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

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934
                   For the Fiscal Year Ended December 31, 1996

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
       For the Transition Period from__________ to __________

                         COMMISSION FILE NUMBER: 0-22280

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                              YES /X/ NO / /

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 17,
1997 as reported on the NASDAQ National Market System, was $113,498,083. Shares
of Common Stock held by each executive officer and director and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

As of March 17, 1997, Registrant had outstanding 6,082,810 shares of Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of Annual Report to Shareholders for the Year Ended December 31,
     1996 are incorporated into Parts II and IV.

(2)  Portions of the definitive Proxy Statement for Registrant's 1997 Annual
     Meeting of Shareholders to be held May 8, 1997 are incorporated by
     reference in Part III.

                                        1
<PAGE>   2
                                     PART I

Item 1.   BUSINESS

GENERAL

           As used in this Annual Report on Form 10-K, (i) "Philadelphia
Insurance" refers to Philadelphia Consolidated Holding Corp., (ii) the "Company"
refers to Philadelphia Insurance and its subsidiaries, doing business as
Philadelphia Insurance Companies; (iii) the "Insurance Subsidiaries" refers to
Philadelphia Indemnity Insurance Company ("PIIC") and Philadelphia Insurance
Company ("PIC"), collectively; and (iv) "MIA" refers to Maguire Insurance
Agency, Inc. Philadelphia Insurance was incorporated in Pennsylvania in 1984, to
serve as a holding company for its three wholly owned subsidiaries (PIIC, PIC,
MIA). The Company designs, markets and underwrites specialty commercial property
and casualty insurance products for select classes of business. Marketing is
done through the Company's production underwriting organization from 37 field
offices located across the United States including telemarketing staffs located
in the Company's regional offices and Philadelphia home office. In addition to
direct sales, the Company accepts business from independent insurance brokers.
In 1996, approximately 55% of written premium was produced through approximately
3,000 broker relationships.

           The Company has reported growth in net income in each year from 1992
to 1996. Net income has been generated from both underwriting operations and
investing activities. The Company has produced underwriting profits as a result
of supplementing historically profitable product lines with growth in certain
excess liability products, commercial multi-peril lines, and selected expansion
into professional liability coverages while maintaining underwriting and pricing
discipline.

           The Insurance Subsidiaries have been assigned an "A" (Excellent)
Best's Rating by A.M. Best Company. According to A.M. Best, the "A" (Excellent)
rating is issued to companies that demonstrated excellent financial strength and
ability to meet its obligations to policyholders. A.M. Best ratings are based
upon factors relevant to policyholders and are not directed toward the
protection of investors. Also, in December 1996, the Insurance Subsidiaries were
assigned an "A" claims paying ability rating by Standard & Poor's. According to
Standard & Poor's, insurers rated "A" offer good financial security for
policyholders. The Company believes that the "A" ratings assigned by A.M. Best
and Standard & Poor's are important factors in marketing its products.


                                        2
<PAGE>   3
PRODUCT LINES

           The following table sets forth, for the years ended December 31,
1996, 1995 and 1994, the gross premiums produced on the Company's insurance
products and the relative percentages that such premiums represented.


<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                ------------------------------------------------------------------

                                                       1996                  1995                  1994
                                                       ----                  ----                  ----
                                                Dollars   Percentage  Dollars   Percentage  Dollars  Percentage
                                                -------   ----------  -------   ----------  -------  ----------
                                                                     (Dollars in Thousands)
<S>                                             <C>          <C>      <C>          <C>      <C>        <C>
Gross Premiums Produced (1)

Rent-A-Car
  Auto Liability..............................   $60,499      44.5%   $ 57,912      55.9%   $54,027     59.9%
  Auto Physical Damage........................       749        .6       1,006       1.0      1,399      1.6
  Commercial Multiple Peril...................        87        .1         178        .2        206       .2
                                                --------     -----    --------     -----    -------    -----
                                                  61,335      45.2      59,096      57.1     55,632     61.7
                                                --------     -----    --------     -----    -------    -----
Non-Profit Sector
  Commercial Multiple Peril...................    35,196      25.9      21,391      20.7     17,395     19.3
  Excess Liability............................     2,893       2.1       1,143       1.1        965      1.1
                                                --------     -----    --------     -----    -------    -----
                                                  38,089      28.0      22,534      21.8     18,360     20.4
                                                --------     -----    --------     -----    -------    -----
Automobile Leasing
  Commercial Multiple Peril...................     9,305       6.8       5,566       5.4      2,157      2.4
  Auto Liability .............................     2,981       2.2       3,197       3.1      3,971      4.4
  Auto Physical Damage........................     1,324       1.0       1,426       1.4      1,189      1.3
                                                --------     -----    --------     -----    -------    -----
                                                  13,610      10.0      10,189       9.9      7,317      8.1
                                                --------     -----    --------     -----    -------    -----
Health & Fitness
  Commercial Multiple Peril...................     4,649       3.4       2,708       2.6      1,205      1.3
                                                --------     -----    --------     -----    -------    -----
Professional Liability Sector
  Liability...................................    16,686      12.3       8,755       8.4      7,290      8.1
                                                --------     -----    --------     -----    -------    -----
Vocational and Specialty Training Schools
  Commercial Multiple Peril...................     1,000       0.7          57        --         --       --
                                                --------     -----    --------     -----    -------    -----
Other.........................................       454       0.4         186       0.2        387      0.4
                                                --------     -----    --------     -----    -------    -----
Total.........................................  $135,823     100.0%   $103,525     100.0%   $90,191    100.0%
                                                ========     =====    ========     =====    =======    =====
</TABLE>

(1)  Gross premiums produced include all gross premiums produced on direct
     business and gross premiums produced on fronted business.

           Rent-A-Car: The Company offers statutory and excess liability and
physical damage automobile policies for rental car companies and their
customers, as well as excess liability coverages up to $5.0 million protecting
the rental company only.

