GENERAL AGENCY PROFIT SHARING ADDENDUM

THIS ADDENDUM, effective * forms part of the agreement between PENN-AMERICA
INSURANCE COMPANY and PENN-STAR INSURANCE COMPANY (hereinafter referred to as
"Companies") and [[agency]] (hereinafter referred to as "Agent"), dated
[[date]].

I. INTRODUCTION

     A.   This plan is designed to reward you for your favorable underwriting
          results on a policy year loss ratio basis.

     B.   Payments of your Agency Profit Sharing under this Addendum will be
          made 25% in stock of the Companies' parent, Penn-America Group, Inc.
          ("PAGI") ("PAGI Stock" or "Stock") and 75% in cash though you can
          choose to be paid 50%, 75%, or 100% in shares of stock. Payments will
          be in accordance with the provisions of Section IV below. This change
          applies to Profit Sharing payments made beginning in May of 2000.

     C.   In addition to the amount which you receive for your profit sharing in
          a given year, you are entitled to receive stock options for policy
          years 1999 and later in accordance with the provisions of Section III
          below.

II. HOW YOUR AGENCY QUALIFIES FOR THE PLAN

     A.   There is a two-year waiting period for eligibility owing to loss
          development.

     B.   If you satisfy all requirements, you are eligible for your first
          payment by June 1 of the second year following the year of initial
          eligibility.

     C.   To initially qualify you must have written at least $500,000 total
          calendar year premium according to the Companies' books as of December
          31st.

     D.   To remain eligible in succeeding calendar years, you must write at
          least 90 percent of the previous year's total written premium, subject
          to the $500,000 total premium minimum. This 90 percent requirement is
          waived in any year you write in excess of $1 million in premium.

     E.   You must maintain E&O coverage in conformity with the Companies'
          standards for such coverage.

     F.   You agree that the Companies' records are final.

                                                                               1
<PAGE>
III THE PLAN

     A.   Eligible Lines of Business include only the following and will be
          evaluated at the end of the second, third, and fourth years. At the
          end of each year, you will receive one-third (1/3) of the profit
          sharing payment for that year:

          1.   CMP and Garage Liability includes Section II of commercial multi
               peril, liquor liability, garage liability, and when written as
               part of commercial multi peril professional liability classes and
               increased limits general liability.

          2.   Monoline General Liability includes general liability, liquor
               liability, professional liability and increased general liability
               limits when written on a monoline basis.

          3.   Commercial Automobile Liability includes bodily injury, property
               damage, uninsured and underinsured motorists, personal injury
               protection, medical payments, and hired and non-owned coverages.

          4.   Property Business includes Section I of commercial multi peril,
               monoline fire and allied lines, crime, glass, inland marine,
               automobile physical damage, dealers open lot, and garage keepers
               liability.

          NOTE: Any classes not specifically mentioned above are not included in
                the Plan.

     B.   Your loss ratio is calculated on a policy-year basis, earned to
          incurred. Incurred losses include indemnity paid, reserves, and loss
          adjustment expenses and credit for salvage and subrogation.

     C.   Your profit sharing will be calculated for each policy year you
          continue to remain eligible as of March 31; if you qualify, you will
          be paid by June 1.

     D.   The profit calculation includes the following "loss ratios":

               "Desired loss ratio" is the target. A loss ratio below the
               Desired loss ratio will generate profit subject to the Floor. A
               loss ratio above the Desired loss ratio will reduce profit in
               other lines of business subject to the Ceiling.

               "Ceiling loss ratio" - If you are above this figure, the
               calculation will be completed using this figure (a sort of "stop
               loss").

               "Floor loss ratio" - If you are below this figure, the
               calculation will be completed using this figure (a sort of "stop
               gain").

                                                                               2
<PAGE>
     E.   Because the policy-year formula is used, there is no need for loss
          carry forwards or stop losses - each year stands alone.

