PENN-AMERICA STATUTORY TRUST I
                            PENN-AMERICA GROUP, INC

                             SUBSCRIPTION AGREEMENT
                             ----------------------

                                December 4, 2002

         THIS SUBSCRIPTION AGREEMENT (this "Subscription  Agreement") made among
Penn-America  Statutory  Trust I (the "Trust"),  a statutory trust created under
the Connecticut  Statutory Trust Act (Chapter 615 of Title 34 of the Connecticut
General  Statutes,   Section  500,  et  seq.),   Penn-America   Group,  Inc.,  a
Pennsylvania  corporation,  with its principal offices located at 420 South York
Road,  Hatboro,  PA 19040 (the "Company" and,  collectively  with the Trust, the
"Offerors"), and I-Preferred Term Securities I, Ltd. (the "Purchaser").

                                    RECITALS:

     A. The Trust desires to issue 15,000 of its Floating Rate Capital
Securities (the "Capital Securities"), liquidation amount $1,000.00 per Capital
Security, representing an undivided beneficial interest in the assets of the
Trust (the "Offering"), to be issued pursuant to an Amended and Restated
Declaration of Trust (the "Declaration") by and among the Company, State Street
Bank and Trust Company of Connecticut, National Association ("State Street"),
the administrators named therein, and the holders (as defined therein), which
Capital Securities are to be guaranteed by the Company with respect to
distributions and payments upon liquidation, redemption and otherwise pursuant
to the terms of a Guarantee Agreement between the Company and State Street, as
trustee (the "Guarantee"); and

     B. The proceeds from the sale of the Capital Securities will be combined
with the proceeds from the sale by the Trust to the Company of its common
securities, and will be used by the Trust to purchase an equivalent amount of
Floating Rate Junior Subordinated Deferrable Interest Debentures of the Company
(the "Debentures") to be issued by the Company pursuant to an indenture to be
executed by the Company and State Street, as trustee (the "Indenture"); and

     C. In consideration of the premises and the mutual representations and
covenants hereinafter set forth, the parties hereto agree as follows:

                                   ARTICLE 1

                     PURCHASE AND SALE OF CAPITAL SECURITIES

     1.1 Upon the execution of this Subscription Agreement, the Purchaser hereby
agrees to purchase from the Trust 15,000 Capital Securities at a price equal to
$1,000.00 per Capital Security (the "Purchase Price") and the Trust agrees to
sell such Capital Securities to the Purchaser for said Purchase Price. The
rights and preferences of the Capital Securities are set forth in the
Declaration. The Purchase Price is payable in immediately available funds on
December 4, 2002, or such other business day as may be designated by the
Purchaser, but in no event later than December 4, 2002 (the "Closing Date"). The
Offerors shall provide the Purchaser wire transfer instructions no later than 1
day following the date hereof.

     1.2 The certificate for the Capital Securities shall be delivered by the
Trust on the Closing Date to the Purchaser or its designee.

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     1.3 The Placement Agreement, dated November 21, 2002 (the "Placement
Agreement"), among the Offerors and the Placement Agents identified therein
includes certain representations and warranties, covenants and conditions to
closing and certain other matters governing the Offering. The Placement
Agreement is hereby incorporated by reference into this Agreement and the
Purchaser shall be entitled to each of the benefits of the Placement Agents and
the Purchaser under the Placement Agreement and shall be entitled to enforce the
obligations of the Offerors under such Placement Agreement as fully as if the
Purchaser were a party to such Placement Agreement.

                                   ARTICLE 2

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

     2.1 The Purchaser understands and acknowledges that neither the Capital
Securities, the Debentures nor the Guarantee have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable securities laws, are being offered for sale by the Trust in
transactions not requiring registration under the Securities Act, and may not be
offered, sold, pledged or otherwise transferred by the Purchaser except in
compliance with the registration requirements of the Securities Act or any other
applicable securities laws, pursuant to an exemption therefrom or in a
transaction not subject thereto.

     2.2 The Purchaser represents, warrants and certifies that (i) it is not a
"U.S. person" as such term is defined in Rule 902 under the Securities Act, (ii)
it is not acquiring the Capital Securities for the account or benefit of any
such U.S. person, (iii) the offer and sale of Capital Securities to the
Purchaser constitutes an "offshore transaction" under Regulation S of the
Securities Act, and (iv) it will not engage in hedging transactions with regard
to the Capital Securities unless such transactions are conducted in compliance
with the Securities Act and the Purchaser agrees to the legends and transfer
restrictions set forth on the Capital Securities certificate.

     2.3 The Purchaser represents and warrants that it is purchasing the Capital
Securities for its own account, for investment, and not with a view to, or for
offer or sale in connection with, any distribution thereof in violation of the
Securities Act or other applicable securities laws, subject to any requirement
of law that the disposition of its property be at all times within its control
and subject to its ability to resell such Capital Securities pursuant to an
effective registration statement under the Securities Act or under Rule 144A or
any other exemption from registration available under the Securities Act or any
other applicable securities laws.

