##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2003

Commission File Number 0-22280

PHILADELPHIA CONSOLIDATED HOLDING CORP.




(Exact name of registrant as specified in its charter)


|                         |  |                                  
|------------------------ |  | ---------------------------------
|PENNSYLVANIA             |  | 23-2202671                       
|                         |  |                                  
|(State of Incorporation) |  | (IRS Employer Identification No.)

One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900




(Address, including zip code and telephone number,
including area code, of registrants principal executive offices)


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:    o


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).YES:    x   NO:   o

Indicate the number of shares outstanding of each of the issuers classes of
common stock as of August 8, 2003.

Common Stock, no par value, 21,863,147 shares outstanding





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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIESINDEX

For the Quarterly Period Ended June 30, 2003

|                               |                                                                                               |                                                                                                                                      |       |       |      | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----- | ----- | ---- | 
|Part I - Financial Information |                                                                                               |                                                                                                                                      |       |      
|                               | Item 1. Financial Statements:                                                                 |                                                                                                                                      |       |       |     
|                               |                                                                                               | Consolidated Balance Sheets  June 30, 2003 and
December 31, 2002                                                                    |       |       | 3    | 
|                               |                                                                                               | Consolidated Statements of Operations and Comprehensive
Income - For the three and six months ended June 30, 2003 and 2002           |       |       | 4    | 
|                               |                                                                                               | Consolidated Statements of Changes in Shareholders Equity - For
the six months ended June 30, 2003 and year ended
December 31, 2002 |       |       | 5    | 
|                               |                                                                                               | Consolidated Statements of Cash Flows - For the six
months ended June 30, 2003 and 2002                                              |       |       | 6    | 
|                               |                                                                                               | Notes to Consolidated Financial Statements                                                                                           |       |       | 7-13 | 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                                      |       | 14-23 |     
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                                      |       | 24    |     
|                               | Item 4. Controls and Procedures                                                               |                                                                                                                                      |       | 25    |     
|Part II - Other Information    |                                                                                               |                                                                                                                                      | 26-27 |      
|Signatures                     |                                                                                               |                                                                                                                                      | 28    |      

2



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

|                                     |                                                                                                                    |                                            |   |             |           |              |   |         |           | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ----------- | --------- | ------------ | - | ------- | --------- | 
|                                     |                                                                                                                    |                                            |   | As of      
|                                     |                                                                                                                    |                                            |   |            
|                                     |                                                                                                                    |                                            |   | June 30,    |           |              |   |        
|                                     |                                                                                                                    |                                            |   | 2003        |           | December 31,
|                                     |                                                                                                                    |                                            |   | (Unaudited) |           | 2002        
|                                     |                                                                                                                    |                                            |   |             |           |             
|ASSETS                               |                                                                                                                    |                                            |   |             |           |              |   |        
|INVESTMENTS:                         |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     | FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $976,289 AND $832,701)                               |                                            | $ | 1,000,641   |           |              | $ | 854,513 |          
|                                     | EQUITY SECURITIES AT MARKET (COST $64,464
AND $51,257)                                                             |                                            |   | 71,101      |           |              |   | 54,346  |          
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL INVESTMENTS                          |   |             | 1,071,742 |              |   |         | 908,859   | 
|                                     | CASH AND CASH EQUIVALENTS                                                                                          |                                            |   | 63,986      |           |              |   | 42,002  |          
|                                     | ACCRUED INVESTMENT INCOME                                                                                          |                                            |   | 9,703       |           |              |   | 8,571   |          
|                                     | PREMIUMS RECEIVABLE                                                                                                |                                            |   | 144,886     |           |              |   | 130,007 |          
|                                     | PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES                                                           |                                            |   | 233,118     |           |              |   | 151,352 |          
|                                     | DEFERRED INCOME TAXES                                                                                              |                                            |   | 13,626      |           |              |   | 7,541   |          
|                                     | DEFERRED ACQUISITION COSTS                                                                                         |                                            |   | 45,919      |           |              |   | 61,272  |          
|                                     | PROPERTY AND EQUIPMENT, NET                                                                                        |                                            |   | 14,045      |           |              |   | 12,794  |          
|                                     | GOODWILL                                                                                                           |                                            |   | 25,724      |           |              |   | 25,724  |          
|                                     | OTHER ASSETS                                                                                                       |                                            |   | 13,678      |           |              |   | 10,212  |          
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL ASSETS                               |   | $           | 1,636,427 |              |   | $       | 1,358,334 | 
|                                     |                                                                                                                    |                                            |   |             |           |              |   |         |          
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                    |                                            |   |             |           |              |   |        
|POLICY LIABILITIES AND ACCRUALS:     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     | UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES                                                                           |                                            | $ | 546,431     |           |              | $ | 445,548 |          
|                                     | UNEARNED PREMIUMS                                                                                                  |                                            |   | 357,101     |           |              |   | 306,093 |          
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL POLICY LIABILITIES AND ACCRUALS      |   |             | 903,532   |              |   |         | 751,641   | 
|                                     | FUNDS HELD PAYABLE TO REINSURER                                                                                    |                                            |   | 61,923      |           |              |   |        |          
|                                     | LOANS PAYABLE                                                                                                      |                                            |   | 48,111      |           |              |   | 39,113  |          
|                                     | PREMIUMS PAYABLE                                                                                                   |                                            |   | 41,437      |           |              |   | 33,553  |          
|                                     | PAYABLE FOR SECURITY PURCHASES                                                                                     |                                            |   | 22,387      |           |              |   | 6,100   |          
|                                     | OTHER LIABILITIES                                                                                                  |                                            |   | 59,551      |           |              |   | 50,104  |          
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL LIABILITIES                          |   |             | 1,136,941 |              |   |         | 880,511   | 
|                                     |                                                                                                                    |                                            |   |             |           |              |   |         |          
|COMMITMENTS AND CONTINGENCIES        |                                                                                                                    |                                            |   |             |           |              |   |        
|SHAREHOLDERS EQUITY:                |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     | PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING                         |                                            |   |            |           |              |   |        |          
|                                     | COMMON STOCK, NO PAR VALUE,
100,000,000 SHARES AUTHORIZED, 21,866,961 AND
21,868,877 SHARES ISSUED AND OUTSTANDING |                                            |   | 276,963     |           |              |   | 276,945 |          
|                                     | NOTES RECEIVABLE FROM SHAREHOLDERS                                                                                 |                                            |   | (5,365      | )         |              |   | (6,407  | )        
|                                     | ACCUMULATED OTHER COMPREHENSIVE INCOME                                                                             |                                            |   | 20,143      |           |              |   | 16,185  |          
|                                     | RETAINED EARNINGS                                                                                                  |                                            |   | 207,960     |           |              |   | 191,100 |          
|                                     | LESS COST OF COMMON STOCK HELD IN
TREASURY, 4,042 SHARES                                                           |                                            |   | (215        | )         |              |   |        |          
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL SHAREHOLDERS EQUITY                 |   |             | 499,486   |              |   |         | 477,823   | 
|                                     |                                                                                                                    |                                            |   |             |           |              |   |        
|                                     |                                                                                                                    | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |   | $           | 1,636,427 |              |   | $       | 1,358,334 | 
|                                     |                                                                                                                    |                                            |   |             |           |              |   |         |          

The accompanying notes are an integral part of the consolidated financial statements.