           In keeping with its general marketing philosophy, the Company
includes a number of features in its rental car products and services in an
attempt to differentiate them from the competition. Such features include:
catastrophic comprehensive coverage for losses due to fire, lightning,
windstorm, hail, flood, earthquake and other specified causes (but not
automobile collision); subrogation services on self-insured physical damage; and
monthly loss runs.

           Non-Profit Sector: The Company offers a package policy to non-profit
organizations, primarily social service agencies. The Company's package policy
for non-profit organizations provides a combination of liability and property
(including automobile) coverages. Liability coverage is comprehensive, with
primary limits up to $1.0 million and excess limits typically up to $5.0
million, extending to premises, fund-raising events and, where applicable,
social workers professional liability (written on an occurrence form). Property
coverages insure against all risks to buildings and contents which are normally
insured against by these types of policies. Automobile coverages protect against
losses arising from the use of owned, non-owned and hired automobiles.


                                        3
<PAGE>   4

           The Company's other principal non-profit sector products include: a
package policy for Homeowner's Associations which provides a combination of
comprehensive liability and property coverages to address the unique
requirements of single-family homeowner associations, including liability
coverage for their board of directors; a package program for Assisted Living and
Residential Care Facilities which expands contents coverage to address personal
property of the residents along with coverage enhancements for the common ground
areas of the facility.

           Automobile Leasing: The Company offers a full range of liability and
physical damage coverages for automobile leasing companies and their customers.
For the driver (the lessee of the vehicle), this coverage includes primary
liability coverage with optional limits up to $1.0 million combined single
limit, and primary physical damage coverage on the vehicle. For the owner (the
lessor of the vehicle), contingent and excess liability coverage up to $5.0
million is made available by the Company over the primary liability layer,
protecting lessors in the event of a loss when the primary coverage is absent or
inadequate. The Company also offers contingent physical damage coverage, which
protects the insured against damage to the leased vehicle if there is no primary
physical damage coverage. Other products offered to leasing companies include
interim primary liability and physical damage coverage, which protects the
lessor/owner of the vehicle before it is delivered to the lessee and after it is
returned by the lessee at the conclusion of the lease; residual value coverage
which guarantees the value of the leased vehicle at the termination of the
lease; and guaranteed asset protection coverage which protects the lessor and
lessee or borrower for the difference between the leased or financed vehicle's
actual cash value and the lease or loan net value in instances where the vehicle
is stolen or damaged beyond repair.

           Health & Fitness: The Company offers a package of coverages including
property, general liability, automobile and special events coverages. Liability
coverage is comprehensive, with primary limits up to $1.0 million and excess
limits up to $5.0 million, extending to the insured entity and certified
professionals. Property coverages insure against damage to equipment and
improvements. Automobile coverages protect against losses to business and/or
personal vehicles. Special Events coverage outside the establishment is included
for the insured entity and professional instructors or consultants.

           Professional Liability Sector: The Company's Insurance Agents Errors
and Omissions policies are independently filed with non-Insurance Services
Office ("ISO") claims made forms. The policy offers professional liability
coverage for the independent insurance agent. Primary limits are up to $10.0
million. Typical policies provide coverage of $1.0 million.

           The Company's Directors & Officers liability policies are written on
independently filed, non-ISO claims made forms. Management believes that these
policies have a number of features that distinguish them from those of its
competitors, including a sixty-day discovery period without separate charge,
coverage for volunteers and coverage against liability for employment
discrimination and sexual harassment. The policies exclude punitive damages and
exclude prior acts under certain circumstances. Primary coverage under these
policies is available up to $10.0 million. Typical policies provide coverage of
$1.0 million.

           The Company's other principal professional liability products
include: an errors and omissions policy for management and marketing
consultants; and a non profit professional liability policy providing a broader
level of coverage than provided under the Company's D & O policy. These
professional liability products are written on independently filed, non ISO,
claims made forms and provide primary coverage up to $10.0 million.

           Vocational and Specialty Training Schools: The Company's program
provides a comprehensive property-casualty package product to junior and
community colleges and vocational training facilities. Additional available
coverage enhancements provide errors and omissions protection to the school for
allegations relating to technical training and career counseling.

           Other Products: During 1996, the Company introduced Executive
Safeguard, a proprietary package policy which includes Directors and Officers
Liability; Employment Practices Liability, Fiduciary Liability, and
Kidnap/Ransom insurance for public and private companies. In addition, the
Company has developed and is currently marketing special programs for the
following industries: Guides and Outfitters, Marriage and Family Counselors,
Condo Associations, Home Health Care, Para-Transit Commercial Auto Liability,
and Lawyer's Errors and Omissions Liability.


                                        4
<PAGE>   5
           The following table provides the geographic distribution of the
Company's risks insured as represented by direct earned premiums for all product
lines for the year ended December 31, 1996. No other state accounted for more
than 2% of total direct earned premiums for all product lines for the year ended
December 31, 1996.

<TABLE>
<CAPTION>
            State                Direct Earned Premiums        Percent of Total
            -----                ----------------------        ----------------
<S>                                      <C>                          <C>
California....................            $  24,216,663                  20.64%
Florida.......................               17,646,367                  15.04
New York......................                7,608,807                   6.48
Texas.........................                5,753,745                   4.90
Illinois......................                5,576,759                   4.75
Pennsylvania..................                4,826,187                   4.11
Oklahoma......................                4,747,078                   4.05
New Jersey....................                4,317,344                   3.68
Massachusetts.................                4,304,428                   3.67
Ohio..........................                4,133,325                   3.52
Alabama.......................                2,643,455                   2.25
North Carolina................                2,489,122                   2.12
Other.........................               29,091,074                  24.79
                                          -------------                 ------

Total Direct Earned Premiums..             $117,354,354                  100.0%
                                           ============                 ======
</TABLE>

UNDERWRITING AND PRICING

           The Company's underwriting function was reorganized during 1996 into
three independent divisions: The Specialty Lines division ("Specialty Lines"),
the Commercial Lines division ("Commercial Lines"), and the Regional
Underwriting division ("Regional Underwriting"). Each division's primary
responsibilities include: pricing all business, managing the risk selection
process, providing customer service, and monitoring loss ratios by product and
by insured.