     2.4 The Purchaser represents and warrants that it has full power and
authority to execute and deliver this Subscription Agreement, to make the
representations and warranties specified herein, and to consummate the
transactions contemplated herein and it has full right and power to subscribe
for Capital Securities and perform its obligations pursuant to this Subscription
Agreement.

     2.5 The Purchaser, a Cayman Islands Company whose business includes
issuance of certain notes and acquiring the Capital Securities and other similar
securities, represents and warrants that it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of purchasing the Capital Securities, has had the opportunity to ask
questions of, and receive answers and request additional information from, the
Offerors and is aware that it may be required to bear the economic risk of an
investment in the Capital Securities.

     2.6 The Purchaser represents and warrants that no filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any governmental body, agency or court having jurisdiction over the
Purchaser, other than those that have been made or obtained, is necessary or

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required for the performance by the Purchaser of its obligations under this
Subscription Agreement or to consummate the transactions contemplated herein.

     2.7 The Purchaser represents and warrants that this Subscription Agreement
has been duly authorized, executed and delivered by the Purchaser.

     2.8 The Purchaser represents and warrants that (i) the Purchaser is not in
violation or default of any term of its Memorandum of Association or Articles of
Association, of any provision of any mortgage, indenture, agreement, instrument
or contract to which it is a party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Purchaser which would prevent the Purchaser from performing
any material obligation set forth in this Subscription Agreement; and (ii) the
execution, delivery and performance of and compliance with this Subscription
Agreement, and the consummation of the transactions contemplated herein, will
not, with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term, or the suspension, revocation, impairment, forfeiture or non-renewal
of any permit, license, authorization or approval applicable to the Purchaser,
its business or operations or any of its assets or properties which would
prevent the Purchaser from performing any material obligations set forth in this
Subscription Agreement.

     2.9 The Purchaser represents and warrants that the Purchaser is an exempted
company with limited liability duly incorporated, validly existing and in good
standing under the laws of the jurisdiction where it is organized, with full
power and authority to perform its obligations under this Subscription
Agreement.

     2.10 The Purchaser understands and acknowledges that the Company will rely
upon the truth and accuracy of the foregoing acknowledgments, representations,
warranties and agreements and agrees that, if any of the acknowledgments,
representations, warranties or agreements deemed to have been made by it by its
purchase of the Capital Securities are no longer accurate, it shall promptly
notify the Company.

     2.11 The Purchaser understands that no public market exists for any of the
Capital Securities, and that it is unlikely that a public market will ever exist
for the Capital Securities.

                                   ARTICLE 3

                                  MISCELLANEOUS

     3.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, international courier or delivered by hand against written
receipt therefor, or by facsimile transmission and confirmed by telephone, to
the following addresses, or such other address as may be furnished to the other
parties as herein provided:

                  To the Offerors:          Penn-America Group, Inc.
                                            420 South York Road
                                            Hatboro, Pennsylvania 19040
                                            Attention: Garland P. Pezzuolo
                                            Fax:  215-443-3603

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                  To the Purchaser:         I-Preferred Term Securities I, Ltd.
                                            c/o QSPV Limited
                                            P.O. Box 1093 GT
                                            Queensgate House
                                            South Church Street
                                            George Town, Grand Cayman
                                            Cayman Islands
                                            Attention:  The Directors
                                            Fax:  345-945-7100


                  Unless otherwise  expressly provided herein,  notices shall be
deemed to have been  given on the date of  mailing,  except  notice of change of
address, which shall be deemed to have been given when received.

     3.2 This Subscription Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Subscription
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by the party to be charged.

     3.3 Upon the execution and delivery of this Subscription Agreement by the
Purchaser, this Subscription Agreement shall become a binding obligation of the
Purchaser with respect to the purchase of Capital Securities as herein provided.

     3.4 NOTWITHSTANDING THE PLACE WHERE THIS SUBSCRIPTION AGREEMENT MAY BE
EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE
TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW.

     3.5 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.

     3.6 This Subscription Agreement may be executed in one or more counterparts
each of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.

     3.7 In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of the Offerors' and the Purchaser's rights and privileges
shall be enforceable to the fullest extent permitted by law.

                     Signatures appear on the following page

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         IN WITNESS  WHEREOF,  I have set my hand the day and year first written
above.



I-PREFERRED TERM SECURITIES I, LTD.

By:
----------------------------------
Print Name:
----------------------------------
Title:
----------------------------------

         IN  WITNESS  WHEREOF,  this  Subscription  Agreement  is  agreed to and
accepted as of the day and year first written above.

                      PENN-AMERICA GROUP, INC.

                      By:

                      Name:

                      Title:


                      PENN-AMERICA STATUTORY TRUST I

                      By:

                      Name:

                      Title:   Administrator