     F.   The "Desired" loss ratio is the ratio which your agency loss ratio
          must be below to be eligible for profit sharing. The "Floor" loss
          ratio is the lowest loss ratio eligible for profit sharing as any loss
          ratio below the floor is calculated using the floor. Similarly, the
          "Ceiling" loss ratio limits the amount by which a loss ratio above the
          ceiling will reduce profits in other classes of business.

     G.   The current annual "Companies' Desired, Floor, and Ceiling Loss
          Ratios" are:

                             Pay Out      Floor       Desired     Ceiling
Class of Business            Year         Ratio       Loss Ratio  Ratio
-----------------            --------     -----       ----------  -------

CMP and Garage Liability     1st Year     12.50%      27.50%      42.50%
                             2nd Year     17.50%      37.50%      57.50%
                             3rd Year     30.00%      47.50%      65.00%

Commercial Auto Liability    1st Year     27.50%      40.00%      52.50%
                             2nd Year     35.00%      47.50%      60.00%
                             3rd Year     37.50%      50.00%      62.50%

Monoline General Liability   1st Year     12.50%      20.00%      27.50%
                             2nd Year     17.50%      25.00%      32.50%
                             3rd Year     25.00%      35.00%      45.00%

Property Business            1st Year     40.00%      50.00%      60.00%
                             2nd Year     40.00%      55.00%      70.00%
                             3rd Year     40.00%      55.00%      70.00%

                                                                               3
<PAGE>
<TABLE>
<CAPTION>

EXAMPLE:

Policy Year 1999 - Total Written Premium Volume $1,400,000:
-----------------------------------------------------------
(CMP Liability Written Premium = $300,000)
(Monoline Liability Written Premium = $500,000)
(Commercial Auto Written Premium = $100,000)
(Property Written Premium = $500,000)


                                                                    Profit Calculation:
                                                                    (Subtract commission paid from
1999                                                                earned premium; multiply by              Per Year
Policy                                                              difference between Companies             Pay Out Value
Year                                   Company         Agency       Desired Loss Ratio and Agency            (1/3 of 1/2 agency
Valued       Class of                  Desired         Actual       Actual Loss Ratio; divide by half to     portion) of
As Of        Business                Loss Ratio       Loss Ratio    establish value of Agency portion)       expected profit
-----        --------                ----------       ----------    ---------------------------------        ---------------


<S>         <C>                      <C>              <C>          <C>                                       <C>
3/31/01*     CMP and Garage           27.50%           15.00%       Earned Premium = $300,000                 $4,875
             Liability                                              - $66,000 commission paid
                                                                    $234,000 x 12.5% = $29,250
                                                                    $29,250/2 = $14,625

             Monoline General         20.0%            12.5%        Earned Premium = $500,000                 $4,875
             Liability                                              - $110,000 commission paid
                                                                    $390,000 x 7.5% = $29,250
                                                                    $29,295 / 2 = $14,625

             Commercial Auto          40.0%            30.0%        Earned Premium = $100,000                 $1,300
                                                                    - $22,000 commission paid
                                                                    $78,000 x 10.0% = $7,800
                                                                    $7,800 / 2 = $3,900

             Property                 50.0%            55.0%        Earned Premium = $500,000                 $(3,250)
                                                                    - $110,000 commission paid
                                                                    $390,000 x -5.0% = $(19,500)
                                                                    $(19,500) / 2 = $(9,750)
                                                                    1999 First Payout                          $7,800
                                                                                                               ------

*Note: First Year loss ratios below the Floor will be evaluated at the Floor
       percentage above. First Year loss ratios above the Ceiling will be
       evaluated at the Ceiling percentage above.