3



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |         | 
|--------------------------------------------------------- | ------------------------------------------------- | ------------------------- | ---------- | -------------------- | ------- | ------------------ | ---------- | ------- | ------- | ---- | ---------- | ------- | ------- | - | ---------- | ------- | ------- | 
|                                                          |                                                   |                           |            | For the Three Months |         | For the Six Months
|                                                          |                                                   |                           |            | Ended June 30,       |         | Ended June 30,    
|                                                          |                                                   |                           |            |                      |         |                   
|                                                          |                                                   |                           |            | 2003                 |         | 2002               |            | 2003    |         | 2002
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |     
|REVENUE:                                                  |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | NET EARNED PREMIUMS                               |                           | $          | 121,449              |         |                    | $          | 100,273 |         |      | $          | 269,811 |         |   | $          | 189,517 |        
|                                                          | NET INVESTMENT INCOME                             |                           |            | 9,370                |         |                    |            | 9,375   |         |      |            | 19,175  |         |   |            | 18,230  |        
|                                                          | NET REALIZED INVESTMENT LOSS                      |                           |            | (650                 | )       |                    |            | (3,181  | )       |      |            | (1,783  | )       |   |            | (3,134  | )      
|                                                          | OTHER INCOME                                      |                           |            | 1,040                |         |                    |            | 15      |         |      |            | 1,701   |         |   |            | 16      |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          |                                                   | TOTAL REVENUE             |            |                      | 131,209 |                    |            |         | 106,482 |      |            |         | 288,904 |   |            |         | 204,629 | 
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|LOSSES AND EXPENSES:                                      |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | LOSS AND LOSS ADJUSTMENT EXPENSES                 |                           |            | 124,293              |         |                    |            | 72,067  |         |      |            | 227,378 |         |   |            | 137,678 |        
|                                                          | NET REINSURANCE RECOVERIES                        |                           |            | (31,267              | )       |                    |            | (11,235 | )       |      |            | (43,992 | )       |   |            | (23,797 | )      
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | NET LOSS AND LOSS ADJUSTMENT EXPENSES             |                           |            | 93,026               |         |                    |            | 60,832  |         |      |            | 183,386 |         |   |            | 113,881 |        
|                                                          | ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES |                           |            | 32,158               |         |                    |            | 31,057  |         |      |            | 78,578  |         |   |            | 58,878  |        
|                                                          | OTHER OPERATING EXPENSES                          |                           |            | 1,632                |         |                    |            | 1,454   |         |      |            | 3,306   |         |   |            | 2,938   |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          |                                                   | TOTAL LOSSES AND EXPENSES |            |                      | 126,816 |                    |            |         | 93,343  |      |            |         | 265,270 |   |            |         | 175,697 | 
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|INCOME BEFORE INCOME TAXES                                |                                                   |                           | 4,393      |                      |         |                    | 13,139     |         |         |      | 23,634     |         |         |   | 28,932     |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|INCOME TAX EXPENSE (BENEFIT):                             |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | CURRENT                                           |                           |            | 7,225                |         |                    |            | 5,798   |         |      |            | 14,989  |         |   |            | 12,369  |        
|                                                          | DEFERRED                                          |                           |            | (6,459               | )       |                    |            | (1,612  | )       |      |            | (8,215  | )       |   |            | (3,067  | )      
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          |                                                   | TOTAL INCOME TAX EXPENSE  |            |                      | 766     |                    |            |         | 4,186   |      |            |         | 6,774   |   |            |         | 9,302   | 
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|                                                          |                                                   | NET INCOME                |            | $                    | 3,627   |                    |            | $       | 8,953   |      |            | $       | 16,860  |   |            | $       | 19,630  | 
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|OTHER COMPREHENSIVE INCOME, NET OF TAX:                   |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | HOLDING GAIN ARISING DURING PERIOD                |                           |            | 6,740                |         |                    |            | 5,334   |         |      |            | 2,799   |         |   |            | 1,275   |        
|                                                          | RECLASSIFICATION ADJUSTMENT                       |                           |            | 423                  |         |                    |            | 2,068   |         |      |            | 1,159   |         |   |            | 2,037   |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | OTHER COMPREHENSIVE INCOME                        |                           |            | 7,163                |         |                    |            | 7,402   |         |      |            | 3,958   |         |   |            | 3,312   |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|COMPREHENSIVE INCOME                                      |                                                   | $                         | 10,790     |                      |         | $                  | 16,355     |         |         | $    | 20,818     |         |         | $ | 22,942     |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|PER AVERAGE SHARE DATA:                                   |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|                                                          | BASIC EARNINGS PER SHARE                          |                           | $          | 0.17                 |         |                    | $          | 0.41    |         |      | $          | 0.77    |         |   | $          | 0.91    |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|                                                          | DILUTED EARNINGS PER SHARE                        |                           | $          | 0.16                 |         |                    | $          | 0.40    |         |      | $          | 0.75    |         |   | $          | 0.88    |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |         |        
|WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING                |                                                   |                           | 21,860,396 |                      |         |                    | 21,578,045 |         |         |      | 21,862,819 |         |         |   | 21,553,206 |        
|WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING            |                                                   |                           | 706,608    |                      |         |                    | 753,575    |         |         |      | 635,107    |         |         |   | 741,742    |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        
|WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING |                                                   |                           | 22,567,004 |                      |         |                    | 22,331,620 |         |         |      | 22,497,926 |         |         |   | 22,294,948 |        
|                                                          |                                                   |                           |            |                      |         |                    |            |         |         |      |            |         |         |   |            |        

The accompanying notes are an integral part of the consolidated financial statements.

