss estimates. In
1999, the Company exited the non-standard personal automobile line of business.


                                    Page 12
<PAGE>

<TABLE>
<CAPTION>


                               1992    1993    1994     1995       1996      1997       1998       1999       2000     2001     2002

                            ------- --------------------------- --------- ---------- ---------- ---------- -------- ----------------
<S>                         <C>       <C>      <C>      <C>       <C>        <C>        <C>      <C>      <C>      <C>      <C>
Reserves for unpaid losses  $26,110   $26,830  $35,307  $46,512   $55,656    $68,863    $72,436  $75,632  $91,221  $94,046  $110,198
and loss adjustment

     Expenses, as stated (In
thousands)

a. Net cumulative paid as of
     1 year later            $7,381    $6,852  $12,384  $17,210   $23,654    $30,236    $36,449  $34,626  $38,183   36,052
    2 years later            11,127    13,127   20,617   29,612    38,819     51,141     55,718   57,415   62,973
    3 years later            15,546    18,656   27,266   38,091    50,982     63,470     70,370   73,843
    4 years later            19,253    22,254   32,119   44,016    57,613     72,651     80,979
    5 years later            21,503    24,303   34,883   48,236    62,724     79,028
    6 years later            22,796    25,642   37,687   51,485    66,588
    7 years later            23,714    27,121   39,863   54,109
    8 years later            24,959    28,449   41,689
    9 years later            25,979    29,572
    10 years later           26,757

b. Reserves re-estimated
    as of end of year
    1 year later            $24,478   $23,897  $33,601  $45,708   $55,997    $68,946    $80,855  $84,784  $91,257  $96,453
    2 years later            21,945    23,489   34,281   47,225    57,913     76,217     86,351   86,863
    3 years later            22,032    24,558   36,453   47,378    63,575     79,881     86,899   93,158
    4 years later            22,767    26,335   36,359   50,704    67,310     81,226     91,156
    5 years later            23,935    26,380   38,768   54,245    68,567     84,822
    6 years later            24,143    27,532   41,425   54,739    70,251
    7 years later            24,776    29,050   42,095   56,462
    8 years later            26,485    29,804   43,321
    9 years later            26,949    30,704
    10 years later           27,632

Net cumulative redundancy    (1,522)   (3,874)  (8,014)  (9,950)  (14,595)   (15,959)   (18,720)  17,526)  (6,608)  (2,406)
(deficiency)

Gross liability for unpaid
losses and
  loss adjustment expenses, $31,703   $33,314  $44,796  $60,140   $70,728    $84,566    $88,937  $93,719 $115,314 $119,598  137,747
as stated
Reinsurance recoverable       5,593     6,484    9,489   13,628    15,072     15,703     16,502   18,086   24,093   25,552   27,549
Net liability for
unpaid losses and
  loss adjustment expenses,  26,110    26,830   35,307   46,512    55,656     68,863     72,435   75,633   91,221   94,046  110,198
as stated
                            --------- ---------------- ---------- ------------------ ---------- ---------- -------- -------- -------
Gross liability re-estimated 30,609    32,796   48,173   63,884    71,644     85,640     98,395  101,597  115,350  122,831
 - 1year later
Reinsurance recoverable       6,131     8,899   14,572   18,191    15,647     16,694     17,540   16,800   24,093   26,378
re-estimated
Net liability re-estimated
 - 1                         24,478    23,897   33,601   45,693    55,997     68,946     80,855   84,797   91,257   96,453
                            --------- ------- ------------------- ------- ---------- ------------------- -------- --------
Gross liability re-estimated
- 2 years later              30,390    36,243   53,009   66,405    74,312     92,832    104,664  104,137  122,484
============================
Reinsurance recoverable       8,445    12,754   18,728   19,180    16,399     16,615     18,313   17,274   24,655
re-estimated
Net liability re-estimated
- 2 years later              21,945    23,669   34,281   47,225    57,913     76,217     86,351   86,863   97,829
                                   --------- ------- -------------------- ------- ---------- ---------- ---------- --------
Gross liability re-estimated 33,992    41,600   56,042    66,891    80,574   97,786    105,248    113,559
 Reinsurance recoverable     11,960    17,042   19,589    19,513    16,999   17,905     18,349     20,401
re-estimated
Net liability re-estimated   22,032    24,558   36,453    47,378    63,575   79,881     86,899     93,158
-3 years later
                              --------- ------- -------------------- ------- ---------- ---------- ---------- ---------
Gross liability re-estimated 38,165    43,824   56,167    68,927    84,831   98,244    111,019
-4 years later
Reinsurance recoverable      15,398    17,489   19,808    18,223    17,521   17,018     19,863
re-estimated
Net liability re-estimated   22,767    26,335   36,359    50,704    67,310   81,226     91,156
-4years later
                              --------- ------- -------------------- ------- ---------- ----------
Gross liability re-estimated 39,956    44,466   58,272    73,042    85,221  103,562
-5 years later
Reinsurance recoverable      16,021    18,086   19,504    18,797    16,654   18,740
re-estimated

Net liability re-estimated   23,935    26,380   38,768    54,245    68,567   84,822
-5 years later
                              --------- ------- -------------------- ------- ----------
Gross liability re-estimated 40,670    45,595   61,814    72,978    87,500
-6 years later
Reinsurance recoverable      16,527    18,063   20,389    18,238    17,249
re-estimated
Net liability re-estimated   24,143    27,532   41,425    54,739    70,252
-6 years later
                              --------- ------- -------------------- -------
Gross liability re-estimated 41,679    47,955   61,766    74,758
-7 years later
Reinsurance recoverable      16,903    18,905   19,671    18,295
re-estimated
Net liability re-estimated   24,776    29,050   42,095    56,462
-7 years later
                              --------- ------- --------------------
Gross liability re-estimated 43,958    48,032   63,081
-8 years later
Reinsurance recoverable      17,473    18,228   19,760
re-estimated
Net liability re-estimated   26,485    29,804   43,321
-8 years later
                              --------- ------- ----------
Gross liability re-estimated 44,248    49,019
-9 years later
Reinsurance recoverable      17,300    18,316
re-estimated
Net liability re-estimated   26,949    30,704
-9 years later
                             -------- --------
Gross liability re-estimated-44,868
10 years
Reinsurance recoverable      17,236
re-estimated
Net liability re-estimated   27,632
-10 years later
                            ---------
Gross cumulative
deficiency                 ($13,165) ($15,705)($18,285) ($14,618) ($16,772)($18,996)  ($22,082)  ($19,840)($7,170) ($3,233)

</TABLE>

                                    Page 13
<PAGE>

Reinsurance

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.

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
reviews the financial condition of each reinsurer annually. The Company's policy
is to use only reinsurers  that have an A.M. Best rating of "A-"  (excellent) or
better and that have at least $500 million in policyholders' surplus.

Since  September  2001,  the  Company's  multiple-line  excess  of  loss  treaty
reinsurance has been with American Re, part of the Munich Re Group.  American Re
is rated "A+" (Superior) by A.M. Best. For the three years prior to September 1,
2001, General Reinsurance Corporation,  rated "A++" (Superior) by A.M. Best, was
the  Company's  reinsurer  on their  multiple-line  excess of loss  treaty.  The
following is a summary of the Company's multiple-line excess of loss reinsurance
treaty:

<TABLE>
<CAPTION>

Line of Business            Company Policy Limit                Reinsurance Coverage / Company Retention
----------------            --------------------                ----------------------------------------

<S>                         <C>                                <C>
Property                    $2.0 million per risk              $1.7 million per risk / $3.0 million per occurrence in excess of
                                                               $300,000 per risk

Commercial Automobile       $1.0 million per occurrence        $750,000 per occurrence in excess of $250,000 per occurrence

General Liability           $3.0 million per occurrence        $2.5 million per occurrence in excess of  $500,000 per occurrence

</TABLE>


The  Company's  combined  retention  for any one  loss  resulting  from a common
occurrence  involving  both the  property  and general  liability  coverage on a
single risk is $500,000. The Company's  multiple-line excess of loss reinsurance
treaty also includes  casualty excess  coverage,  which covers exposures such as
punitive damages and other  extra-contractual  obligations,  losses in excess of
policy limits (such as bad faith and errors and  omissions),  liability  actions
brought by two or more of the Company's  insureds  against each other  resulting
from the same occurrence and loss adjustment expenses.

The  Company  offers  umbrella   liability  policies  up  to  $5.0  million  per
occurrence.  These  policies are  reinsured  with  American Re for 90% of policy
limits up to $1.0 million per  occurrence  and 100% of policy  limits up to $4.0
million in excess of $1.0 million per occurrence.

The Company maintains a catastrophic loss reinsurance  program. As of January 1,
2003,  the terms of this  program  provide for 100%  retention of the first $1.0
million per occurrence  and  reinsurance of 100% of $29.0 million per occurrence
in excess of $1.0 million per occurrence.