           Specialty Lines consists of 12 underwriters who report to the Vice
President of Specialty Lines Underwriting. Specialty Lines markets and
underwrites the Company's various professional liability product lines and is
operationally structured into regional and product teams. Commercial Lines
consists of 17 underwriters who report to the Assistant Vice President of
Commercial Lines Underwriting. Commercial Lines is operationally structured into
underwriting product teams which service and price specific programs. Regional
Underwriting has seven Vice Presidents each managing a geographic territory
under the supervision of the Senior Vice President. Each region is serviced by
production underwriting units which are located in strategically placed offices.
By managing the underwriting process and selecting good accounts at the local
level, the Company believes it can achieve consistent profitable underwriting
results and offer speed and quality service. The Company's production
underwriters apply their specialized training and field experience to routinely
screen out risks which do not meet the Company's underwriting criteria.
Underwriters are encouraged to pursue continuing education, CPCU or other
professional designations.

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

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


                                        5
<PAGE>   6
REINSURANCE

           The Company renegotiated its reinsurance program, effective January
1, 1997. The overall reinsurance program, as explained below, remains
substantially unchanged from the reinsurance program in place prior to January
1, 1997 with respect to retentions and coverages. However, the Company did
realize more favorable reinsurance rates as a result of the renegotiation.
Effective January 1, 1997, the reinsurance program has been placed principally
with Swiss Re America, an "A" (Excellent) rated company by A.M. Best Company.
The Company has had a reinsurance relationship with Swiss Re America since 1989.
Prior to January 1, 1997, the reinsurance program had been placed principally
with three reinsurers of which Swiss Re America was a participant.

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

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

           The Company's property reinsurance agreement provides that the
Company bears the first $500,000 layer of loss on each risk with the Reinsurer
bearing the next $1.5 million layer of loss on each risk subject to a maximum of
$3.5 million recoverable from a single occurrence. The Company has an automatic
facultative arrangement for each property risk in excess of $2.0 million up to
$20.0 million.

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

           In addition to the reinsurance arrangements discussed above, the
Company assumes reinsurance on policies produced by the Company but written by
another unaffiliated insurer. The Company markets and underwrites these policies
in the same manner as it does direct business. For the year ended December 31,
1996 the Company recorded approximately 4% of net written under this
arrangement.

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

MARKETING AND DISTRIBUTION

           The Company's marketing effort is designed to assure a systematic and
disciplined approach to developing business which the Company anticipates to be
profitable. The Company's most important distribution channel is its production
underwriting organization. The production underwriting's organization is
currently comprised of 90 employees located in 37 field offices in major markets
across the country. The Field offices are focused daily on interacting with
prospective and existing insureds. In addition to direct marketing,
relationships with approximately 3,000 brokers have been formed either as a
result of the broker having a relationship with the insured, or through seeking
the Company's expertise in one of its specialty products.

           Business relationships also have been formed with brokers ("Preferred
Agents") specializing in certain of the Company's business niches, thereby
increasing the distribution of the Company's niche products. The Company
anticipates that new relationships with Preferred Agents will continue to be
formed throughout 1997. The brokerage business is managed by the field office
personnel, while services after the sale (e.g., billings, claim services,
audits, etc.) are managed by Home Office personnel. This mixed marketing concept
not only provides the flexibility to work with the broker and/or policyholder
but also provides the flexibility to seize emerging market opportunities.

                                        6
<PAGE>   7
           The Company supplements its marketing efforts through trade shows,
direct mailings and national advertisements placed in trade magazines serving
industries in which the Company specializes.

           In 1996, approximately 85% of the Company's expiring insurance
policies were renewed. Management attributes this renewal rate in large part to
continuing personal contacts between the Company's production underwriters and
servicing staff and its policyholders.

PRODUCT DEVELOPMENT

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

CLAIMS MANAGEMENT AND ADMINISTRATION

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

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

LOSS AND LOSS ADJUSTMENT EXPENSES

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

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

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

                                        7
<PAGE>   8
           The following table sets forth a reconciliation of beginning and
ending reserves for unpaid loss and loss adjustment expenses, net of amounts for
reinsured losses and loss adjustment expenses, for the years indicated. As a
result of changes in estimates of insured events of prior years, the Company
reduced losses and loss adjustment expenses incurred by $965,000, $925,000, and
$111,000 in 1996, 1995, and 1994, respectively. Such favorable development was
due to losses emerging at a lesser rate than had been originally anticipated
when the initial reserves for the applicable accident years were estimated.

<TABLE>
<CAPTION>
                                                                     As of and For the Years Ended December 31,
                                                                     ------------------------------------------
                                                                           1996        1995          1994
                                                                           ----        ----          ----
                                                                               (Dollars in Thousands)
<S>                                                                      <C>          <C>          <C>
Unpaid loss and loss adjustment expenses at
 beginning of year (1) ..............................................    $ 68,246     $ 53,595     $ 38,714
                                                                         --------     --------     --------
Provision for losses and loss adjustment expenses for current
 year claims ........................................................      41,083       34,152       31,120
Decrease in estimated ultimate losses and loss adjustment
 expenses for prior year claims .....................................        (965)        (925)        (111)
                                                                         --------     --------     --------
Total incurred losses and loss adjustment expenses ..................      40,118       33,227       31,009
                                                                         --------     --------     --------

Loss and loss adjustment expense payments for claims attributable to:
   Current year .....................................................       7,427        6,186        5,336
   Prior years ......................................................      15,214       12,390       10,792
                                                                         --------     --------     --------
Total payments ......................................................      22,641       18,576       16,128
                                                                         --------     --------     --------
     Unpaid loss and loss adjustment expenses at end of year (1) ....    $ 85,723     $ 68,246     $ 53,595
                                                                         ========     ========     ========
</TABLE>

            (1)  Unpaid loss and loss adjustment expenses differ from the
                 amounts reported in the Consolidated Financial Statements
                 because of the inclusion therein of reinsurance receivables of
                 $10,919, $9,440 and $5,580 at December 31, 1996, 1995 and 1994,
                 respectively.