4



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |            |       |            |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------- | -------------------------- | ---------- | ------------------ | ---------- | ------------------ | ---------- | ----- | ---------- | -
|                                                                      |                                                                                 |                                          |                            |            | For the Six Months |            |                    |            |      
|                                                                      |                                                                                 |                                          |                            |            | Ended              |            | For the Year Ended
|                                                                      |                                                                                 |                                          |                            |            | June 30, 2003      |            | December 31,      
|                                                                      |                                                                                 |                                          |                            |            | (Unaudited)        |            | 2002              
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                   
|COMMON SHARES:                                                        |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          |                            | 21,868,877 |                    |            |                    | 21,509,723 |      
|                                                                      | EXERCISE OF EMPLOYEE STOCK OPTIONS                                              |                                          |                            |           |                    |            |                    | 107,000    |      
|                                                                      | (FORFEITURES) ISSUANCES OF SHARES PURSUANT TO STOCK
PURCHASE PLANS, NET         |                                          |                            | (1,916     | )                  |            |                    | 252,154    |      
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | 21,866,961 |                    |            |       | 21,868,877 |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|TREASURY SHARES:                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          |                            |           |                    |            |                    |           |      
|                                                                      | SHARES REPURCHASED PURSUANT TO AUTHORIZATION                                    |                                          |                            | 10,000     |                    |            |                    | 75,000     |      
|                                                                      | EXERCISE OF EMPLOYEE STOCK OPTIONS                                              |                                          |                            | (6,500     | )                  |            |                    |           |      
|                                                                      | FORFEITURES (ISSUANCES) OF SHARES PURSUANT TO STOCK
PURCHASE PLANS              |                                          |                            | 542        |                    |            |                    | (75,000    | )    
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | 4,042      |                    |            |       |           |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|COMMON STOCK:                                                         |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          | $                          | 276,945    |                    |            | $                  | 268,509    |      
|                                                                      | EXERCISE OF EMPLOYEE STOCK OPTIONS                                              |                                          |                            | 58         |                    |            |                    | 2,115      |      
|                                                                      | (FORFEITURES) ISSUANCES OF SHARES PURSUANT TO STOCK
PURCHASE PLANS              |                                          |                            | (40        | )                  |            |                    | 6,321      |      
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | 276,963    |                    |            |       | 276,945    |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|NOTES RECEIVABLE FROM SHAREHOLDERS:                                   |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          |                            | (6,407     | )                  |            |                    | (3,373     | )    
|                                                                      | NOTES RECEIVABLE (ISSUED) FORFEITURES PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS |                                          |                            | 90         |                    |            |                    | (4,017     | )    
|                                                                      | COLLECTION OF NOTES RECEIVABLE                                                  |                                          |                            | 952        |                    |            |                    | 983        |      
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | (5,365     | )                  |            |       | (6,407     | )
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES: |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 | BALANCE AT BEGINNING OF YEAR             |                            |            | 16,185             |            |                    |            | 8,461 |           
|                                                                      |                                                                                 | OTHER COMPREHENSIVE INCOME, NET OF TAXES |                            |            | 3,958              |            |                    |            | 7,724 |           
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | 20,143     |                    |            |       | 16,185     |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|RETAINED EARNINGS:                                                    |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          |                            | 191,100    |                    |            |                    | 155,095    |      
|                                                                      | NET INCOME                                                                      |                                          |                            | 16,860     |                    |            |                    | 36,005     |      
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | 207,960    |                    |            |       | 191,100    |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|COMMON STOCK HELD IN TREASURY:                                        |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      | BALANCE AT BEGINNING OF YEAR                                                    |                                          |                            |           |                    |            |                    |           |      
|                                                                      | EXERCISE OF EMPLOYEE STOCK OPTIONS                                              |                                          |                            | 94         |                    |            |                    |           |      
|                                                                      | COMMON SHARES REPURCHASED                                                       |                                          |                            | (300       | )                  |            |                    | (2,023     | )    
|                                                                      | (FORFEITURES) ISSUANCES OF SHARES PURSUANT TO STOCK
PURCHASE PLANS              |                                          |                            | (9         | )                  |            |                    | 2,023      |      
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | BALANCE AT END OF PERIOD   |            |                    | (215       | )                  |            |       |           |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |           
|                                                                      |                                                                                 |                                          | TOTAL SHAREHOLDERS EQUITY |            | $                  | 499,486    |                    |            | $     | 477,823    |  
|                                                                      |                                                                                 |                                          |                            |            |                    |            |                    |            |      

The accompanying notes are an integral part of the consolidated financial statements.