                                    Page 14
<PAGE>



The  Company's   catastrophic  loss  reinsurance   program  includes:   American
Agricultural  Insurance  Company,  Converium  (North  America),  Converium (UK),
Everest  Reinsurance  Company,  Hannover  Ruckversicherungs,   PXRE  Reinsurance
Company, Shelter Reinsurance Company, Sirius International Insurance Corporation
and XL Re Ltd. All of these  reinsurers are rated "A-"  (excellent) or higher by
A.M. Best and have policyholders' surplus greater than $500 million.

The Company may write individual  policies with limits of liability greater than
the  aforementioned  Company policy  limits.  These limits of liability are 100%
reinsured on a facultative reinsurance basis.

Information regarding the amount of premiums written and ceded under reinsurance
treaties is included in Note 7 to the Consolidated Financial Statements included
herein by reference.

Terrorism Risk Insurance Act of 2002

On November 26, 2002,  President Bush signed the Terrorism Risk Insurance Act of
2002 ("the Act") into law.  The  purpose of the Act is to  establish a temporary
federal program that provides a system of shared public and private compensation
for insured losses resulting from certain acts of terrorism.  The Act defines an
act of terrorism  as any violent act that is  certified by the  Secretary of the
Treasury  which  results in $5.0 million of damage  within the United States (or
outside the United States in the case of an air carrier or a vessel) and that is
committed by an individual or  individuals  acting on behalf of a foreign person
or foreign interest,  as part of an effort to coerce the civilian  population of
the United States or to influence the policy or affect the conduct of the United
States Government by coercion ("certified act(s) of terrorism").

The Act specifies  that the federal share of losses  resulting  from a certified
act of  terrorism  will  be  90% of all  insured  losses  above  each  insurance
carrier's deductible, subject to a maximum federal aggregate liability of $100.0
billion. An insurance carrier's  deductible for certified acts of terrorism will
be based on a percentage of direct  earned  premiums for the calendar year prior
to the start of each  program  year.  For 2003,  the  Company's  deductible  for
certified  acts of terrorism  will be 7% of the Company's  direct earned premium
for the year ended December 31, 2002, or $9.3 million.

The Act also  specifies  that  exclusions  for  certified  acts of  terrorism in
property and casualty  insurance  contracts  that were  in-force on November 26,
2002 are void and may only be reinstated with a written  authorization  from the
insured,  or if the insured  fails to pay any increase in premium  applicable to
coverage  for  certified  acts of  terrorism.  In  addition,  the  Act  requires
insurance  carriers to offer  coverage for  certified  acts of terrorism for all
policies written after November 26, 2002.

At November 26, 2002, the Company had  approximately  56,000  policies  in-force
that were  subject  to the  provisions  of the Act.  Approximately  89% of these
policies contained terrorism  exclusions which were voided under the Act. In the
first  quarter of 2003,  the Company  offered  coverage  for  certified  acts of
terrorism to these  policyholders  as required by the Act. The Company expects a
majority  of these  policyholders  to decline  this  coverage  either by written
request or failure to pay the additional premium due.

The  Company's   multiple  line  excess  of  loss  reinsurance  treaty  provides
reinsurance  protection  for  certified  acts of  terrorism,  unless the insured
losses  involve  the  use  or  release  of  nuclear,  biological,   chemical  or
radioactive  ("NBCR")  materials.   The  Company's  property  catastrophic  loss
reinsurance  treaty excludes  insureds'  losses for certified acts of terrorism.
Effective  January 1, 2003,  the Company  purchased a multiple  line quota share
treaty that provides  reinsurance  protection  for  certified  acts of terrorism
relating to new and renewal policies effective January 1, 2003 or later.

As a result of the provisions of the Act and the reinsurance protection provided
by the Company's  reinsurance  treaties and the federal  program,  the following
represents the Company's retention relating to certified acts of terrorism:


                                    Page 15
<PAGE>

<TABLE>
<CAPTION>

Reinsurance Treaty/Program                 Company Retention
--------------------------                 -----------------

<S>                                          <C>
Multiple-line excess of loss treaty (1)    The Company  retains  the first  $300,000  per  property  risk,  subject to a
                                           maximum of $3.0 million per occurrence/aggregate,  and the first $500,000 per
                                           general  liability  occurrence,  subject  to a maximum  of $2.0  million  per
                                           occurrence/aggregate.

Property catastrophic loss treaty          This treaty excludes all losses resulting from certified acts of terrorism.

Multiple-line quota share certified
 acts of terrorism                         The Company retains 20% of the first
                                           $5.0 million per  occurrence/aggregate plus $4.3 million in excess of
                                           $5.0 million. This treaty applies to new and
                                           renewal policies effective January 1, 2003 and later.

Federal                                    Terrorism Insurance Program
                                           The  Company   retains  the
                                           first  $9.3   million   per
                                           occurrence/  aggregate plus
                                           10% of  losses in excess of
                                           $9.3 million.

</TABLE>


(1) Treaty excludes  reinsurance  protection for insureds'  losses for certified
acts of terrorism relating to the use or release of NBCR materials.

The  Company  believes  that its  exposure  to  insured  losses  resulting  from
certified  acts of terrorism  will not have a material  affect on its  financial
condition.

Investments

The   Company's   investment   strategy   emphasizes   quality,   liquidity  and
diversification, as well as total return. With respect to liquidity, the Company
considers  liability  durations,  specifically  related to loss  reserves,  when
determining  desired investment  maturities.  In addition,  maturities have been
staggered   to  produce   cash  flows  for  loss   payments   and   reinvestment
opportunities.   The  Company  out-sources  the  management  of  its  investment
portfolio to Gen Re New England Asset Management Inc.  ("NEAMS").  In accordance
with  the  asset  management  agreement  between  the  Company  and  NEAMS,  all
investment  transactions are approved by the Investment Committee of the Company
within 60 days of their  initiation by NEAMS.  At December 31, 2002, the Company
held a total of $277.0 million in cash and investments. Of this amount, cash and
cash equivalents  represented $9.8 million,  equity securities represented $18.6
million, and fixed maturities represented $248.6 million.

The Company's  fixed  maturity  portfolio of $248.6 million was 90% of the total
cash  and  investments  as of  December  31,  2002.  Approximately  93% of these
securities  were  rated "A" or better by  Standard  & Poor's.  Standard & Poor's
rates publicly traded  securities in twenty  categories  ranging from AAA to CC.
Securities  with ratings from AAA to BBB- (the top ten  categories) are commonly
referred to as having an  investment  grade  rating.  Equity  securities,  which
consist  of  preferred  stocks  and  common  stocks  (comprised  exclusively  of
exchange-traded  funds),  were $18.6 million or 7% of total cash and investments
as of December 31, 2002.



                                    Page 16
<PAGE>





As of December 31, 2002, the Company's  investment portfolio contained corporate
fixed  maturity and  preferred  stock  securities  with a market value of $101.6
million. A summary of these securities by industry segment is as follows:

                                           Percentage of fixed maturity
       Industry Segment                    and preferred stock portfolio
       ---------------                     ----------------------------


       Financial institutions                         36%
       Utilities                                      21%
       Consumer, non-cyclical                         15%
       Communications                                 13%
       Industrial                                      5%
       Consumer, cyclical                              3%
       Basic materials                                 3%
       Energy                                          2%
       Technology                                      2%
                                           ---------------------------
                                                      100%
                                           ===========================

As of December 31, 2002,  the Company's  investment  portfolio  contained  $63.4
million of mortgage-backed and asset-backed and collateral mortgage obligations.
All of these  securities  were rated "A" or better by  Standard & Poor's and 80%
were "AAA" or better by Standard & Poor's These  securities are publicly traded,
and had market values obtained from an independent  pricing service.  Changes in
estimated cash flows due to changes in prepayment  assumptions from the original
purchase  assumptions  are  revised  based on  current  interest  rates  and the
economic  environment.  The  Company  had no real  estate  or  mortgages  in its
investment portfolio as of December 31, 2002.