           The following table presents the development of unpaid loss and loss
adjustment expenses, net of amounts for reinsured losses and loss adjustment
expenses, from 1986 through 1996. The top line of the table shows the estimated
reserve for unpaid loss and loss adjustment expenses at the balance sheet date
for each of the indicated years. These figures represent the estimated amount of
unpaid loss and loss adjustment expenses for claims arising in the current year
and all prior years that were unpaid at the balance sheet date, including IBNR
losses. The table also shows the re-estimated amount of the previously recorded
unpaid loss and loss adjustment expenses based on experience as of the end of
each succeeding year. The estimate changes as more information becomes known
about the frequency and severity of claims for individual years.

                                        8
<PAGE>   9
<TABLE>
<CAPTION>
                                                        AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                -------------------------------------------------------------------------------------------------
                                                                (Dollars in Thousands)
                                1986    1987    1988      1989      1990      1991      1992     1993     1994     1995      1996
                                ----    ----    ----      ----      ----      ----      ----     ----     ----     ----      ----
<S>                             <C>    <C>     <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>       <C>
UNPAID LOSS AND LOSS
ADJUSTMENT EXPENSES, AS
STATED .......................  $ 14   $4,940  $10,615   $12,198   $15,930   $22,248   $31,981  $38,714  $53,595  $68,246   $85,723

CUMULATIVE PAID AS OF:

1 YEAR LATER .................     7    1,375    2,955     3,354     4,286     6,698     9,865   10,792   12,391   15,214
2 YEARS LATER ................     7    2,481    4,832     6,249     8,084    12,485    16,290   19,297   23,139
3 YEARS LATER ................    14    3,025    6,584     8,807    10,838    16,288    21,253   24,991
4 YEARS LATER ................    15    3,582    7,813    10,155    12,907    17,780    24,299
5 YEARS LATER ................    20    3,771    8,341    11,217    13,211    19,406
6 YEARS LATER ................    20    3,881    8,748    11,497    13,792
7 YEARS LATER ................    20    3,922    8,704    11,760
8 YEARS LATER ................    20    3,911    8,696
9 YEARS LATER ................    20    3,916
10 YEARS LATER ...............    20

UNPAID LOSS AND LOSS
ADJUSTMENT EXPENSES
RE-ESTIMATED AS OF
END OF YEAR:

1 YEAR LATER .................     7    4,472    9,535    12,628    15,953    22,056    30,538   38,603   52,670   67,281
2 YEARS LATER ................    18    4,056    9,825    12,644    15,712    21,327    30,428   38,016   52,062
3 YEARS LATER ................    22    3,932    9,645    12,424    14,822    21,198    29,648   37,184
4 YEARS LATER ................    15    3,924    9,437    11,947    14,811    21,118    29,306
5 YEARS LATER ................    26    3,970    9,053    11,836    14,841    21,399
6 YEARS LATER ................    20    4,010    8,859    12,060    14,593
7 YEARS LATER ................    20    3,952    8,770    12,008
8 YEARS LATER ................    20    3,926    8,783
9 YEARS LATER ................    20    3,947
10 YEARS LATER ...............    20

CUMULATIVE REDUNDANCY
 (DEFICIENCY)
  DOLLARS ....................    (6)  $  992  $ 1,832   $   190   $ 1,337   $   849   $ 2,675  $ 1,530  $ 1,533  $   965
  PERCENTAGE ................. -42.6%    20.1%    17.3%      1.6%      8.4%      3.8%      8.4%     4.0%     2.9%     1.4%
</TABLE>


(1) Unpaid loss and loss adjustment expenses differ from the amounts reported in
the Consolidated Financial Statements because of the inclusion therein of
reinsurance receivables of $10,919, $9,440, $5,580, $5,539, $1,770, $1,267,
$1,672, $1,591 and $2,095 at December 31, 1996, 1995, 1994, 1993, 1992, 1991,
1990, 1989 and 1988, respectively.

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


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

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

OPERATING RATIOS

Statutory Combined Ratio

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

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

<TABLE>
<CAPTION>
                                                                           For the Years Ended December 31,
                                                                           --------------------------------
                                                                 1996        1995       1994       1993       1992
                                                                 ----        ----       ----       ----       ----
<S>                                                              <C>         <C>        <C>        <C>        <C>
Loss Ratio.....................................................   55.7%       57.1%      59.5%      56.5%      57.1%
Expense Ratio..................................................   31.1%       29.6%      29.9%      34.5%      38.7%
                                                                 -----       -----      -----      -----      -----
Combined Ratio.................................................   86.8%       86.7%      89.4%      91.0%      95.8%
                                                                 =====       =====      =====      =====      =====

Industry Combined Ratio after Policyholders' Dividends .......   107.0%      106.4%     108.3%     106.8%     115.6%
                                                                 =====       =====      =====      =====      =====
                                                                    (1)         (2)        (2)        (2)        (2)
</TABLE>


(1) Source:  Best's Review, January 1997 Issue (Estimate 1996).
             -------------
(2) Source:  Best's Aggregates & Averages, 1996 Edition.
             ----------------------------

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

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

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

<TABLE>
<CAPTION>
                                                            As of and For the Years Ended December 31,
                                                            ------------------------------------------
                                                   1996          1995         1994           1993          1992
                                                   ----          ----         ----           ----          ----
                                                                      (Dollars in Thousands)
<S>                                             <C>          <C>           <C>           <C>            <C>
Net Written Premiums......................         $83,994      $62,072       $55,398       $40,645        $36,168
Policyholders' surplus....................         $81,906      $67,500       $56,027       $51,197        $20,347
Premium to Surplus Ratio..................      1.0 to 1.0    .9 to 1.0    1.0 to 1.0     .8 to 1.0     1.8 to 1.0
</TABLE>

INVESTMENTS

           At December 31, 1996, the Company had total investments with a
carrying value of $168.6 million, substantially all of which were held by the
Insurance Subsidiaries. At December 31, 1996, 83.8% of the Company's total
investments were investment grade fixed maturity securities, including U.S.
Treasury Securities and Obligations of U.S. Government Corporations and
Agencies, Obligations of States and Political Subdivisions and Corporate Debt
Securities. The remaining 16.2% of the Company's total investments consisted
primarily of publicly traded common stock securities.