5



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |          |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------ | --------------------------------- | -------- | ---- | ------ | -------- | ------- | -
|                                                     |                                                                                                            |                                           |        | For the Six Months Ended June 30,
|                                                     |                                                                                                            |                                           |        |                                  
|                                                     |                                                                                                            |                                           |        | 2003                              |          | 2002
|                                                     |                                                                                                            |                                           |        |                                   |          |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     | NET INCOME                                                                                                 |                                           | $      | 16,860                            |          |      | $      | 19,630   |        
|                                                     | ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:                          |                                           |        |                                   |          |      |        |          |        
|                                                     | NET REALIZED INVESTMENT LOSS                                                                               |                                           |        | 1,783                             |          |      |        | 3,134    |        
|                                                     | DEPRECIATION AND AMORTIZATION EXPENSE                                                                      |                                           |        | 3,822                             |          |      |        | 738      |        
|                                                     | DEFERRED INCOME TAX BENEFIT                                                                                |                                           |        | (8,215                            | )        |      |        | (3,067   | )      
|                                                     | CHANGE IN PREMIUMS RECEIVABLE                                                                              |                                           |        | (14,879                           | )        |      |        | (13,584  | )      
|                                                     | CHANGE IN OTHER RECEIVABLES                                                                                |                                           |        | (82,898                           | )        |      |        | 430      |        
|                                                     | CHANGE IN INCOME TAXES PAYABLE                                                                             |                                           |        | (6,675                            | )        |      |        | (3,078   | )      
|                                                     | CHANGE IN DEFERRED ACQUISITION COSTS                                                                       |                                           |        | 15,353                            |          |      |        | (7,310   | )      
|                                                     | CHANGE IN OTHER ASSETS                                                                                     |                                           |        | 1,146                             |          |      |        | 5        |        
|                                                     | CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT
EXPENSES                                                         |                                           |        | 100,883                           |          |      |        | 29,156   |        
|                                                     | CHANGE IN UNEARNED PREMIUMS                                                                                |                                           |        | 51,008                            |          |      |        | 47,066   |        
|                                                     | CHANGE IN FUNDS HELD PAYABLE TO REINSURER                                                                  |                                           |        | 61,923                            |          |      |        |         |        
|                                                     | CHANGE IN OTHER LIABILITIES                                                                                |                                           |        | 20,739                            |          |      |        | 10,134   |        
|                                                     | TAX BENEFIT FROM EXERCISE OF EMPLOYEE
STOCK OPTIONS                                                        |                                           |        | 58                                |          |      |        | 1,251    |        
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     |                                                                                                            | NET CASH PROVIDED BY OPERATING ACTIVITIES |        |                                   | 160,908  |      |        |          | 84,505  |  
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     | PROCEEDS FROM SALES OF INVESTMENTS IN FIXED
MATURITIES                                                     |                                           |        | 16,412                            |          |      |        | 137,290  |        
|                                                     | PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED
MATURITIES                                                  |                                           |        | 95,588                            |          |      |        | 49,730   |        
|                                                     | PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY
SECURITIES                                                    |                                           |        | 8,125                             |          |      |        | 12,891   |        
|                                                     | COST OF FIXED MATURITIES ACQUIRED                                                                          |                                           |        | (243,980                          | )        |      |        | (264,746 | )      
|                                                     | COST OF EQUITY SECURITIES ACQUIRED                                                                         |                                           |        | (22,109                           | )        |      |        | (23,850  | )      
|                                                     | PURCHASE OF PROPERTY AND EQUIPMENT, NET                                                                    |                                           |        | (2,745                            | )        |      |        | (1,736   | )      
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     |                                                                                                            | NET CASH USED BY INVESTING ACTIVITIES     |        |                                   | (148,709 | )    |        |          | (90,421 | )
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     | REPAYMENTS ON LOANS PAYABLE                                                                                |                                           |        | (21,841                           | )        |      |        | (20,841  | )      
|                                                     | PROCEEDS FROM LOANS PAYABLE                                                                                |                                           |        | 30,839                            |          |      |        | 20,841   |        
|                                                     | PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS                                                           |                                           |        | 94                                |          |      |        | 864      |        
|                                                     | PROCEEDS FROM COLLECTION OF NOTES RECEIVABLE                                                               |                                           |        | 952                               |          |      |        | 454      |        
|                                                     | PROCEEDS FROM SHARES ISSUED PURSUANT TO
STOCK PURCHASE PLANS                                               |                                           |        | 41                                |          |      |        | 399      |        
|                                                     | COST OF COMMON STOCK REPURCHASED                                                                           |                                           |        | (300                              | )        |      |        |         |        
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     |                                                                                                            | NET CASH PROVIDED BY FINANCING ACTIVITIES |        |                                   | 9,785    |      |        |          | 1,717   |  
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                                            |                                           | 21,984 |                                   |          |      | (4,199 | )       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                                            |                                           | 42,002 |                                   |          |      | 49,910 |         
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                                            | $                                         | 63,986 |                                   |          | $    | 45,711 |         
|                                                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|CASH PAID DURING THE PERIOD FOR:                     |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     | INCOME TAXES                                                                                               |                                           | $      | 21,212                            |          |      | $      | 13,936   |        
|                                                     | INTEREST                                                                                                   |                                           | $      | 338                               |          |      | $      | 288      |        
|NON-CASH TRANSACTIONS:                               |                                                                                                            |                                           |        |                                   |          |      |        |         
|                                                     | ISSUANCE OF SHARES (FORFEITURES) PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR
NOTES RECEIVABLE |                                           | $      | (90                               | )        |      | $      | (46      | )      

The accompanying notes are an integral part of the consolidated financial statements.

6



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)



|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements as of and for the six months ended
June 30, 2003 and 2002 are unaudited, but in the opinion of management have
been prepared on the same basis as the annual audited consolidated financial
statements and reflect all adjustments, consisting of only normal recurring
accruals, necessary for a fair statement of the information set forth
therein. The results of operations for the six months ended June 30, 2003
are not necessarily indicative of the operating results to be expected for
the full year or any other period. Certain prior years amounts have been
reclassified for comparative purposes.                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | These financial statements should be read in conjunction with the financial
statements and notes included in the Companys Annual Report on Form 10-K as
of and for the year ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|2. |  | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The carrying amounts for the Companys investments approximates their
estimated fair value. The Company measures the fair value of investments
based upon quoted market prices or by obtaining quotes from dealers. At
June 30, 2003, the Company held no derivative financial instruments or
embedded financial derivatives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The Company performs various analytical procedures with respect to its
investments, including identifying any security whose fair value is below
its cost. Upon identification of such securities, a detailed review is
performed for such securities, except interests in securitized assets,
meeting predetermined thresholds to determine whether a decline in fair
value below a securitys cost basis is other than temporary. If the Company
determines a decline in value to be other than temporary, the cost basis of
the security is written down to its fair value with the amount of the write
down included in earnings as a realized loss in the period the impairment
arose. Non-cash realized investment losses recorded for the three months
ended June 30, 2003 and 2002 were $0 and for the six months ended June 30,
2003 and 2002 were $0.9 million and $0 million, respectively, as a result of
the Companys other than temporary impairment evaluation.                                                                                                 
|  
|   |  | The Companys impairment evaluation and recognition for interests in
securitized assets is conducted in accordance with the guidance provided by
the Emerging Issues Task Force of the Financial Accounting Standards Board.
Under this guidance, impairment losses on securities must be recognized if
both the fair value of the security is less than its book value and the net
present value of expected future cash flows is less than the net present
value of expected future cash flows at the most recent (prior) estimation
date. If these criteria are met, an impairment charge, calculated as the
difference between the current book value of the security and its fair
value, is included in earnings as a realized loss in the period the
impairment arose. Non-cash realized investment losses recorded for the
three and six months ended June 30, 2003 and 2002 were $1.6 million and $1.2
million, respectively, and $2.3 million and $1.2 million, respectively, as a
result of the Companys impairment evaluation for investments in securitized
assets.
|  
|3. |  | Restricted Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Insurance Subsidiaries have investments, principally U.S. Treasury
securities, on deposit with the various states in which they are licensed
insurers. At June, 30, 2003 and December 31, 2002, the carrying value of
the securities on deposit totaled $14.4 million and $13.5 million,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Additionally, the Insurance Subsidiaries have investments, principally asset
backed securities, which collateralize the borrowings from the Federal Home
Loan Bank of Pittsburgh, see Note 7. The carrying value of these
investments was $61.8 million and $49.2 million as of June 30, 2003 and
December 31, 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