The  Company   regularly   evaluates  its   investment   portfolio  to  identify
other-than-temporary  impairments  of  individual  securities.  Many factors are
considered  in  determining  if  any  other-than-temporary   impairment  exists,
including  the  length  of time and  extent  to which  the  market  value of the
security  has been  less  than  cost,  the  financial  condition  and  near-term
prospects  of  the  issuer  of  the  security  and  the  Company's  ability  and
willingness  to hold the security until the market value is expected to recover.
The following table contains an analysis of the Company's  securities with gross
unrealized  losses,  categorized  by the period  that the  securities  were in a
continuous unrealized loss position as of December 31, 2002:
<TABLE>
<CAPTION>


                                Number of          Fair          Book        Gross Unrealized      Six Months     Over Six
(Dollars in thousands)         Securities         Value         Value                  Losses         or Less       Months
----------------------------- ------------ ------------- ------------- --- ------------------- --------------- ------------
<S>                                    <C>     <C>           <C>                        <C>             <C>            <C>
Fixed maturities                       14      $ 16,603      $ 16,728                   $ 125           $ 124          $ 1

Equity securities                       1         2,164         2,307                     143             143          ---
                                                                           ------------------- --------------- ------------
                                                                                        $ 268           $ 267          $ 1
                                                                           =================== =============== ============
</TABLE>


As of December 31, 2002, the Company's fixed maturity  investment  portfolio had
fourteen  securities with $125,000 of gross unrealized  losses. No single issuer
had an unrealized loss position greater than $30,000.



                                    Page 17
<PAGE>



The following table shows the  classifications  of the Company's  investments at
December 31, 2002:
<TABLE>
<CAPTION>

                                                      Amount
                                             Fair   reflected    Percent of
                                             value   on balance      total
                                                       sheet
                                             -----  -----------   ----------

                                                  (In thousands)
Fixed maturities:
   Available for sale:
      U.S. Treasury securities and obligations
<S>                                         <C>       <C>          <C>
        of U.S. government agencies        $ 41,190     $ 41,190        15.4%
       Corporate securities                  69,870       69,870        26.2
       Mortgage-backed securities            32,346       32,346        12.1
       Other structured securities           31,021       31,021        11.6
       Municipal securities                  52,262       52,262        19.6
       Public utilities                      19,894       19,894         7.4
                                           --------     --------       -----
       Total available for sale             246,583      246,583        92.3
                                           --------     --------       -----

    Held to maturity
       U.S. Treasury securities and
 obligations

           of U.S. government agencies        1,717     1,687      0.6
       Corporate securities                     300       276      0.1
                                           --------  --------    -----
          Total held to maturity              2,017     1,963      0.7
                                           --------  --------    -----


          Total fixed-maturity securities   248,600   248,546     93.0
                                           --------  --------    -----
    Equity securities:
       Common stock                           7,019     7,019      2.6
       Preferred stock                       11,606    11,606      4.4
                                           --------  --------    -----


          Total equity securities            18,625    18,625      7.0
                                           --------  --------    -----


    Total investments                      $267,225   267,171    100.0%
                                           ========  ========    =====


</TABLE>


The  composition of the Company's  portfolio of  fixed-income  investments  were
rated by Standard & Poor's at December 31, 2002, as follows:


          "AAA"                                   52%
          "AA"                                    15%
          "A"                                     26%
          "BBB"                                    6%
          Below "BBB"                              1%
                                          ------------
                                                 100%
                                          ============

The  market  risk  of  the  Company's   investment   portfolio  is  descibed  in
Quantitative  and  Qualitative  Disclosures  About  Market Risk  included in the
Company's Annual Report to Shareholders incorporated herin by reference.

Note 5 to the Consolidated  Financial  Statements in the Company's Annual Report
to  Shareholders  included  herein by  reference  sets forth the net  investment
income  results of the Company for the years ended  December 31, 2002,  2001 and
2000.


                                    Page 18
<PAGE>





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 offering only a single product in some cases. The Company competes with a
number of insurers in attracting quality general agents and in selling insurance
products.  Many of the Company's  existing or potential  competitors  are larger
excess and surplus lines and specialty admitted insurers which have considerably
greater financial and other resources,  have greater experience in the insurance
industry and offer a broader line of insurance  products  than the Company.  The
Company believes that in order to be successful in its market,  it must be aware
of pricing cycles and must be able to minimize the impact of such cycles through
tight expense control and superior customer service.

Another  competitive  factor  is  the  rating  assigned  by  independent  rating
organizations  such as A.M. Best Company.  Penn-America and Penn-Star  currently
have a pooled  rating  from A.M.  Best of "A-"  (Excellent).  "A-" is the fourth
highest of sixteen  rating  categories.  These ratings are based upon factors of
concern  to  policyholders  and  are  not  directed  toward  the  protection  of
investors.

The Company believes that its distribution strategy,  which is based on building
and maintaining strong relationships with a small number of high quality general
agents that are enabled  with the latest  technological  innovation,  provides a
competitive   advantage  in  the  markets  it  targets.   The   "Marketing   and
Distribution"  section  included herein more fully describes the elements of the
strategies which the Company believes provide this competitive advantage.

Regulation

General.  The Company is subject to regulation under the insurance  statutes and
regulations, including insurance holding company statutes, of the various states
in which it does business.  These statutes are generally designed to protect the
interests  of  insurance   policyholders,   as  opposed  to  the   interests  of
stockholders, 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,  rules 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 examinations by those agencies. The
last  regulatory  financial  examination  of  Penn-America  was completed by the
Pennsylvania  Insurance  Department in 1999, covering the five-year period ended
December 31, 1998, and for Penn-Star,  covering a two-year period ended December
31, 1998, since its initial licensing in 1997.

Insurance Holding Company Laws.  Pennsylvania,  the Company's state of domicile,
has laws governing  insurers and insurance holding  companies.  The Pennsylvania
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 the statutes,  a person must
generally obtain the Pennsylvania  Insurance  Department's  approval to acquire,
directly or indirectly,  10% or more of the outstanding voting securities of the
company or any of its insurance company subsidiaries. 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 group 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


                                    Page 19
<PAGE>


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 group.

Dividend  Restrictions.  PAGI is a holding company, the principal asset of which
is the common stock of  Penn-America.  The principal  source of cash to meet the
Company's  short-term  liquidity  needs,  including  the payment of dividends to
PAGI's stockholders, corporate expenses and interest on debentures, is dividends
from  Penn-America.  The Company has no planned capital  expenditures that could
impact its long-term liquidity needs.

Penn-America's   principal   sources  of  funds  are  underwriting   operations,
investment income and proceeds from sales and redemptions of investments.  Funds
are used by Penn-America  and Penn-Star  principally to pay claims and operating
expenses,  to purchase  investments  and to make dividend  payments to PAGI. The
Company's  future  liquidity is dependent on the ability of  Penn-America to pay
dividends to PAGI.

The National Association of Insurance Commissioners has adopted a system to test
the  adequacy  of  statutory  capital  ("policyholders'   surplus"),   known  as
"risk-based  capital",  which  applies to  Penn-America  Insurance  Company  and
Penn-Star  Insurance  Company,  Penn-America  Insurance  Company's  wholly-owned
subsidiary.  This system  establishes  the minimum amount of risk-based  capital
necessary  for  a  company  to  support  its  overall  business  operations.  It
identifies  property and casualty insurers that may be inadequately  capitalized
by looking at certain  inherent risks of each insurer's  assets and  liabilities
and  its mix of net  written  premiums.  Insurers  falling  below  a  calculated
threshold  may be subject to varying  degrees of  regulatory  action,  including
supervision or control.  As of December 31, 2002, the policyholders'  surplus of
Penn-America  Insurance  Company and  Penn-Star  Star  Insurance  Company was in
excess of the prescribed risk-based capital requirements. Penn-America Insurance
Company's policyholders' surplus at December 31, 2002 was $110.3 million and its
regulatory  action  level  was  $22.5  million.  Penn-Star  Insurance  Company's
policyholders' surplus at December 31, 2002 was $37.4 million and its regulatory
action level was $8.3 million.

Penn-America  is also subject to  regulations  under which  payment of dividends
from  statutory  surplus  may  require  prior  approval  from  the  Pennsylvania
Insurance  Department.  Penn-America  may pay dividends to PAGI without  advance
regulatory approval only from unassigned surplus and only to the extent that all
dividends  in the past  twelve  months do not exceed the greater of 10% of total
statutory  surplus  or  statutory  net income for the prior  year.  Using  these
criteria,  the available  ordinary dividend for 2003 is $11.0 million.  Ordinary
dividends  paid by  Penn-America  to PAGI in 2002  were  $1.1  million  and $1.6
million  for the  years  ended  December  31,  2002 and 2001,  respectively.  No
ordinary dividends were paid to PAGI in 2000.  Rather,  Penn-America paid a $6.4
million  return of capital to PAGI in 2000,  after  receiving  approval from the
Pennsylvania  Insurance Department,  which PAGI used to repurchase stock and pay
dividends  and PAGI  operating  expenses.  Penn-America's  ability to pay future
dividends  to  us  without  advance   regulatory   approval  is  dependent  upon
maintaining a positive level of unassigned and policyholders'  surplus, which in
turn, is dependent upon Penn-America  Insurance Company and Penn-Star  Insurance
Company generating net income in excess of dividends to the Company.