           The following table sets forth information concerning the composition
of the Company's total investments at December 31, 1996:

<TABLE>
<CAPTION>
                                                    Estimated               Percent of
                                                      Market                 Carrying
                                     Amortized Cost   Value  Carrying Value    Value
                                     --------------   -----  --------------    -----
                                                   (Dollars in Thousands)
<S>                                     <C>         <C>         <C>           <C>
Fixed Maturities:
  Obligations of States and Political
     Subdivisions ...................   $105,682    $108,887    $108,887       64.6%
  U.S. Treasury Securities and
     Obligations of U.S. Government
     Corporations and Agencies ......     20,450      20,557      20,557       12.2
  Corporate Debt Securities .........     11,625      11,792      11,792        7.0
Equity Securities ...................     19,648      27,342      27,342       16.2
                                        --------    --------    --------      -----
     Total ..........................   $157,405    $168,578    $168,578      100.0%
                                        ========    ========    ========      =====
</TABLE>

           At December 31, 1996, 100% of the Company's fixed maturity securities
consisted of U.S. Government securities or securities rated "1" or "2" by the
NAIC; 96.0% of the fixed maturity securities were rated "A" or better (with no
security rated lower than "BBB-") by Standard & Poor's Corporation.


                                       11
<PAGE>   12
           The cost and estimated market value of fixed maturity securities at
December 31, 1996, by remaining contractual maturity, are set forth below.
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations, with or without call or
prepayment penalties:

<TABLE>
<CAPTION>
                                                   Amortized               Estimated
                                                      Cost                Market Value
                                                      ----                ------------
                                                        (Dollars in Thousands)

<S>                                                 <C>                    <C>
Due in one year or less....................         $      -               $      -
Due after one year through five years......           31,956                 32,405
Due after five years through ten years.....           76,625                 78,217
Due after ten years........................           29,176                 30,614
                                                    --------               --------
     Total.................................         $137,757               $141,236
                                                    ========               ========
</TABLE>

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

           The Company's investment policy seeks to maximize after-tax
investment return, within the constraints of maintaining adequate securities in
amount and duration to meet cash requirements of current operating as well as
longer-term liabilities, as well as maintaining and improving the Company's A.M.
Best and Standard & Poor's ratings. The Company employs professional investment
managers for its fixed maturity and equity investments. The portfolio consists
of diversified issuers and issues and as of December 31, 1996 approximately 82%
of the total portfolio consisted of investments in fixed maturity securities.

           As a result of the Company's earnings growth and favorable market
spreads between tax-exempt and taxable fixed maturity securities, the Company
continues to invest in tax-exempt securities. The Company has also continued to
increase its total investments in quality growth oriented mid and large-cap
equity securities seeking to achieve diversification and capital appreciation in
the portfolio.

REGULATION

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

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

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

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

           Dividend Restrictions: As an insurance holding company, Philadelphia
Insurance will be largely dependent on dividends and other permitted payments
from the Insurance Subsidiaries to pay any cash dividends to its shareholders.
The ability of the Insurance Subsidiaries to pay dividends to the Company is
subject to Pennsylvania insurance laws, which currently require that dividends
be paid from profits and afford the Department 30 days to disapprove the payment
of "extraordinary dividends" from a domestic property and casualty insurer to
its shareholders (i.e., dividends over a twelve-month period that exceed the
greater of (a) 10% of policyholders' surplus shown on the latest Annual
Statement filed with the Department, or (b) the net income for the period
covered by such statement but in no event to exceed the amount of unassigned
funds (i.e., retained earnings plus or minus net unrealized gains or losses). In
addition, the law specifies factors to be considered by the Department to allow
it to determine that policyholders' surplus after the payment of dividends is
reasonable in relation to an insurance company's outstanding liabilities and
adequate to its financial needs. Such factors include, for example, the size of
the company, the extent to which its business is diversified among several lines
of insurance, the number and size of risks insured, the nature and extent of the
company's reinsurance, and the adequacy of the company's reserves. Accumulated
statutory profits of the Insurance Subsidiaries from which dividends may be paid
totaled $35.6 million at December 31, 1996. Of this amount, the Insurance
Subsidiaries are entitled to pay a total of approximately $9.6 million of
dividends in 1997 without obtaining prior approval from the Department.

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

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

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

           Risk-Based Capital: Risk-based capital is designed to measure the
acceptable amount of capital an insurer should have based on the inherent
specific risks of each insurer. Insurers failing to meet this benchmark capital
level may be subject to scrutiny by the insurer's domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the standards
currently adopted, the policyholders' surplus at December 31, 1996 is in excess
of the prescribed risk-based capital requirements.

                                       13
<PAGE>   14
           Insurance Guaranty Funds: The Insurance Subsidiaries are subject to
guaranty fund laws which can result in assessments, up to prescribed limits, for
losses incurred by policyholders as a result of the impairment or insolvency of
unaffiliated insurance companies. Typically, an insurance company is subject to
the guaranty fund laws of the states in which it conducts insurance business;
however, companies which conduct business on a surplus lines basis in a
particular state are generally exempt from that state's guaranty fund laws.
During the five years ended December 31, 1996, the amount of such guaranty fund
assessments paid by the Company was not material.

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

           Possible New Legislation or Regulations: New regulations and
legislation have been (and are being) proposed from time to time to limit damage
awards; to bring the industry under regulation by the federal government; to
control premiums, policy terminations and other policy terms; and to impose new
taxes and assessments. It is not possible to predict whether any of these
proposals will be adopted in any jurisdictions and, if so, in what form or in
what jurisdictions. Accordingly, the impact of these initiatives on the Company
is impossible to predict.