7



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##### 





|4. |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The carrying amount of goodwill is subject to an annual impairment test to
identify potential goodwill impairment and measure the amount of a goodwill
impairment loss to be recognized (if any). As a result of the impairment
analysis, no change in the carrying amount of goodwill was recorded by the
Company for the year ended December 31, 2002. No events have occurred or
circumstances have arisen subsequent to December 31, 2002 that would
necessitate the Company to perform an interim impairment test. Consequently
no change in the carrying amount of goodwill has been recorded for the six
months ended June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|5. |  | Liability for Unpaid Loss and Loss Adjustment Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The liability for unpaid loss and loss adjustment expenses reflects the
Companys best estimate for future amounts needed to pay losses and related
settlement expenses with respect to insured events. Estimating the ultimate
claims liability is necessarily a complex and judgmental process, inasmuch
as the amounts are based on managements informed estimates and judgments
using data currently available. In some cases significant periods of time,
up to several years or more, may elapse between the occurrence of an insured
loss and the reporting of such to the Company. The method for determining
the Companys liability for unpaid loss and loss adjustment expenses
includes, but is not limited to, reviewing past loss experience and
considering other factors such as legal, social, and economic developments.
As additional experience and data become available the Companys estimate
for the liability for unpaid loss and loss adjustment expenses is revised
accordingly. If the Companys ultimate losses, net of reinsurance, prove to
differ substantially from the amounts recorded at June 30, 2003, the related
adjustments could have a material adverse impact on the Companys results of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During the three months ended June 30, 2003, the Company increased the
estimated gross and net loss for unreported claims incurred and related
claim adjustment expenses on residual value polices issued during the years
1998 through 2002 by $33.0 million to $59.8 million and $57.9 million,
respectively. As of March 31, 2003 the Company had estimated a total
liability for unpaid loss and loss adjustment expenses for these policies of
$47.4 million ($40.0 million net of reinsurance). The residual value
policies provide coverage guaranteeing the value of a leased automobile at
the lease termination, which can be up to five years from lease inception.
Adverse trends further deteriorated in both frequency and severity on leases
expiring in 2003. As part of the Companys monitoring and evaluation
process, a consulting firm was engaged during the second quarter of 2003 to
aid in evaluating the ultimate potential loss exposure under these policies.
Based upon the result of the subsequent evaluation by the Company and
changes in the Companys assumptions relating to future frequency and
severity of losses, the estimate for unpaid loss and loss adjustment
expenses was increased. The Company primarily attributes this deterioration
to the following factors that led to a softening of prices in the used car
market subsequent to the September 11, 2001 terrorist attacks: prolonged 0%
new car financing rates and other incentives which increased new car sales
and the volume of trade-ins, daily rental units being sold into the market
earlier and in greater numbers than expected further adding to the over
supply of used cars; and the overall general economic conditions. As of
June 30, 2003, approximately 61,000 leases were outstanding under the
Companys residual value policies. The Company is projecting a 42% loss
frequency and average loss of approximately $2,300 per claim with respect to
these leases.
|  
|   |  | During the three months ended June 2003 the Company also decreased the gross
and net liability for unpaid loss and loss adjustment expenses for accident
year 2002, principally in the property line of its commercial package
products, by approximately $9.0 million due to better than expected loss
experience.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|6. |  | Funds Held Payable To Reinsurer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Effective April 1, 2003 the Company entered into a quota share reinsurance
agreement covering all of the Companys lines of business. Under this
agreement, the Company cedes 22% of its net written premium (including 22%
of net unearned premium reserves at April 1, 2003) and loss and loss
adjustment expenses. The Company also receives a provisional commission of
33.0% adjusted pro-rata based upon the ratio of losses incurred to premiums
earned. Pursuant to this reinsurance agreement the Company withholds the
reinsurance premium due the reinsurers reduced by the reinsurers expense
allowance, and the Companys ceding commission allowance in a Funds Held
Payable to Reinsurer account. This Funds Held Payable to Reinsurer account
is also reduced by ceded paid losses and loss adjustment expenses under this
agreement, and increased by an interest credit. The interest credit
(expense), which is included in net investment income, was $0.5 million for
the three and six months ended June 30, 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

8



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##### 





|7. |  | Loans Payable                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of June 30, 2003, the Company had aggregate borrowings of $48.1 million
from the Federal Home Loan Bank. These borrowings bear interest at adjusted
LIBOR and mature twelve months from inception. The proceeds from these
borrowings are invested in collateralized mortgage obligation and asset
backed securities to achieve a positive spread between the rate of interest
on these securities and the borrowing rates.
|  
|8. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Earnings per common share has been calculated by dividing net income for the
period by the weighted average number of common shares and common share
equivalents outstanding during the period. Following is the computation of
earnings per share for the three and six months ended June 30, 2003 and
2002, respectively (in thousands, except per share data):                                                             

|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 
|--------------------------------------------------------- |  | ----------------------- | ------ | --------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                          |  | As of and For the Three |        | As of and For the Six
|                                                          |  | Months Ended June 30,   |        | Months Ended June 30 
|                                                          |  |                         |        |                      
|                                                          |  | 2003                    |        | 2002                  |  | 2003 |        | 2002
|                                                          |  |                         |        |                       |  |      |        |     
|Weighted-Average Common Shares Outstanding                |  |                         | 21,860 |                       |  |      | 21,578 |      |  |   | 21,863 |  |  |   | 21,553 | 
|Weighted-Average Share Equivalents Outstanding            |  |                         | 707    |                       |  |      | 754    |      |  |   | 635    |  |  |   | 742    | 
|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 
|Weighted-Average Shares and Share
Equivalents Outstanding |  |                         | 22,567 |                       |  |      | 22,332 |      |  |   | 22,498 |  |  |   | 22,295 | 
|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 
|Net Income                                                |  | $                       | 3,627  |                       |  | $    | 8,953  |      |  | $ | 16,860 |  |  | $ | 19,630 | 
|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 
|Basic Earnings per Share                                  |  | $                       | 0.17   |                       |  | $    | 0.41   |      |  | $ | 0.77   |  |  | $ | 0.91   | 
|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted Earnings per Share                                |  | $                       | 0.16   |                       |  | $    | 0.40   |      |  | $ | 0.75   |  |  | $ | 0.88   | 
|                                                          |  |                         |        |                       |  |      |        |      |  |   |        |  |  |   |        | 



|9. |  | Income Taxes                                                                                                                                                                                                                                                    
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The effective tax rate differs from the 35% marginal tax rate principally as
a result of tax-exempt interest income, the dividend received deduction and
other differences in the recognition of revenues and expenses for tax and
financial reporting purposes.