Insurance  Guaranty Funds:  Under insolvency or guaranty laws in states in which
Penn-America   is  licensed  as  an  admitted   insurer  (and  in  New  Jersey),
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  except
in New Jersey and their  policyholders  are not 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


                                    Page 20
<PAGE>


terminations  and other policy terms,  and to impose new taxes and  assessments.
During 2002, President Bush signed the Terrorism Risk Insurance Act of 2002 into
law.  For  more  information  see page 15  included  herein.  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, particularly in personal lines, to limit midterm
cancellations by insurers and require advance notice of renewal  intentions.  In
addition,  Congress is investigating  possible avenues for federal regulation of
the insurance industry.

Employees

The Company has approximately  110 employees.  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  23,000  square  feet in an office  building
located  in  Hatboro,   Pennsylvania.  The  office  building  also  houses  Penn
Independent and certain of 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  renewed June 30, 2000 that expires on June 30, 2005,  and
provides for an annual rental payment of $357,000.  This amount is considered by
the Company to be at fair market value.

ITEM 3. Legal Proceedings

The Company's insurance subsidiaries are subject to routine legal proceedings in
connection  with their  property and casualty  business.  Penn-America  has been
named  as  a  defendant  in  litigation  commenced  in  the  Superior  Court  of
California,  County of Los Angeles, on November 6, 2000 and in an identical suit
on December 18, 2000 in the County of Orange  relating to the  Company's  exited
non-standard  personal  automobile  business.  During 2002, the Company  reached
settlement on this litigation in the amount of $285,000. The Company is involved
in no other  pending or threatened  legal or  administrative  proceedings  which
management  believes  might  have a  material  adverse  effect 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 2002 to a vote of holders
of PAGI's common stock.



                                    Page 21
<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 the
inside back cover of the Company's  Annual Report to  Stockholders  for the year
ended  December  31,  2002,  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 12 of the Company's
Annual Report to  stockholders  for the year ended  December 31, 2002,  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  13 to 27  of  the  Company's  Annual  Report  to
stockholders  for the year ended December 31, 2002, which is included as Exhibit
(13) to this Form 10-K Report, is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  "Quantitative  and  Qualitative  Disclosures  About Market Risk" section on
pages 27 and 28 of the  Company's  Annual  Report to  stockholders  for the year
ended  December  31,  2002,  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 31 to 55 of the Company's Annual
Report to stockholders  for the year ended December 31, 2002,  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 22
<PAGE>


PART III

ITEM 10. Directors and Executive Officers of the registrant

The Director's  information will be in the Company's  definitive Proxy Statement
with respect to the Company's 2002 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 15, 2003 are as follows:

Irvin Saltzman                80     Chairman  of the  Board of  Directors
                                     of PAGI and Penn-America

Jon S. Saltzman               45     President    and   Chief    Executive
                                     Officer of PAGI and Penn-America

Joseph F. Morris              48     Senior    Vice    President,    Chief
                                     Financial  Officer and  Treasurer  of
                                     PAGI and Penn-America

Garland P. Pezzuolo           38     Vice    President,    Secretary   and
                                     General    Counsel    of   PAGI   and
                                     Penn-America

ITEM 11. EXECUTIVE COMPENSATION

This information  will be contained in the Company's  definitive Proxy Statement
with respect to the Company's 2003 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 2003 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 2003 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 14. CONTROLS AND PROCEDURES




Within the past ninety days, an evaluation was performed  under the  supervision
and with the participation of the Company's management,  including the President
and CEO and Senior Vice President,  CFO and Treasurer,  of the  effectiveness of
the design and operation of the Company's  disclosure  controls and  procedures.
Based on that evaluation, the Company's management,  including the President and
CEO and Senior Vice President,  CFO and Treasurer,  concluded that the Company's
disclosure controls and procedures were effective as of December 31, 2002. There
have been no significant  changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to December
31, 2002.


                                    Page 23
<PAGE>
                                     PART IV

ITEM 15. 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:

<TABLE>
<CAPTION>

1.  Consolidated Financial Statements
                                                                                                           Page *
                                                                                                        --------------

<S>                                                                                                         <C>
              Consolidated Balance Sheets at December 31, 2002 and 2001                                      31
              Consolidated Statements of Operations for the years ended December 31,
                    2002, 2001, and 2000                                                                     32
              Consolidated  Statements of  Stockholders'  Equity for the years ended
                    December 31, 2002, 2001   and 2000.                                                      33
              Consolidated Statements of Cash Flows for the years ended December
                    31, 2002, 2001, and 2000.
                                                                                                             34
              Notes to Consolidated Financial Statements                                                    35-55
              Independent Auditors' Report                                                                   30

     The  following  consolidated  financial  statement  schedules for the years
2002, 2001, and 2000 are submitted herewith:

2. Financial Statement Schedules.
                                                                                                           Page
                                                                                                        --------------

              Schedule I.    Summary of Investments - Other Than Investments in Related Parties             34
              Schedule II.   Condensed Financial Information of Parent Company                            35-37
              Schedule III.  Supplementary Insurance Information                                            38
              Schedule IV.   Reinsurance                                                                    39
              Schedule VI.   Supplemental Insurance Information Concerning Property and Casualty
                      Operations                                                                            40
              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.

3. Exhibit Index:                                                                                               25-33
</TABLE>



* Refers to the respective  page of  Penn-America  Group's 2002 Annual Report to
Stockholders attached as Exhibit (13). The Consolidated Financial Statements and
Independent  Auditors'  Report  on pages  30 to 55 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.


                                    Page 24
<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.

     4    Placement  Agreement between Registrant and its financing  subsidiary,
          Penn-America  Statutory Trust I, and FTN Financial Capital Markets and
          Keefe,  Bruyette & Woods,  Inc.,  dated  November  21, 2002 filed with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2002.

     4(i) Subscription   Agreement   among   Penn-America   Statutory  Trust  I,
          Registrant and I-Preferred Term Securities I., Ltd., dated December 4,
          2002 filed with Registrant's  Report on Form 10-K for the period ended
          December 31, 2002.

     4(ii)Indenture  between  Registrant  and  U.S.  Bank  National  Association
          (f/k/a  State  Street Bank and Trust  Company of  Connecticut,  N.A.),
          dated December 4, 2002 filed with Registrant's Report on Form 10-K for
          the period ended December 31, 2002.

     4(iii) Amended and Restated  Declaration  of Trust among U.S Bank  National
          Association (f/k/a State Street Bank and Trust Company of Connecticut,
          N.A.),  Registrant  and Jon S.  Saltzman,  Joseph F.  Morris and Brian
          Riley dated  December 4, 2002 filed with  Registrant's  Report on Form
          10-K for the period ended December 31, 2002.

     4(iv)Guarantee   Agreement  between   Registrant  and  U.S.  Bank  National
          Association (f/k/a State Street Bank and Trust Company of Connecticut,
          N.A.) dated  December 4, 2002 filed with  Registrant's  Report on Form
          10-K for the period ended December 31, 2002.

     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) and
          filed with the Securities and Exchange Commission on August 2, 1993.

     10.3(i)  Endorsements  Nos. 4 through 6 (Termination  Endorsement)  to 1993
          Casualty   Excess  of  Loss   Reinsurance   Agreement   with  National
          Reinsurance  Corporation,  filed  with  the  Securities  and  Exchange
          Commission with  Registrant's  Report on Form S-2 Amendment No. 1 (No.
          333-91362) on September 6, 2002.

     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


                                    Page 25
<PAGE>


     Exhibit No.  Description
     ----------   -----------

          Registration  Statement on Form S-1 (No.  33-66892) and 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, filed with Registrant's  Report on
          Form 10-K for the period ended December 31, 1996, which has been filed
          with the Securities and Exchange Commission.

     10.7(iii)  Amendment  dated  March 1, 1997,  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, 1997,  which has been filed with the
          Securities and Exchange Commission.

     10.7(iv)  Amendment  dated  January 1, 1999,  to August 20, 1993  Agreement
          between  Penn  Independent  and  Registrant  regarding  the sharing of
          certain  operating costs,  filed with the Registrant's  Report on Form
          10-K for the period ended December 31, 1998, which has been filed with
          the Securities and Exchange Commission.

     10.7(v)  Amendment  dated  January 1, 2000,  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, 1999,  which has been filed with the
          Securities and Exchange Commission.

     10.7(vi) Amendment dated July 1, 2000, 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,  2000,  which  has  been  filed  with the
          Securities and Exchange Commission.

     10.7(vii)  Amendment  dated January 1, 2001,  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, 2001,  which has been filed with the
          Securities and Exchange Commission.

     10.7(viii)  Amendment  dated January 1, 2002, to August 20, 1993  Agreement
          between  Penn  Independent  and  Registrant  regarding  the sharing of
          certain  operating  costs,  filed  with the  Securities  and  Exchange
          Commission with the  Registrant's  Report on Form S-2 Amendment 1 (No.
          333-91362) on September 6, 2002.