COMPETITION

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

           Overall, the current business climate remains competitive from a
pricing standpoint in certain of the Company's niches. In the context of the
current environment, the Company will not sacrifice pricing guidelines for
premium volume and will "walk away" from writing business that does not meet
underwriting or pricing guidelines. Management believes, though, that the
Company's marketing strategy is a strength in this market environment, in that
it provides the flexibility to quickly deploy the marketing efforts of the
Company's direct production underwriters from soft market segments to market
segments with emerging opportunities. Additionally, through the mixed marketing
strategy, the Company's production underwriters have established relationships
with approximately 3,000 brokers, thus increasing distribution and assuring a
regular flow of submissions.

EMPLOYEES

           As of March 17, 1997, the Company had 222 full-time employees and 18
part-time employees. The Company actively encourages its employees to continue
their educational efforts and aids in defraying their educational costs
(including 100% of education costs related to the insurance industry).
Management believes that the Company's relations with its employees are
generally excellent.

FORWARD-LOOKING INFORMATION

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

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


                                       14
<PAGE>   15
Item 2.   PROPERTIES

           The Company leases certain office space in Bala Cynwyd, PA which
serves as its headquarters location and also leases 36 field offices for its
field office personnel. Additionally, the Company entered into an agreement to
lease its previous headquarters building, which it owns, in Wynnewood, PA.

Item 3.   LEGAL PROCEEDINGS

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

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

          No matters were submitted to a vote of security holders during the
          fourth quarter of 1996.

                                     PART II

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

          During the fourth quarter of 1996, the Company did not sell any of its
          securities which were not registered under the Securities Act of 1933.
          The balance of the information required by this Item is incorporated
          by reference to page 28 of the Company's 1996 Annual Report to
          Shareholders.

Item 6.   SELECTED FINANCIAL DATA

          The information required by this Item is incorporated by reference to
          page 4 of the Company's 1996 Annual Report to Shareholders.

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

          The information required by this Item is incorporated by reference to
          pages 7 through 10 of the Company's 1996 Annual Report to
          Shareholders.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The information required by this Item is incorporated by reference to
          pages 11 through 22 of the Company's 1996 Annual Report to
          Shareholders.

Item 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          Not applicable.

                                    PART III

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

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

                                       15
<PAGE>   16
Item 11.  EXECUTIVE COMPENSATION

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

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Item 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                     PART IV

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

(a) The following documents are filed as a part of this Report.

           1.        Financial Statements: The following Consolidated Financial
                     Statements of Philadelphia Consolidated Holding Corp. and
                     Subsidiaries and Report of Independent Accountants are
                     incorporated by reference to pages 11 through 22 of the
                     Registrant's 1996 Annual Report to Shareholders:

                     Consolidated Balance Sheets - As of December 31, 1996 and
                     1995

                     Consolidated Statements of Operations - For the Years
                     ended December 31, 1996, 1995 and 1994

                     Consolidated Statements of Changes in Shareholders'
                     Equity - For the Years ended December 31, 1996, 1995
                     and 1994

                     Consolidated Statements of Cash Flows - For the Years ended
                     December 31, 1996, 1995 and 1994

                     Notes to Consolidated Financial Statements

                     Report of Independent Accountants

           2.        Financial Statement Schedules: The following financial
                     statement schedules of Philadelphia Consolidated Holding
                     Corp. and Subsidiaries As of and For the Years Ended
                     December 31, 1996, 1995 and 1994 are filed as part of this
                     Report and should be read in conjunction with the
                     Consolidated Financial Statements of Philadelphia
                     Consolidated Holding Corp. and Subsidiaries.

<TABLE>
<CAPTION>
                     Schedule                                                      Page
                     --------                                                      ----
<S>                          <C>                                                 <C>
                     I       Summary of Investments - Other than Investments in
                             Related Parties As of December 31, 1996                S-1

                     II      Condensed Financial Information of Registrant As of
                             December 31, 1996 and 1995 and For Each of the
                             Three Years in the Period Ended December 31, 1996   S-2--S-4


                     IV      Reinsurance For the Years ended December 31, 1996,
                             1995 and 1994                                         S-5

                     VI      Supplemental Information Concerning Property-
                             Casualty Insurance Operations As of and For the
                             Years Ended December 31, 1996, 1995 and 1994          S-6
</TABLE>

                     Schedules not listed above have been omitted because they
                     are not applicable or are not required or the information
                     required to be set forth therein is included in the
                     Consolidated Financial Statements or Notes thereto.

                                       16
<PAGE>   17
           3. Exhibits: The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this Report.

Exhibit No.            Description


3.1        *             Articles of Incorporation of Philadelphia Insurance, as
                         amended to date.

3.1.1      *             Amendment to Articles of Incorporation of Philadelphia
                         Insurance.

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

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

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

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

10.3       *             Purchase Agreement dated October 20, 1986, regarding
                         the Debentures.

10.4       *             Term Loan Agreement dated as of October 27, 1992, with
                         CoreStates Bank, N.A., as amended to date.

10.5       *             Offer Memorandum and related documents with respect to
                         the Debentures.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.28      **            Lease tracking portfolio assignment agreement.

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

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

                                       17
<PAGE>   18
10.31      *****         Sublease Agreement dated August 24, 1995 with
                         CoreStates Bank, N.A.

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

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

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

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

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

13         *******       1996 Annual Report to Shareholders.  Except for the
                         portions expressly incorporated by reference, this
                         report is not deemed to be filed as part of this Annual
                         Report on Form 10-K.

21         *             List of Subsidiaries of the Registrant.

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

24         *             Power of Attorney

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


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

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

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

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

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

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

*******      Filed herewith.

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

(b) Reports on Form 8-K:

            No reports on Form 8-K were filed during the fourth quarter of 1996.

                                       18
<PAGE>   19
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  Philadelphia Consolidated Holding Corp.