9



---



##### 





|10. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Stock-based compensation plans are accounted for under the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, no compensation
expense is recognized for fixed stock option grants and the Companys stock
purchase plans. The following table illustrates the effect on net income
and earnings per share as if the provisions of statement of Financial
Accounting Standards (SFAS) No. 123 (as amended by SFAS No. 148),
Accounting for Stock-Based Compensation, had been applied for the three
and six months ended June 30, 2003 and 2002, respectively:

|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |      | 
|------------------------------------- | ----------- | ---- | --------------------------- | ---- | ------------------------- | ---- | ----- | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                      |             |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                      |             |      |                             |      |                          
|(In thousands, except per share data) |             | 2003 |                             | 2002 |                           | 2003 |       | 2002
|                                      |             |      |                             |      |                           |      |       |     
|Net Income As Reported                |             | $    | 3,627                       |      |                           | $    | 8,953 |      |  | $ | 16,860 |      |  | $ | 19,629 |     
|Assumed Stock Compensation Cost       |             |      | 728                         |      |                           |      | 505   |      |  |   | 1,422  |      |  |   | 957    |     
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|Pro Forma Net Income                  |             | $    | 2,899                       |      |                           | $    | 8,448 |      |  | $ | 15,438 |      |  | $ | 18,672 |     
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|Basic Earnings Per Share:             |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|                                      | As Reported |      | $                           | 0.17 |                           |      | $     | 0.41 |  |   | $      | 0.77 |  |   | $      | 0.91 | 
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|                                      | Pro Forma   |      | $                           | 0.13 |                           |      | $     | 0.39 |  |   | $      | 0.71 |  |   | $      | 0.87 | 
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|Diluted Earnings Per Share:           |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|                                      | As Reported |      | $                           | 0.16 |                           |      | $     | 0.40 |  |   | $      | 0.75 |  |   | $      | 0.88 | 
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     
|                                      | Pro Forma   |      | $                           | 0.13 |                           |      | $     | 0.38 |  |   | $      | 0.69 |  |   | $      | 0.84 | 
|                                      |             |      |                             |      |                           |      |       |      |  |   |        |      |  |   |        |     



|11. |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On April 30, 2002, U.S. Bank, N.A. d/b/a Firstar Bank (Firstar), a bank to
which one of the Companys insurance subsidiaries, Philadelphia Indemnity
Insurance Company (PIIC), issued insurance coverages, filed a complaint
against PIIC in the United States District Court for the Southern District
of Ohio (Western Division). This matter was reported in Part II, Item 1 of
the Companys Form 10-Q for the period ended June 30, 2002. Firstar
subsequently has requested that the court permit Firstar to amend its
complaint against PIIC, which amended complaint would add a bad faith claim
for compensatory damages and punitive damages in three times the amount of
any compensatory damage award. Firstars original complaint indicated that
its projected damage estimates exceed $75.0 million. The proposed amended
complaint does not specify the amount of Firstars alleged or projected
damages. The Court has not ruled on Firstars request to amend its
complaint.
|   
|    |  | On July 30, 2003 PIIC requested the court to allow PIIC to file a
counterclaim to Firstars complaint against PIIC seeking money damages and
equitable relief relating to certain residual value insurance policies
issued by PIIC to Firstar for policy years 1994, 1995, 1996, 1997 and 1998,
as a result of material misrepresentations by Firstar in its applications
for residual value insurance coverage. The counterclaim seeks money damages
representing the amount of claim payments to date under the policies, less
the amount of premium paid by Firstar, and a declaratory judgment that PIIC
has no obligation to pay pending or future claims arising under the
policies. The Court has not ruled on PIICs request to file a counterclaim
to Firstars complaint.                                                                                                                                                                                                               
|   
|    |  | The Company has not recorded a litigation reserve with respect to the
Firstar complaint.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | The Company is subject to routine legal proceedings in connection with its
property and casualty insurance business. The Company is not involved in
any other pending or threatened legal or administrative proceedings which
management believes can reasonably be expected to have a material adverse
effect on the Companys financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|12. |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Components of comprehensive income, as detailed in the Consolidated
Statements of Operations and Comprehensive Income, are net of tax. The
related tax effect of Holding Gains arising during the three and six                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

10



---



##### 





|    |  | months ended June 30, 2003 and 2002 was $3.6 million and $2.9
million, respectively and $1.5 million and $0.7 million, respectively. The
related tax effect of Reclassification Adjustments for the three and six
months ended June 30, 2003 and 2002 was $0.2 million and $1.1 million,
respectively and $0.6 million and $1.1 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|13. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Companys operations are classified into three reportable business
segments which are organized around its three underwriting divisions: The
Commercial Lines Underwriting Group, which has underwriting responsibility
for the Commercial Automobile and Commercial Property and Commercial
multi-peril package insurance products; The Specialty Lines Underwriting
Group, which has underwriting responsibility for the professional liability
insurance products; and The Personal Lines Group, which designs, markets and
underwrites personal property and casualty insurance products for the
Manufactured Housing and Homeowners markets. Each business segments
responsibilities include: pricing, managing the risk selection process and
monitoring the loss ratios by product and insured. The reportable segments
operate solely within the United States and have not been aggregated.                 
|   
|    |  | The segments follow the same accounting policies used for the Companys
consolidated financial statements as described in the summary of significant
accounting policies. Management evaluates a segments performance based
upon premium production and the associated loss experience which includes
paid losses, an amount determined on the basis of claim adjusters
evaluation with respect to insured events that have occurred and an amount
for losses incurred that have not been reported. Investments and investment
performance including investment income and net realized investment gain
(loss), acquisition costs and other underwriting expenses including
commissions, premium taxes and other acquisition costs, and other operating
expenses are managed at a corporate level by the corporate accounting
function in conjunction with other corporate departments, and are included
in Corporate.
|   
|    |  | Following is a tabulation of business segment information for the six and
three months ended June 30, 2003 and 2002. Corporate information is
included to reconcile segment data to the consolidated financial statements
(in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