     10.7(ix)  Amendment  dated  January  1, 2003 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, 2002.


                                    Page 26
<PAGE>


     Exhibit No.  Description
     ----------   -----------

     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) and filed with the Securities and Exchange
          Commission on August 2, 1993.

     10.9(i) Amended Investment  Advisory Agreement effective September 1, 1997,
          between and among  Penn-America,  its  subsidiary,  Penn-Star and Carl
          Domino  Associates,  L.P., filed with the Registrant's  Report on Form
          10-K for the period ending December 31, 1997, which was filed with the
          Securities and Exchange Commission.

     10.9(ii) Agreement  dated April 15, 1997,  between and among General Re New
          England Asset  Management,  Inc.,  Penn-America,  and its  subsidiary,
          Penn-Star  filed  with the  Registrant's  Report  on Form 10-K for the
          period ending  December 31, 1997,  which was filed with the Securities
          and Exchange Commission.

     10.9(iii)  Investment  Advisory  Agreement  effective  February  19,  1999,
          between Penn-America Insurance Company and Madison Monroe, Inc., filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  1999,  which has been  filed  with the  Securities  and  Exchange
          Commission.

     10.9(iv)  Notice of  Termination  effective  July 1,  2000,  of  Investment
          Advisory   Agreement  dated  September  1,  1997,  between  and  among
          Penn-America  Insurance Company,  its subsidiary,  Penn-Star Insurance
          Company  and Carl Domino  Associates,  L.P.,  filed with  Registrant's
          Report on Form 10-K for the period ended December 31, 2000,  which has
          been filed with the Securities and Exchange Commission.

     10.9(v) Amendment  dated  November 7, 2000,  to  Agreement  dated April 15,
          1997, between and among General Re New England Asset Management, Inc.,
          Penn-America Insurance Company, and its subsidiary,  Penn-Star,  filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2000,  which has been  filed  with the  Securities  and  Exchange
          Commission on March 30, 2001.

     10.9(vi) Amendment dated August 2, 2000, to Investment Management Agreement
          dated February 25, 1999,  between  Penn-America  Insurance Company and
          Madison Monroe,  Inc., filed with Registrant's Report on Form 10-K for
          the period  ended  December  31,  2000,  which has been filed with the
          Securities and Exchange Commission.

     10.9(vii)  Notice of  Termination  dated  November 2, 2000,  of  Investment
          Management  Agreement  dated February 25, 1999,  between  Penn-America
          Insurance  Company and Madison Monroe,  Inc., filed with  Registrant's
          Report on Form 10-K for the period ended December 31, 2000,  which has
          been filed with the Securities and Exchange Commission.

     10.101993 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)  and  filed  with  the  Securities  and  Exchange
          Commission on September 29, 1993.

                                    Page 27
<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) and
          filed with the Securities and Exchange Commission on August 11, 1994.


     10.10(ii)  Employee   Bonus  Plan  dated   January  1,  2000,   filed  with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          1999,   which  has  been  filed  with  the   Securities  and  Exchange
          Commission.

     10.10(iii) Amendment dated April 1, 2000, to Penn-America  Group, Inc. 1993
          Stock  Incentive  Plan, as amended and restated  April 4, 1994,  filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2001,  which has been  filed  with the  Securities  and  Exchange
          Commission on March 30, 2001.

     10.10(iv) Amended and Restated 2002 Stock  Incentive Plan (f/k/a 1993 Stock
          Incentive Plan),  filed as Exhibit 4 to the Registrant's  Registration
          Statement  on Form S-8  (No.  333-89846),  which  was  filed  with the
          Commission on June 5, 2002.

     10.10(v) Amended 2002 Stock Incentive Plan.

     10.11Lease effective July 1, 2000, between  Penn-America  Insurance Company
          and Irvin Saltzman,  filed with  Registrant's  Report on Form 10-K for
          the period  ended  December  31,  2000,  which has been filed with the
          Securities and Exchange Commission on March 30, 2001.

     10.141995 Multiple Line Excess of Loss (Casualty and Property)  Reinsurance
          Agreement  with  National  Reinsurance  Corporation,  effective  as of
          January 1, 1995, filed with Registrant's  Report on Form S-2 Amendment
          No. 1 (No.  333-91362) with the Securities and Exchange  Commission on
          September 6, 2002.

     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 S-2 Amendment
          No. 1 (No.  333-91362) with the Securities and Exchange  Commission on
          September 6, 2002.

     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 S-2 Amendment
          No. 1 (No.  333-91362) with the Securities and Exchange  Commission on
          September 6, 2002.

     10.14(iii) 1996 Property & Liability  Reinsurance Agreement with General Re
          Corporation  effective May 1, 1996, filed with Registrant's  Report on
          Form S-2  Amendment  No. 1 (No.  333-91362)  with the  Securities  and
          Exchange Commission on September 6, 2002.


                                    Page 28
<PAGE>


     Exhibit No.  Description
     ----------   -----------

     10.14(iv) Property  Catastrophe Excess of Loss Reinsurance  Program between
          subscribing   reinsurers  and  Penn-America  and  Penn-Star  Insurance
          Companies  effective  January 1, 2000 to  January 1, 2002,  filed with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2001, which has been filed with the Securities and Exchange Commission
          on March 28, 2002.

     10.14(v) Property  Catastrophe  Excess of Loss Reinsurance  Program between
          subscribing   reinsurers  and  Penn-America  and  Penn-Star  Insurance
          Companies  effective  January 1, 2002 to  January 1, 2003,  filed with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2002.

     10.16Penn-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)  and filed with the  Securities and Exchange
          Commission on January 4, 1996.

     10.16(i)  Penn-America   Insurance  Company  2001  Key  Employee  Incentive
          Compensation Plan,  effective January 1, 2001, filed with Registrant's
          Report on Form 10-K for the period ended December 31, 2000,  which has
          been filed with the  Securities  and Exchange  Commission on March 30,
          2001.

     10.17Penn-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) and filed with the Securities and Exchange
          Commission on January 4, 1996.

     10.17(i) Penn-America  Insurance  Company's Agency Award and Profit Sharing
          Plan, attached as Exhibit 4 to Registrant's  Registration Statement on
          Form S-3 (No.  333-49055)  and filed with the  Securities and Exchange
          Commission on March 31, 1998.

     10.17(ii) Form of Amended General Agency Profit Sharing  Addendum to Agency
          Award & Profit Sharing Plan,  filed with  Registrant's  Report on Form
          10-K for the period ended December 31, 1999, which has been filed with
          the Securities and Exchange Commission on March 27, 2000.

     10.17(iii) Form of General  Agent  Contingent  Profit  Commission  Addendum
          between  agents and  Penn-America  and Penn-Star  Insurance  Companies
          effective January 1, 2001, filed with Registrant's Report on Form 10-K
          for the period ended December 31, 2001,  which has been filed with the
          Securities and Exchange Commission on March 28, 2002.

     10.17(iv)  Agency  Performance  Award and  Profit  Sharing  Plan,  filed as
          Exhibit 4.1 to the  Registrant's  Registration  Statement  on Form S-2
          (No.333-87698), which was filed with the Commission on May 7, 2002.

     10.18Stipulation  of  Termination  of Property  and  Liability  Reinsurance
          Agreement with National Reinsurance Corporation effective May 1, 1996,
          filed  with  Registrant's  Report  on Form  S-2  Amendment  No. 1 (No.
          333-91362) with the Securities and Exchange Commission on September 6,
          2002.


                                    Page 29
<PAGE>


     Exhibit No.  Description
     ----------   -----------

     10.19Multiple  Line  Excess  of Loss  Agreement  of  Reinsurance  including
          Endorsement  No.  1  between  General   Reinsurance   Corporation  and
          Penn-America and Penn-Star  Insurance  Companies  effective January 1,
          2000, filed with Registrant's Report on Form 10-K for the period ended
          December  31,  2001,  which has been  filed  with the  Securities  and
          Exchange Commission on March 28, 2002.

     10.19(i) Endorsement No. 2 to the Multiple Line Excess of Loss Agreement of
          Reinsurance  including  Endorsement  No.  1  (Exhibit  10.19)  between
          General   Reinsurance   Corporation  and  Penn-America  and  Penn-Star
          Insurance   Companies,   effective   September  1,  2001,  filed  with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2001, which has been filed with the Securities and Exchange Commission
          on March 28, 2002.

     10.20Property and Casualty  Excess of Loss  Reinsurance  Agreement  between
          American Re-Insurance Company and Penn-America and Penn-Star Insurance
          Companies  effective September 1, 2001, filed with Registrant's Report
          on Form 10-K for the period ended  December  31, 2001,  which has been
          filed with the Securities and Exchange Commission on March 28, 2002.