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

                                  March 21, 1997

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

<TABLE>
<CAPTION>
             Signature                                  Title                               Date
             ---------                                  -----                               ----
<S>                                    <C>                                             <C>
        /s/ James J. Maguire                   Chairman of the Board of                March 21, 1997
------------------------------------   Directors, President and Chief Executive
          James J. Maguire               Officer (Principal Executive Officer)


        /s/ Craig P. Keller                   Vice President, Secretary                March 21, 1997
------------------------------------         and Chief Financial Officer
          Craig P. Keller                     (Principal Financial and
                                                  Accounting Officer)

        /s/ Sean S. Sweeney                Senior Vice President, Director             March 21, 1997
------------------------------------
          Sean S. Sweeney


    /s/ William J. Henrich, Jr.                        Director                        March 21, 1997
------------------------------------
      William J. Henrich, Jr.


      /s/ Paul R. Hertel, Jr.                          Director                        March 21, 1997
------------------------------------
        Paul R. Hertel, Jr.


        /s/ Roger L. Larson                            Director                        March 21, 1997
------------------------------------
          Roger L. Larson


        /s/ Thomas J. McHugh                           Director                        March 21, 1997
------------------------------------
          Thomas J. McHugh



       /s/ Michael J. Morris                           Director                        March 21, 1997
------------------------------------
         Michael J. Morris

                                                       Director                        March 21, 1997
------------------------------------
       J. Eustace Wolfington
</TABLE>


                                       19
<PAGE>   20
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 Schedule I - Summary of Investments - Other than Investments in Related Parties
                             As of December 31, 1996
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
COLUMN A                                                   COLUMN B       COLUMN C       COLUMN D
                                                                          Estimated   Amount at which
                                                                            Market     shown in the
Type of Investment                                         Cost *           Value      Balance Sheet
------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
Fixed Maturities:
Bonds:
   United States Government and Government
   Agencies and Authorities                                $ 20,450       $ 20,557       $ 20,557
   States, Municipalities and Political Subdivisions        105,682        108,887        108,887
   Public Utilities                                             349            344            344
   All Other Corporate Bonds                                  9,853         10,069         10,069
Redeemable Preferred Stock                                    1,423          1,379          1,379
                                                           --------       --------       --------
                 Total Fixed Maturities                     137,757        141,236        141,236
                                                           --------       --------       --------

Equity Securities:
Common Stocks:
   Banks, Trust and Insurance Companies                       5,556          7,133          7,133
   Industrial, Miscellaneous and all other                   14,092         20,209         20,209
                                                           --------       --------       --------
                  Total Equity Securities                    19,648         27,342         27,342
                                                           --------       --------       --------
                  Total Investments                        $157,405       $168,578       $168,578
                                                           ========       ========       ========
</TABLE>

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


                                       S-1
<PAGE>   21
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                                   Schedule II
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                                 Balance Sheets
                        (In Thousands, Except Share Data)



<TABLE>
<CAPTION>
                                                                          As of December 31,
                                                                      -------------------------
                                                                        1996               1995
                                                                        ----               ----
<S>                                                                   <C>             <C>
                                 ASSETS
Investments:
     Fixed Maturities Available for Sale at Market                    $     30        $     30
     Equity Securities at Market                                          --             2,006
                                                                      --------        --------
                     TOTAL INVESTMENTS                                      30           2,036

Cash and Cash Equivalents                                                  345             173
Mortgage Loans (a)                                                       1,125           1,125
Equity in and Advances to Unconsolidated Subsidiaries (a)               84,072          64,905
Goodwill less Accumulated Amortization of $1,313 and $1,120                771             964
Other Assets                                                                10               1
                                                                      --------        --------
                     TOTAL ASSETS                                     $ 86,353        $ 69,204
                                                                      ========        ========

                  LIABILITIES AND SHAREHOLDERS' EQUITY

Income Taxes Payable                                                  $    536        $    581
Deferred Income Taxes                                                     --               157
Other Liabilities                                                          175             150
                                                                      --------        --------
                     TOTAL LIABILITIES                                     711             888
                                                                      --------        --------

Commitments and Contingencies

Shareholders' Equity:
      Preferred Stock, $.01 Par Value, 10,000,000 Shares
      Authorized, None Issued and Outstanding
      Common Stock, No Par Value, 50,000,000 Shares
      Authorized; 6,039,806 and 5,813,851 Shares Issued and
      Outstanding                                                       41,167          39,057
Notes Receivable from Shareholders                                        (924)           --
Unrealized Investment Appreciation (Depreciation), Net of
      Deferred Income Taxes                                              7,374           4,608
Retained Earnings                                                       38,025          24,651
                                                                      --------        --------
                     TOTAL SHAREHOLDERS' EQUITY                         85,642          68,316
                                                                      --------        --------
                     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 86,353        $ 69,204
                                                                      ========        ========
</TABLE>

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

            See Notes to Consolidated Financial Statements included in the 1996
                           Annual Report to Shareholders.


                                       S-2
<PAGE>   22
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                             Schedule II, Continued
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                            Statements of Operations
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                     For the Years Ended December 31,
                                                                    ----------------------------------
                                                                    1996          1995            1994
                                                                    ----          ----            ----
<S>                                                                <C>           <C>            <C>
Revenue:
         Dividends from Subsidiaries (a)                           $  --         $ 6,000        $  --
         Net Investment Income                                          11            63            109
         Net Realized Investment Gain, (Loss) (b)                      672           (10)             3
                                                                   -------       -------        -------
                     TOTAL REVENUE                                     683         6,053            112
                                                                   -------       -------        -------

Expenses:
         Goodwill Amortization                                          79            89             98
         Other                                                         417           291            168
                                                                   -------       -------        -------
                     TOTAL EXPENSES                                    496           380            266
                                                                   -------       -------        -------

Income, (Loss) Before Income Taxes and Equity in Earnings of
  Unconsolidated Subsidiaries                                          187         5,673           (154)
Income Tax Expense (Benefit)                                            74          (125)           (44)
                                                                   -------       -------        -------
Income, (Loss) Before Equity in Earnings of Unconsolidated
  Subsidiaries                                                         113         5,798           (110)
Equity in Earnings of Unconsolidated Subsidiaries                   13,261         4,032          6,083
                                                                   -------       -------        -------
  NET INCOME                                                       $13,374       $ 9,830        $ 5,973
                                                                   =======       =======        =======
</TABLE>


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

(b)      $665 and $3 of this amount has been eliminated in the Company's
         Consolidated Financial Statements for 1996 and 1994, respectively.