11



---



##### 



|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |         |  
|-------------------------- | ------------------------------------------------- | - | ----------------- | ------- | --------- | - | -------- | ------ | --------- | - | ------- | ------ |  | - | --------- | ------ | - | - | --------- | ------- | -
|                           |                                                   |   | Six Months Ended,
|                           |                                                   |   |                  
|                           |                                                   |   | Commercial        |         | Specialty |   | Personal |        |           |   |         |        |  |   |          
|                           |                                                   |   | Lines             |         | Lines     |   | Lines    |        | Corporate |   | Total  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |        
|June 30, 2003:             |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Gross Written Premiums     |                                                   | $ | 281,702           |         |           | $ | 71,747   |        |           | $ | 50,740  |        |  |   |          |        |   | $ | 404,189   |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Net Written Premiums       |                                                   | $ | 184,443           |         |           | $ | 47,139   |        |           | $ | 18,270  |        |  |   |          |        |   | $ | 249,852   |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Revenue:                   |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Net Earned Premiums                               |   | $                 | 199,226 |           |   | $        | 52,335 |           |   | $       | 18,250 |  |   |           |       |   |   | $         | 269,811 |  
|                           | Net Investment Income                             |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | 19,175 |   |   |           | 19,175  |  
|                           | Net Realized Investment Loss                      |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | (1,783 | ) |   |           | (1,783  | )
|                           | Other Income                                      |   |                   |        |           |   |          |       |           |   |         | 1,554  |  |   |           | 147    |   |   |           | 1,701   |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Total Revenue                                     |   |                   | 199,226 |           |   |          | 52,335 |           |   |         | 19,804 |  |   |           | 17,539 |   |   |           | 288,904 |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Losses and Expenses:       |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Net Loss and Loss Adjustment Expenses             |   |                   | 141,080 |           |   |          | 31,993 |           |   |         | 10,313 |  |   |           |       |   |   |           | 183,386 |  
|                           | Acquisition Costs and Other Underwriting
Expenses |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | 78,578 |   |   |           | 78,578  |  
|                           | Other Operating Expenses                          |   |                   |        |           |   |          |       |           |   |         | 1,058  |  |   |           | 2,248  |   |   |           | 3,306   |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Total Losses and Expenses                         |   |                   | 141,080 |           |   |          | 31,993 |           |   |         | 11,371 |  |   |           | 80,826 |   |   |           | 265,270 |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Income Before Income Taxes |                                                   |   | 58,146            |         |           |   | 20,342   |        |           |   | 8,433   |        |  |   | (63,287   | )      |   |   | 23,634    |        
|Total Income Tax Expense   |                                                   |   |                  |         |           |   |         |        |           |   |        |        |  |   | 6,774     |        |   |   | 6,774     |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Net Income                 |                                                   | $ | 58,146            |         |           | $ | 20,342   |        |           | $ | 8,433   |        |  | $ | (70,061   | )      |   | $ | 16,860    |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Total Assets               |                                                   |   |                  |         |           |   |         |        |           | $ | 251,054 |        |  | $ | 1,385,373 |        |   | $ | 1,636,427 |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|June 30, 2002:             |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Gross Written Premiums     |                                                   | $ | 199,029           |         |           | $ | 52,324   |        |           | $ | 45,894  |        |  |   |          |        |   | $ | 297,247   |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Net Written Premiums       |                                                   | $ | 161,202           |         |           | $ | 48,488   |        |           | $ | 25,169  |        |  |   |          |        |   | $ | 234,859   |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Revenue:                   |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Net Earned Premiums                               |   | $                 | 131,346 |           |   | $        | 39,408 |           |   | $       | 18,763 |  |   |           |       |   |   | $         | 189,517 |  
|                           | Net Investment Income                             |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | 18,230 |   |   |           | 18,230  |  
|                           | Net Realized Investment Loss                      |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | (3,134 | ) |   |           | (3,134  | )
|                           | Other Income                                      |   |                   |        |           |   |          |       |           |   |         | 922    |  |   |           | (906   | ) |   |           | 16      |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Total Revenue                                     |   |                   | 131,346 |           |   |          | 39,408 |           |   |         | 19,685 |  |   |           | 14,190 |   |   |           | 204,629 |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Losses and Expenses:       |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Net Loss and Loss Adjustment Expenses             |   |                   | 81,266  |           |   |          | 23,153 |           |   |         | 9,462  |  |   |           |       |   |   |           | 113,881 |  
|                           | Acquisition Costs and Other Underwriting
Expenses |   |                   |        |           |   |          |       |           |   |         |       |  |   |           | 58,878 |   |   |           | 58,878  |  
|                           | Other Operating Expenses                          |   |                   |        |           |   |          |       |           |   |         | 62     |  |   |           | 2,876  |   |   |           | 2,938   |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|                           | Total Losses and Expenses                         |   |                   | 81,266  |           |   |          | 23,153 |           |   |         | 9,524  |  |   |           | 61,754 |   |   |           | 175,697 |  
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Income Before Income Taxes |                                                   |   | 50,080            |         |           |   | 16,255   |        |           |   | 10,161  |        |  |   | (47,564   | )      |   |   | 28,932    |        
|Total Income Tax Expense   |                                                   |   |                  |         |           |   |         |        |           |   |        |        |  |   | 9,302     |        |   |   | 9,302     |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Net Income                 |                                                   | $ | 50,080            |         |           | $ | 16,255   |        |           | $ | 10,161  |        |  | $ | (56,866   | )      |   | $ | 19,630    |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        
|Total Assets               |                                                   |   |                  |         |           |   |         |        |           | $ | 193,830 |        |  | $ | 935,640   |        |   | $ | 1,129,470 |        
|                           |                                                   |   |                   |         |           |   |          |        |           |   |         |        |  |   |           |        |   |   |           |        