                                                                                                                     4
<PAGE>
EXAMPLE (Cont.):
                                                                    Profit Calculation:
                                                                    (Subtract commission paid from
1999                                                                earned premium; multiply by               Per Year
Policy                                                              difference between Companies              Pay Out Value
Year                                   Company          Agency      Desired Loss Ratio and Agency             (1/3 of 1/2 agency
Valued       Class of                  Desired          Actual      Actual Loss Ratio; divide by half to      portion) of
As Of        Business                Loss Ratio       Loss Ratio    establish value of Agency portion)        expected profit

3/31/02*     CMP and Garage           37.5%            20.0%        Earned Premium = $300,000                 $6,825
             Liability                                              - $66,000 commission paid
                                                                    $234,000 x 17.5% = $40,950
                                                                    $40,950 / 2 = $20,475

             Monoline General         25.0%            17.5%        Earned Premium = $500,000                 $4,875
             Liability                                              - $110,000 commission paid
                                                                    $390,000 x 7.5% = $29,250
                                                                    $29,250 / 2 = $14,625

             Commercial Auto          47.5%            35.0%        Earned Premium = $100,000                 $1,625
             Liability                                              - $22,000 commission paid
                                                                    $78,000 x 12.5% = $9,750
                                                                    $9,750 / 2 = $4,875

             Property                 55.0%            40.0%        Earned Premium = $500,000                 $9,750
                                                                    - $110,000 commission paid
                                                                    $390,000 x 15% = $58,500
                                                                    $58,500 / 2 = $29,250

                                                                    1999 Second Payout                        $23,075
                                                                                                              -------

*Note:   Second Year loss ratios  below the Floor will be evaluated at the Floor
         percentage  above.  Second Year loss ratios  above the Ceiling  will be
         evaluated at the Ceiling percentage above.

3/31/03*     CMP and Garage           47.5%            30.0%        Earned Premium = $300,000                 $6,825
             Liability                                              - $66,000 commission paid
                                                                    $234,000 x 17.5% = $40,950
                                                                    $40,950 / 2 = $20,475

             Monoline General         35.0%            25.0%        Earned Premium = $500,000                 $6,500
             Liability                                              - $110,000 commission paid
                                                                    $390,000 x 10.0% = $39,000
                                                                    $39,000 / 2 = $19,500

             Commercial Auto          50.0%            40.0%        Earned Premium = $100,000                 $1,300
             Liability                                              - $220,000 commission paid
                                                                    $78,000 x 10.0% = $7,800
                                                                    $7,800 / 2 = $3,900

             Property                 55.0%            40.0%        Earned Premium = $500,000                 $9,750
                                                                    - $110,000 commission paid
                                                                    $390,000 x 15.0% = $58,500
                                                                    $58,500 / 2 = $29,250

                                                                    1999 Third Payout                         $24,375
                                                                                                              -------

*Note:   Third Year loss ratios  below the Floor will be  evaluated at the Floor
         percentage  above.  Third Year loss ratios  above the  Ceiling  will be
         evaluated at the Ceiling percentage above.

                                 Total three-year Value of Pay Out for Policy Year 1999:                      $55,250
                                                                                                              =======

                                                                                                                    6
</TABLE>
<PAGE>
          The above examples only reflect calculations and payments for the 1999
          policy year. It is possible that you may be paid on more than one
          policy-year statement in a given year as calculations for subsequent
          policy-year statements are made assuming you maintain eligibility each
          year.

          Example: In 2003 you could be paid profit sharing payments based upon
          property experience from policy years 1999, 2000, and 2001.

     H.   In addition to the amount to which you are entitled for your profit
          sharing in a given year, you are entitled to receive stock options
          based on the following formula: Your profit sharing for the policy
          years 1999 and later times 10% divided by the stock price on the date
          of grant. The options will vest as of the date of grant and will be
          exercisable for a period of five (5) years from the date of grant.