       See Notes to Consolidated Financial Statements included in the 1996
                         Annual Report to Shareholders.

                                       S-3
<PAGE>   23
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                             Schedule II, Continued
                  Condensed Financial Information of Registrant
                                  (Parent Only)
                            Statements of Cash Flows
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                  For the Years Ended December 31,
                                                                             -----------------------------------------
                                                                                1996           1995            1994
                                                                                ----           ----            ----
<S>                                                                          <C>             <C>             <C>
Cash Flows From Operating Activities:
      Net Income                                                             $ 13,374        $  9,830        $  5,973
      Adjustments to Reconcile Net Income to Net
      Cash Provided (Used) by Operating Activities:
           Net Realized Investment (Gain), Loss                                  (672)             10              (3)
           Equity in Earnings of Unconsolidated Subsidiaries                  (13,261)         (4,032)         (6,083)
           Goodwill Amortization                                                   79              89              98
           Change in Other Liabilities                                             25             150             (68)
           Change in Other Assets                                                  (9)            (38)            105
           Change in Income Taxes Payable                                         (88)           (343)           (731)
                                                                             --------        --------        --------
                      Net Cash Provided (Used) by Operating Activities           (552)          5,666            (709)
                                                                             --------        --------        --------

Cash Flows From Investing Activities:
      Proceeds From Sales of Investments in Equity Securities                   2,335           2,139             349
      Cost of Fixed Maturities Available for Sale Acquired                       --               (30)           --
      Cost of Equity Securities Acquired                                         (119)           (509)           (221)
      Net Transfers (to) From Subsidiaries (a)                                 (2,678)         (7,118)            606
                                                                             --------        --------        --------
                      Net Cash Provided (Used) by Investing Activities           (462)         (5,518)            734
                                                                             --------        --------        --------

Cash Flows From Financing Activities:
      Exercise of Employee Stock Options                                          979            --              --
      Collection of Notes Receivable                                              207            --              --
                                                                             --------        --------        --------
                      Net Cash Provided by Financing Activities                 1,186            --              --
                                                                             --------        --------        --------

Net Increase in Cash and Equivalents                                              172             148              25
Cash and Cash Equivalents at Beginning of Year                                    173              25            --
                                                                             --------        --------        --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                          345        $    173        $     25
                                                                             ========        ========        ========

Cash Dividends Received From Unconsolidated Subsidiaries                     $   --          $  6,000        $   --
                                                                             ========        ========        ========

Non-Cash Transactions:
      Issuance of Shares Pursuant to Employee Stock Purchase Plan            $  1,131        $   --          $   --
      Notes Receivable Issued Pursuant to Employee Stock Purchase Plan       $ (1,131)       $   --          $   --
</TABLE>



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


       See Notes to Consolidated Financial Statements included in the 1996
                         Annual Report to Shareholders.

                                       S-4
<PAGE>   24
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
                            Schedule IV - Reinsurance
                                 Earned Premiums
              For the Years Ended December 31, 1996, 1995, and 1994
                             (Dollars in Thousands)




<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
COLUMN A                                  COLUMN B          COLUMN C          COLUMN D          COLUMN E            COLUMN F
-----------------------------------------------------------------------------------------------------------------------------------
                                                            Ceded to          Assumed                             Percentage of
                                            Gross             Other          from Other                          Amount Assumed
                                           Amount           Companies        Companies         Net Amount            to Net
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>               <C>                 <C>
1996

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

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

1995

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

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

1994

Property and Casualty Insurance            $ 76,577           $32,572           $8,080            $52,085              15.5%

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


                                       S-5
<PAGE>   25
            PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
          Schedule VI - Supplemental Information Concerning Property -
                          Casualty Insurance Operations
         As of and For the Years Ended December 31, 1996, 1995, and 1994
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                        Reserve for
                          Deferred        Unpaid
                           Policy       Claims and     Discount if                         Net              Net
  Affiliation with      Acquisition        Claim       any deducted      Unearned         Earned        Investment
     Registrant            Costs        Adjustment     in Column C       Premiums       Premiums          Income
                                         Expenses
      COLUMN A            COLUMN B       COLUMN C        COLUMN D        COLUMN E       COLUMN F         COLUMN G
------------------------------------------------------------------------------------------------------------------
<S>                        <C>            <C>               <C>          <C>             <C>              <C>
Consolidated Property
- Casualty Entities
December 31, 1996          $9,033         $96,642           $0           $33,154         $72,050          $7,910
December 31, 1995          $5,157         $77,686           $0           $18,119         $58,188          $6,506
December 31, 1994          $3,911         $59,175           $0           $13,446         $52,085          $4,902

<CAPTION>
------------------------------------------------------------------------------------------------------------------
                          Claims and Claims Adjustment
                         Expenses Incurred Related to
                                                           Amortization of
                                                           deferred policy      Paid Claims and
                               (1)              (2)        acquisition costs         Claim
  Affiliation with           Current           Prior                              Adjustment      Net Written
     Registrant               Year              Year                               Expenses         Premiums

      COLUMN A                       COLUMN H                 COLUMN I             COLUMN J         COLUMN K
------------------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>              <C>                  <C>             <C>
Consolidated Property
- Casualty Entities
December 31, 1996            $41,083          ($965)           $22,210              $22,641         $83,994
December 31, 1995            $34,152          ($925)           $17,105              $18,576         $62,072
December 31, 1994            $31,120          ($111)           $15,541              $16,128         $55,398
</TABLE>

                                       S-6