     10.21ISDA (International Swap Dealers  Association,  Inc.) Master Agreement
          dated as of December 16, 2002  between  Penn-America  Group,  Inc. and
          Bear Stearns Bank PLC.

     10.21(i)  Schedule to the ISDA  (International  Swap  Dealers  Association,
          Inc.)  Master   Agreement  dated  as  of  December  16,  2002  between
          Penn-America Group, Inc. and Bear Stearns Bank PLC.

     10.21(ii)  ISDA  (International  Swap  Dealers  Association,  Inc.)  Credit
          Support Annex to the Schedule to the ISDA Master Agreement dated as of
          December 16, 2002 between  Penn-America  Group,  Inc. and Bear Stearns
          Bank PLC.

     10.21(iii)   Fixed   Income   Derivatives    Confirmation   to   the   ISDA
          (International Swap Dealers Association,  Inc.) Master Agreement dated
          as of December  16, 2002  between  Penn-America  Group,  Inc. and Bear
          Stearns Bank PLC.

     11   Statement  re:  computation  of per share  earnings,  incorporated  by
          reference from Note 2 to the Consolidated Financial Statements,  filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2002,  which has been  filed  with the  Securities  and  Exchange
          Commission.

     13   2002 Annual Report to  Shareholders,  incorporated  by reference under
          Item 8.

     21   As  of  December  31,  2002,  the  Registrant  has  two  subsidiaries;
          Penn-America   Insurance  Company,  a  Pennsylvania   Corporation  and
          Penn-America Statutory Trust I, a Connecticut Financing Corporation.

     23   Independent Auditors' Consent and Report on Schedules



                                    Page 30
<PAGE>



     Exhibit No.  Description
     ----------   -----------

     28.2 Credit  Agreement  among  Registrant,  Certain Lenders and First Union
          National Bank dated September 28, 1998,  filed with the Securities and
          Exchange  Commission,  filed with the Registrant's Report on Form 10-K
          for the period ended December 31, 1998,  which has been filed with the
          Securities and Exchange Commission.

     28.3 First  Amendment  to  Credit  Agreement,  dated  May 12,  1999,  among
          registrant,  certain  lenders and First  Union  National  Bank,  dated
          September 28, 1998,  filed with  Registrant's  Report on Form 10-K for
          the period  ended  December  31,  1999,  which has been filed with the
          Securities and Exchange Commission.

     28.4 Second  Amendment to Credit  Agreement,  dated August 26, 1999,  among
          registrant,  certain  lenders and First  Union  National  Bank,  dated
          September 28, 1998,  filed with  Registrant's  Report on Form 10-K for
          the period  ended  December  31,  1999,  which has been filed with the
          Securities and Exchange Commission.

     28.5 Third  Amendment  to Credit  Agreement,  dated March 15,  2000,  among
          registrant,  certain  lenders and First  Union  National  Bank,  dated
          September 28, 1998,  filed with  Registrant's  Report on Form 10-K for
          the period  ended  December  31,  1999,  which has been filed with the
          Securities and Exchange Commission.

     28.6 Notice of Termination of Credit Agreement,  dated July 31, 2000, among
          Registrant, Certain Lenders, and First Union National Bank, parties to
          the Credit Agreement dated

          September 28, 1998,  filed with the  Registrant's  Report on Form 10-K
          for the period ended December 31, 2000,  which has been filed with the
          Securities and Exchange Commission.

     30.0 Reinsurance Pooling Agreement between  Penn-America  Insurance Company
          and Penn- Star Insurance  Company dated July 1, 1998, filed as Exhibit
          30.0 to the  Registrant's  Annual  Report on Form 10-K for the  period
          ended December 31, 1998,  which was filed with the Commission on March
          26, 1999.

     30.0(i) Amendment No.1 to Reinsurance Pooling Agreement dated July 1, 1998,
          effective July 1, 2002.

     30.0(ii) Amendment  No.2 to  Reinsurance  Pooling  Agreement  dated July 1,
          1998, effective December 31, 2002.

     31.0 Amended and Restated  Promissory Note and Security Agreement effective
          January 2, 2001,  between Jon S. Saltzman and  Penn-America  Insurance
          Company  which  amends and  restates in its  entirety,  including  any
          amendments  thereto,  the Promissory Note and Security Agreement dated
          January 17, 2000, filed with Registrant's  Report on Form 10-K for the
          period  ended  December  31,  2001,  which  has  been  filed  with the
          Securities and Exchange Commission on March 28, 2002.


                                    Page 31
<PAGE>

Exhibit No.  Description
----------   -----------


     31.0(i)  Amended  and  Restated  Promissory  Note  and  Security  Agreement
          effective  January 2, 2001,  between Jon S. Saltzman and  Penn-America
          Insurance Company which amends and restates in its entirety, including
          any amendments  thereto,  the Promissory  Note and Security  Agreement
          dated March 10, 2000, filed with Registrant's  Report on Form 10-K for
          the period  ended  December  31,  2001,  which has been filed with the
          Securities and Exchange Commission on March 28, 2002.

     31.0(ii)  Amended  and  Restated  Promissory  Note and  Security  Agreement
          effective  January 2, 2001,  between Jon S. Saltzman and  Penn-America
          Insurance Company which amends and restates in its entirety, including
          any amendments  thereto,  the Promissory  Note and Security  Agreement
          dated September 19, 2000, filed with Registrant's  Report on Form 10-K
          for the period ended December 31, 2001,  which has been filed with the
          Securities and Exchange Commission on March 28, 2002.

     31.0(iii)  Amended and  Restated  Promissory  Note and  Security  Agreement
          effective January 2, 2001,  between J. Ransley Lennon and Penn-America
          Insurance Company which amends and restates in its entirety, including
          any amendments  thereto,  the Promissory Note Security Agreement dated
          February 16, 2000, filed with Registrant's Report on Form 10-K for the
          period  ended  December  31,  2001,  which  has  been  filed  with the
          Securities and Exchange Commission on March 28, 2002.

     31.0(iv)  Amended  and  Restated  Promissory  Note and  Security  Agreement
          effective   January  2,  2001,   between   Garland  P.   Pezzuolo  and
          Penn-America  Insurance  Company  which  amends  and  restates  in its
          entirety,  including any amendments  thereto,  the Promissory Note and
          Security  Agreement dated February 11, 2000,  filed with  Registrant's
          Report on Form 10-K for the period ended December 31, 2001,  which has
          been filed with the  Securities  and Exchange  Commission on March 28,
          2002.

     31.0(v) Promissory  Note and Security  Agreement  effective  March 9, 2001,
          between Joseph F. Morris and  Penn-America  Insurance  Company,  filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2001,  which has been  filed  with the  Securities  and  Exchange
          Commission on March 28, 2002.

     31.0(vi) Promissory Note and Security  Agreement  effective March 28, 2001,
          between Joseph F. Morris and  Penn-America  Insurance  Company,  filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2001,  which has been  filed  with the  Securities  and  Exchange
          Commission.

     31.0(vii) Promissory Note and Security  Agreement  effective March 9, 2001,
          between Garland P. Pezzuolo and Penn-America  Insurance Company, filed
          with  Registrant's  Report on Form 10-K for the period ended  December
          31,  2001,  which has been  filed  with the  Securities  and  Exchange
          Commission on March 28, 2002.


                                    Page 32
<PAGE>


     Exhibit No.  Description
     ----------   -----------


     31.0(viii) Promissory Note and Security  Agreement  effective  February 16,
          2001,  between  Thomas P. Bowie and  Penn-America  Insurance  Company,
          filed  with  Registrant's  Report  on Form 10-K for the  period  ended
          December  31,  2001,  which has been  filed  with the  Securities  and
          Exchange Commission on March 28, 2002.

     31.0(ix)  Promissory  Note and Security  Agreement  effective  February 23,
          2001,  between  Thomas P. Bowie and  Penn-America  Insurance  Company,
          filed  with  Registrant's  Report  on Form 10-K for the  period  ended
          December  31,  2001,  which has been  filed  with the  Securities  and
          Exchange Commission on March 28, 2002.

     31.0(x) Promissory Note and Security Agreement effective February 27, 2001,
          between Thomas P. Bowie and Penn-America Insurance Company, filed with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2001, which has been filed with the Securities and Exchange Commission
          on March 28, 2002.

     31.0(xi) Promissory Note and Security  Agreement  effective March 21, 2001,
          between Thomas P. Bowie and Penn-America Insurance Company, filed with
          Registrant's  Report on Form 10-K for the period  ended  December  31,
          2001, which has been filed with the Securities and Exchange Commission
          on March 28, 2002.