          For example, if your payments for the 1999 policy year in 2001, 2002,
          and 2003 are $7,800, $23,075, and $24,375 and the stock price on March
          31, 2001, 2002, and 2003 is $12, $14, and $16, your options would be
          calculated as follows:

<TABLE>
<CAPTION>

                                                          Stock
                   Profit                                 Price     # of
Policy    Pmt      Sharing        Formula    Divided     3/31 of   Options     Vesting    Exercisable
Year      Year     Amount            %         by       Pmt Year   Granted      Date        Through
-----------------------------------------------------------------------------------------------------

<S>     <C>     <C>        <C>    <C>                   <C>         <C>      <C>         <C>
1999     2001    $7,800     X      10%         /         $12         65       3/31/01     3/31/06
1999     2002    $23,075    X      10%         /         $14         165      3/31/02     3/31/07
1999     2003    $24,375    X      10%         /         $16         152      3/31/03     3/31/08
                                                                     ---

          Total three-year options granted for policy year 1999      382
                                                                     ===

</TABLE>

IV. PAYMENTS TO YOU UNDER THE PLAN

     A.   Allocation of Profit Sharing between stock and cash:

          1)   You may, at your option, exercisable by written notice to the
               Companies received by us on or before March 15, take either 25%,
               50%, 75%, or 100% of your Profit Sharing in shares of PAGI stock.

          2)   For purposes of the calculation, any portion of your payment in
               PAGI Stock will be valued as of the median between the bid and
               asked price for the Stock as of the March 31 profit sharing
               calculation date. If the stock markets are closed on that date,
               the valuation will be made on the same basis as of the nearest
               previous business day.

                                                                               6
<PAGE>
          3)   Notwithstanding the above, if the value of your Profit Sharing is
               less than $2,500, payment of the Profit Sharing will be made
               entirely in cash.

     B.   Payment Due Date:

          1)   Your Profit Sharing will be distributed to you by June 1.

          2)   Shares of stock distributed to you will be delivered free of all
               commissions and transaction costs.

     C.   Your Profit Sharing will be subject to income tax in accordance with
          applicable IRS laws and regulations. Stock distributed to you under
          the Plan may not be sold until after August 1 of the same year and
          will be legended accordingly.

V. TERMINATION

     A.   If your General Agency Agreement is terminated by either party, the
          program also terminates, with the final calculation and pro-rata
          payment made at June 1 of the following year.

     B.   The plan may be terminated or amended by us at any time without cause,
          but existing obligations will be honored.

     C.   Profit Sharing Upon Termination. Upon termination of this Addendum for
          any reason:

          1)   Before the end of a full calendar year, its terms and conditions
               shall apply to all prior calendar years in which this Addendum
               was in effect, without proration and without allowance for the
               portion of the year in which this Addendum was terminated; and

          2)   The Agency's right to Profit Sharing shall cease on December 31
               of the year preceding the year in which termination is effective,
               notwithstanding the continuance in force and effect of any
               unexpired policies or binders after such calendar year.

          3)   In the event of termination of the General Agency Agreement by
               either party, this Addendum shall terminate simultaneously and
               the Agency shall not be eligible for Profit Sharing in the
               termination or succeeding years.

     D.   If the General Agency Agreement is terminated by us because of a
          breach of its terms by you and/or in accordance with any of the terms
          of paragraphs 9 (iii) or (iv) of the General Agency Agreement, there
          shall be no further calculations made, nor profit sharing payments
          made.

                                                                               7
<PAGE>
VI. GENERAL

     This Profit Sharing Program constitutes the entire and exclusive agreement
     between Companies and Agency on the subjects of profit sharing (contingent
     commissions), and supersedes any and all prior or contemporaneous
     agreements, representations, and understandings, written and oral, on these
     subjects. The undersigned signatories hereby warrant that they have full
     power and authority to execute this Addendum on behalf of the respective
     parties thereto.

IN WITNESS WHEREOF, this Addendum has been executed in duplicate by the parties
hereto.

DATE:

PENN-AMERICA INSURANCE COMPANY
PENN-STAR INSURANCE COMPANY               [[agency]]

By:                                           By:
John M. DiBiasi, CPCU                               [[attention]]
Executive Vice President                            [[title2]]


                                                                               8