     99.1 Certification of Chief Executive  Officer of Penn-America  Group, Inc.
          dated  March 31,  2003 in  accordance  with 18 U.S.C  Section  1350 as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     99.2 Certification of Chief Executive  Officer of Penn-America  Group, Inc.
          dated  March 31,  2003 in  accordance  with 18 U.S.C  Section  1350 as
          adopted  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.

          Part (b)

          Form  8-K  dated  November  15,  2002  re:  Quarterly   Statements  of
          Penn-America  Insurance Company and Penn-Star Insurance Company, which
          was filed with the Securities and Exchange Commission.



                                    Page 33
<PAGE>



                            PENN-AMERICA GROUP, INC.
 Schedule I - Summary of Investments - Other than Investments in Related Parties
                                 (In thousands)
<TABLE>
<CAPTION>


                                                               December 31, 2002
                                       -----------------------------------------------------------
                                                                   Fair           Amount shown
                                                Cost               Value         on Balance Sheet
                                       -----------------------------------------------------------
                                                                 (In thousands)
Fixed maturities
Available for sale
U.S. Treasury   securities
 and obligations
<S>                                               <C>               <C>               <C>
 of U.S. government agencies                      $ 40,384          $ 41,190          $ 41,190
Corporate securities                                66,575            69,870            69,870
Mortgage-backed securities                          31,077            32,346            32,346
Other structured securities                         29,828            31,021            31,021
Municipal securities                                49,992            52,262            52,262
Public utilities                                    19,594            19,894            19,894
                                                                    --------          --------
Total available for sale                           237,450           246,583           246,583
                                                  --------          --------          --------

Held to maturity
U.S. Treasury securities and obligations

    of U.S. government agencies                      1,687             1,717             1,687
Corporate securities                                   276               300               276
                                                  --------          --------          --------
Total held to maturity                               1,963             2,017             1,963
                                                  --------          --------          --------


Total fixed-maturity securities                    239,413           248,600           248,546

Equity securities:
Common stock                                         6,893             7,019             7,019
Preferred stock                                     10,966            11,606            11,606
                                                  --------          --------          --------
Total equity securities                             17,859            18,625            18,625
                                                  --------          --------          --------
Total investments                                 $257,272          $267,225          $267,171
                                                  ========          ========          ========

</TABLE>


                                    Page 34
<PAGE>


                            PENN-AMERICA GROUP, INC.
         Schedule II--Condensed Financial Information of Parent Company
                            Condensed Balance Sheets
                        (In thousands except share data)


<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                  ------------------------------------
                                                                                       2002                2001
                                                                                  ---------------     ----------------
                                                                                                       (Restated)(2)
ASSETS
<S>                                                                                  <C>                  <C>
     Cash                                                                            $    1,663           $   1,261
     Investment in insurance subsidiary, equity method                                  130,132              79,425
     Investment in Penn-America Statutory Trust I                                           464                 ---
     Deferred offering costs                                                                456                 ---
     Other assets                                                                           465                 359
                                                                                  ---------------     ----------------
           Total assets                                                               $ 133,180            $ 81,045
                                                                                  ===============     ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Accounts payable and accrued expenses                                         $        292         $        25
     Subordinated debentures, affiliate                                                  15,464
     Other liabilities                                                                      200                 ---
                                                                                  ---------------     ----------------
            Total liabilities                                                            15,956                  25
                                                                                  ---------------     ----------------

Stockholders' equity:
     Preferred stock, $ .01 par value; authorized 2,000,000 shares;
         none issued
     Common  stock,  $.01 par  value;  authorized  20,000,000  in 2002 and 2001;
         issued 2002, 14,572,098 and 2001, 15,228,351 shares, respectively;
         outstanding 2002, 14,572,098 and 2001, 11,478,351, respectively (1)                146                 152
     Additional paid-in capital (1)                                                      70,875              70,735
     Accumulated other comprehensive income                                               6,401               3,106
     Treasury stock 3,750,000 shares in 2001 at cost (1)                                    ---             (24,161)
     Retained earnings                                                                   39,995              31,320
     Unearned compensation from restricted stock awards                                    (193)               (132)
                                                                                  ---------------      ---------------
         Total stockholders' equity                                                     117,224              81,020
                                                                                  ---------------     ----------------
         Total liabilities and stockholders' equity                                    $133,180            $ 81,045
                                                                                  ===============     ================

</TABLE>

(1)  Adjusted to reflect a  three-for-two  stock split of the  Company's  common
     stock effected on May 9, 2002.

(2)  The  Company  amended  its  accounting  policy  relating  to the  timing of
     recording  other-than-temporary  declines  in the  market  value of  equity
     securities  and,  accordingly,  restated its  previously  issued  financial
     statements  for the years ended  December 31, 2001,  2000 and 1999. See the
     Company's  Management  Discussion  and Analysis,  in the  Company's  Annual
     Report  to  Shareholders,   incorporated   herein  by  reference  for  more
     information regarding this restatement.


                                    Page 35
<PAGE>

<TABLE>
<CAPTION>

                                              PENN-AMERICA GROUP, INC.
                            Schedule II--Condensed Financial Information of Parent Company
                                         Condensed Statements of Operations
                                        (In thousands except per share data)


                                                                                               Years ended December 31,
                                                                                  --------------------------------------------------
                                                                                       2002              2001              2000
                                                                                  -------------     -------------     --------------

<S>                                                                                <C>              <C>                 <C>
                                                                                                     (Restated)(2)      (Restated)(2
              Revenue:
                                                                                                        $  1,600                  $
                   Dividend income                                                   $  1,100                ---
                   Other income                                                            14                 26                 27
              Operating expenses                                                         (618)              (548)              (791)
              Interest expense                                                            (73)               ---                ---
                                                                                     --------           --------           --------
              Income (loss)  before income tax and undistributed net income
                  (loss) of  subsidiary                                                   423              1,078               (764)
              Income tax  benefit                                                         230                177                260
                                                                                     --------           --------           --------
              Income (loss) before equity in undistributed
                   net income of subsidiary                                               653              1,255               (504)
              Equity in undistributed net income (loss)
                   of subsidiary                                                        9,811              3,685             (4,327)
                                                                                     --------           --------           --------

              Net income (loss)                                                      $ 10,464           $  4,940           $ (4,831)
                                                                                     ========           ========           ========
              Net income (loss) per share:
                  Basic                                                              $   0.90           $   0.43           $  (0.42)
                                                                                     ========           ========           ========

                  Diluted                                                            $   0.88           $   0.43           $  (0.42)
                                                                                     ========           ========           ========
</TABLE>

(1)  Adjusted to reflect a  three-for-two  stock split of the  Company's  common
     stock effected on May 9, 2002.

(2)  The  Company  amended  its  accounting  policy  relating  to the  timing of
     recording  other-than-temporary  declines  in the  market  value of equity
     securities  and,  accordingly,  restated its  previously  issued  financial
     statements  for the years ended  December 31, 2001,  2000 and 1999. See the
     Company's  Management  Discussion  and Analysis,  in the  Company's  Annual
     Report  to  Shareholders,   incorporated   herein  by  reference  for  more
     information regarding this restatement.





                                    Page 36
<PAGE>

<TABLE>
<CAPTION>

                                                      PENN-AMERICA GROUP, INC.
                                   Schedule II - Condensed Financial Information of Parent Company
                                                 Condensed Statements of Cash Flows
                                                           (In thousands)


                                                                                        Years ended
                                                                                        December 31,
                                                                        -------------------------------------------
                                                                           2002            2001          2000
                                                                           ----            ---           ----
                                                                                        (Restated)   (Restated)
Cash flows from operating activities:
<S>                                                                       <C>           <C>           <C>
      Net income (loss)                                                   $ 10,464      $  4,940      $ (4,831)
     Adjustments to reconcile net income (loss) to net
         cash provided by operating activities:
             Return of capital from subsidiary                                ---           ---         6,400
             Equity in undistributed net (income) loss of subsidiary       (9,811)       (3,685)        4,327
             Amortization/depreciation                                        158            86           246
             Increase (decrease) in :
                 Accounts payable and accrued expenses                        267          (148)          108
                 Other, net                                                  (115)           74            16
                                                                         --------      --------      --------
                    Net cash provided by operating activities                 963         1,267         6,266
                                                                         --------      --------      --------

Cash flows from investing activities:
     Change in short-term investments                                         ---           ---           449
                                                                         --------      --------      --------
             Net cash provided by investing activities                        ---           ---           449
                                                                         --------      --------      --------

Cash flows from financing activities:
     Issuance of common stock                                              24,155           622           500
     Net proceeds from issuance of subordinated debentures                 14,538           ---           ---
     Capital contribution to insurance subsidiary                         (37,465)          ---           ---
     Purchase of treasury stock                                               ---           ---        (4,687)
     Dividends paid to common stockholders                                 (1,789)       (1,600)       (1,611)
                                                                         --------      --------      --------
            Net cash used by financing activities                            (561)         (978)       (5,798)
                                                                         --------      --------      --------

Increase in cash                                                              402           289           917
Cash, beginning of period                                                   1,261           972            55
                                                                         --------      --------      --------
Cash, end of period                                                      $  1,663      $  1,261      $    972
                                                                         ========      ========      ========
</TABLE>


(1)  Adjusted to reflect a  three-for-two  stock split of the  Company's  common
     stock effected on May 9, 2002.

(2)  The  Company  amended  its  accounting  policy  relating  to the  timing of
     recording  other-than-temporary  declines  in the  market  value of equity
     securities  and,  accordingly,  restated its  previously  issued  financial
     statements  for the years ended  December 31, 2001,  2000 and 1999. See the
     Company's  Management  Discussion  and Analysis,  in the  Company's  Annual
     Report  to  Shareholders,   incorporated   herein  by  reference  for  more
     information regarding this restatement.


                                     Page 37
<PAGE>


                            PENN-AMERICA GROUP, INC.
               Schedule III - Supplementary Insurance Information
                  Years Ended December 31, 2002, 2001 and 2000
                                 (In thousands)
<TABLE>
<CAPTION>


                              Liability                                                       Amortization
                             for Unpaid                                                            of
               Deferred      Losses and                                              Losses     Deferred
                Policy          Loss                                      Net       and Loss     Policy         Other       Net
             Acquisition     Adjustment     Unearned       Earned      Investment  Adjustment Acquisition    Underwriting Premiums
                Costs         Expenses      Premiums      Premiums       Income     Expenses     Costs         Expenses   Written
             -----------------------------------------------------------------------------------------------------------------------

2002
<S>               <C>           <C>           <C>          <C>             <C>        <C>          <C>             <C>     <C>
Commercial        $ 13,159      $ 136,909     $ 65,365     $ 115,055       $ 6,378    $ 75,160     $ 28,994        $ 2,994 $ 134,662
Personal               ---            838          ---           ---           ---         (52           16            ---       ---
Unallocated            ---            ---          ---           ---         5,379         ---          ---          6,141       ---
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------
     Total        $ 13,159      $ 137,747     $ 65,365       $            $ 11,757    $ 75,108     $ 29,010        $ 9,135 $ 134,662
                                                             115,055
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------

2001
Commercial         $ 9,067      $ 117,555     $ 40,989      $ 88,912       $ 7,665    $ 62,414     $ 22,707        $ 3,380  $ 87,121
Personal                16          2,043           45            22           ---      (1,493            8            ---         2
Unallocated            ---            ---          ---           ---         3,674         ---          ---          5,358       ---
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------
     Total         $ 9,083      $ 119,598     $ 41,034      $ 88,934      $ 11,339    $ 60,921     $ 22,715        $ 8,738  $ 87,123
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------

2000
Commercial        $ 10,310      $ 109,377     $ 43,218      $ 87,556       $ 5,904    $ 72,893     $ 23,857        $ 1,757  $ 94,481
Personal                 7          5,937           21         3,893           549       2,485        1,362            ---     2,769
Unallocated            ---            ---          ---           ---         4,001         ---          ---          5,045       ---
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------
     Total        $ 10,317      $ 115,314     $ 43,239      $ 91,449      $ 10,454    $ 75,378     $ 25,219        $ 6,802  $ 97,250
             -------------  ------------- ------------- ------------- -------------------------------------- -----------------------

</TABLE>


                                    Page 38
<PAGE>

                            PENN-AMERICA GROUP, INC.
                            Schedule IV - Reinsurance
                  Years Ended December 31, 2002, 2001 and 2000
                                 (In thousands)

<TABLE>
<CAPTION>


                                             Ceded to         Assumed      Net Premium       Percentage
Property and Liability                         Other        from Other       Written         of Assumed
Insurance Premiums           Direct          Companies       Companies                          to Net
                          --------------   --------------   ------------   -------------    --------------


<S>      <C>                 <C>              <C>           <C>             <C>
         2002                $ 157,435        $ 22,771      $       (2)     $ 134,662               ---
                          ==============   ==============   ============   =============    ==============


         2001               $   98,328        $ 11,289       $      84      $   87,123                0.1%
                          ==============   ==============   ============   =============    ==============


         2000                $ 108,622        $ 12,541         $ 1,169     $   97,250                 1.2%
                          ==============   ==============   ============   =============    ==============

</TABLE>


                                    Page 39
<PAGE>


                            PENN-AMERICA GROUP, INC.
           Schedule VI- Supplemental Insurance Information Concerning
                        Property and Casualty Operations
                  Years Ended December 31, 2002, 2001 and 2000
                                 (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
                                     ---------------   --------------    ------------    --------------    -------------------
Years Ended
<S>                                    <C>                                <C>                 <C>                <C>
        December 31, 2001              $ 137,747            ---           $ 72,702            2,406              $ 58,956
        December 31, 2000                119,598            ---             60,885               36                58,096
        December 31, 1999                115,314            ---             66,214            9,164                59,790

</TABLE>


                                    Page 40
<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:  _______________                By: /s/ Jon S. Saltzman
                                      -----------------------
                                      Jon S. Saltzman,
                                      President and Chief Executive Officer

<TABLE>
<CAPTION>

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>                                                                             <C>
/s/ Irvin Saltzman            Chairman of the Board of Directors                March 31, 2003
----------------------        and Director
Irvin Saltzman

/s/ Jon S. Saltzman           President, Chief Executive Officer and            March 31, 2003
----------------------        Director (Principal Executive Officer)
Jon S. Saltzman

/s/ Robert A. Lear            Director                                          March 31, 2003
----------------------
Robert A. Lear

/s/ Joseph F. Morris          Senior Vice President, Chief Financial Officer    March 31, 2003
----------------------        and Treasurer
Joseph F. Morris

/s/ Garland P. Pezzuolo       Vice President, Secretary and General Counsel     March 31, 2003
----------------------
Garland P. Pezzuolo

/s/ Paul Simon                Director                                          March 31, 2003
----------------------
Paul Simon

/s/ Charles Ellman            Director                                          March 31, 2003
----------------------
Charles Ellman

/s/ M. Moshe Porat            Director                                          March 31, 2003
----------------------
M. Moshe Porat

/s/ Jami Saltzman-Levy        Director                                          March 31, 2003
----------------------
Jami Saltzman-Levy

/s/ Richard L. Duszak         Director                                          March 31, 2003
----------------------
Richard L. Duszak

/s/ E. Anthony Saltzman       Director                                          March 31, 2003
----------------------
E. Anthony Saltzman

</TABLE>

                                    Page 41
<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 31, 2003                 By:---------------------------------------
                                           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.

<TABLE>
<CAPTION>

<S>                                                                                  <C>
-----------------------         Chairman of the Board of Directors                   March 31, 2003
Irvin Saltzman                  and Director

 -----------------------        President, Chief Executive Officer and               March 31, 2003
Jon S. Saltzman                 Director (Principal Executive Officer)

-----------------------         Director                                             March 31, 2003
Robert A. Lear

-----------------------         Senior Vice President, Chief Financial Officer       March 31, 2003
Joseph F. Morris                and Treasurer

-----------------------         Vice President, Secretary & General Counsel          March 31, 2003
Garland P. Pezzuolo

-----------------------         Director                                             March 31, 2003
Paul Simon

-----------------------         Director                                             March 31, 2003
Charles Ellman

-----------------------         Director                                             March 31, 2003
M. Moshe Porat

-----------------------         Director                                             March 31, 2003
Jami Saltzman-Levy


-----------------------         Director                                             March 31, 2003
Richard L. Duszak

-----------------------         Director                                             March 31, 2003
E. Anthony Saltzman


</TABLE>

                                    Page 42
<PAGE>

                                 CERTIFICATIONS

I, Jon S. Saltzman, certify that:

1.       I have reviewed this annual report on Form 10-K of Penn-America  Group,
         Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;

4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee of the  registrant's  board of  directors  (or persons
         performing the equivalent functions):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual  report  whether  there were  significant  changes  in  internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Date:  March 31, 2003                                   /s/ Jon S. Saltzman
                                                        -----------------------
                                                        Jon S. Saltzman
                                                        President & CEO


                                    Page 43
<PAGE>

                                 CERTIFICATIONS

I, Joseph F. Morris, certify that:

1.       I have reviewed this annual report on Form 10-K of Penn-America  Group,
         Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;

4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee of the  registrant's  board of  directors  (or persons
         performing the equivalent functions):

          d)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          e)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual  report  whether  there were  significant  changes  in  internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

                                                  Joseph F. Morris
Date: March 31, 2003                             ------------------------------
                                                  Joseph F. Morris
                                                  Senior  Vice  President,  CFO
                                                  and Treasurer



                                    Page 44
<PAGE>