12



---



##### 



|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |         |  
|-------------------------- | ------------------------------------------------- | - | ------------------- | ------ | --------- | - | -------- | ------ | --------- | - | ------- | ----- |  | - | --------- | ------ | - | - | --------- | ------- | -
|                           |                                                   |   | Three Months Ended,
|                           |                                                   |   |                    
|                           |                                                   |   | Commercial          |        | Specialty |   | Personal |        |           |   |         |       |  |   |          
|                           |                                                   |   | Lines               |        | Lines     |   | Lines    |        | Corporate |   | Total  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |        
|June 30, 2003:             |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Gross Written Premiums     |                                                   | $ | 151,464             |        |           | $ | 33,701   |        |           | $ | 25,742  |       |  |   |          |        |   | $ | 210,907   |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Net Written Premiums       |                                                   | $ | 61,944              |        |           | $ | 11,967   |        |           | $ | 4,292   |       |  |   |          |        |   | $ | 78,203    |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Revenue:                   |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Net Earned Premiums                               |   | $                   | 89,553 |           |   | $        | 23,632 |           |   | $       | 8,264 |  |   |           |       |   |   | $         | 121,449 |  
|                           | Net Investment Income                             |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | 9,370  |   |   |           | 9,370   |  
|                           | Net Realized Investment Loss                      |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | (650   | ) |   |           | (650    | )
|                           | Other Income                                      |   |                     |       |           |   |          |       |           |   |         | 974   |  |   |           | 66     |   |   |           | 1,040   |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Total Revenue                                     |   |                     | 89,553 |           |   |          | 23,632 |           |   |         | 9,238 |  |   |           | 8,786  |   |   |           | 131,209 |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Losses and Expenses:       |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Net Loss and Loss Adjustment Expenses             |   |                     | 75,142 |           |   |          | 13,352 |           |   |         | 4,532 |  |   |           |       |   |   |           | 93,026  |  
|                           | Acquisition Costs and Other Underwriting
Expenses |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | 32,158 |   |   |           | 32,158  |  
|                           | Other Operating Expenses                          |   |                     |       |           |   |          |       |           |   |         | 733   |  |   |           | 899    |   |   |           | 1,632   |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Total Losses and Expenses                         |   |                     | 75,142 |           |   |          | 13,352 |           |   |         | 5,265 |  |   |           | 33,057 |   |   |           | 126,816 |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Income Before Income Taxes |                                                   |   | 14,411              |        |           |   | 10,280   |        |           |   | 3,973   |       |  |   | (24,271   | )      |   |   | 4,393     |        
|Total Income Tax Expense   |                                                   |   |                    |        |           |   |         |        |           |   |        |       |  |   | 766       |        |   |   | 766       |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Net Income                 |                                                   | $ | 14,411              |        |           | $ | 10,280   |        |           | $ | 3,973   |       |  | $ | (25,037   | )      |   | $ | 3,627     |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Total Assets               |                                                   |   |                    |        |           |   |         |        |           | $ | 251,054 |       |  | $ | 1,385,373 |        |   | $ | 1,636,427 |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|June 30, 2002:             |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Gross Written Premiums     |                                                   | $ | 108,471             |        |           | $ | 27,895   |        |           | $ | 24,414  |       |  |   |          |        |   | $ | 160,780   |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Net Written Premiums       |                                                   | $ | 86,340              |        |           | $ | 25,715   |        |           | $ | 13,305  |       |  |   |          |        |   | $ | 125,360   |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Revenue:                   |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Net Earned Premiums                               |   | $                   | 70,275 |           |   | $        | 20,474 |           |   | $       | 9,524 |  |   |           |       |   |   | $         | 100,273 |  
|                           | Net Investment Income                             |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | 9,375  |   |   |           | 9,375   |  
|                           | Net Realized Investment Loss                      |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | (3,181 | ) |   |           | (3,181  | )
|                           | Other Income                                      |   |                     |       |           |   |          |       |           |   |         | 352   |  |   |           | (337   | ) |   |           | 15      |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Total Revenue                                     |   |                     | 70,275 |           |   |          | 20,474 |           |   |         | 9,876 |  |   |           | 5,857  |   |   |           | 106,482 |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Losses and Expenses:       |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Net Loss and Loss Adjustment Expenses             |   |                     | 44,609 |           |   |          | 11,487 |           |   |         | 4,736 |  |   |           |       |   |   |           | 60,832  |  
|                           | Acquisition Costs and Other Underwriting
Expenses |   |                     |       |           |   |          |       |           |   |         |      |  |   |           | 31,057 |   |   |           | 31,057  |  
|                           | Other Operating Expenses                          |   |                     |       |           |   |          |       |           |   |         | 43    |  |   |           | 1,411  |   |   |           | 1,454   |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|                           | Total Losses and Expenses                         |   |                     | 44,609 |           |   |          | 11,487 |           |   |         | 4,779 |  |   |           | 32,468 |   |   |           | 93,343  |  
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Income Before Income Taxes |                                                   |   | 25,666              |        |           |   | 8,987    |        |           |   | 5,097   |       |  |   | (26,611   | )      |   |   | 13,139    |        
|Total Income Tax Expense   |                                                   |   |                    |        |           |   |         |        |           |   |        |       |  |   | 4,186     |        |   |   | 4,186     |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Net Income                 |                                                   | $ | 25,666              |        |           | $ | 8,987    |        |           | $ | 5,097   |       |  | $ | (30,797   | )      |   | $ | 8,953     |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        
|Total Assets               |                                                   |   |                    |        |           |   |         |        |           | $ | 193,830 |       |  | $ | 935,640   |        |   | $ | 1,129,470 |        
|                           |                                                   |   |                     |        |           |   |          |        |           |   |         |       |  |   |           |        |   |   |           |        

13



---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

General

Although the Companys financial performance is dependent upon its own specific
business characteristics, certain risk factors can affect the profitability of
the Company. These include, but are not limited to:



| |  | Industry factors - Historically the financial performance of the
property and casualty insurance industry has tended to fluctuate in
cyclical patterns of soft markets followed by hard markets. The
Companys strategy is to focus on underwriting profits, and
accordingly the Companys marketing organization is being directed
into those niche businesses that exhibit the greatest potential for
underwriting profits.                                                                                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Competition - The Company competes in the property and casualty
business with other domestic and international insurers having greater
financial and other resources than the Company.                                                                                                                                                                                                                                                                                                                                                                                             
| 
| |  | Regulation - The Companys insurance subsidiaries are subject to a
substantial degree of regulatory oversight, which generally is
designed to protect the interests of policyholders, as opposed to
shareholders.                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | Inflation - Property and casualty insurance premiums are established
before the amount of losses and loss adjustment expenses, or the
extent to which inflation may affect such amounts is known.                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | Investment Risk - Substantial future increases in interest rates could
result in a decline in the market value of the Companys investment
portfolio and resulting losses and/or reduction in shareholders
equity.                                                                                                                                                                                                                                                                                                                                                                
| 
| |  | Claims development and the process of estimating loss reserves -
Estimating the Companys ultimate liability for unpaid loss and loss
adjustment expenses is necessarily a complex and judgmental process,
inasmuch as the amounts of any ultimate liability of the Company with
respect to such claims are based on managements informed estimates
and judgments using data currently available.                                                                                                                                                                                 
| 
| |  | Catastrophe Exposure - The Companys insurance subsidiaries issue
insurance policies which provide coverage for commercial and personal
property and casualty risks. It is possible that a catastrophic event
could greatly increase claims under the insurance policies the
insurance subsidiaries issue. Catastrophes may result from a variety
of events or conditions, including hurricanes, windstorms,
earthquakes, hail and other severe weather conditions and may include
terrorist events. It is possible that a catastrophic event could
adversely impact profitability.
| 
| |  | Reinsurance - The adequacy of reinsurance coverage which may be
obtained by the Company and the ability and willingness of the
Companys reinsurers to pay.                                                                                                                                                                                                                                                                                                                                                                                                                        

The above risk factors should be read in conjunction with the Certain Critical
Accounting Estimates and Judgments included in the Companys Annual Report on
Form 10-K For the fiscal year ended December 31, 2002.

Investments

The Companys investment objective is the realization of relatively high levels
of investment income while generating competitive after-tax total rates of
return within a prudent level of risk and within the constraints of maintaining
adequate securities in amount and duration to meet cash requirements of current
operations and long-term liabilities, as well as maintaining and improving the
Companys A.M. Best rating. The Company utilizes external independent
professional investment managers for its fixed maturity and equity investments.
These investments consist of diversified issuers and issues, and as of June 30, 2003,
approximately 88.9% and 5.9% of the total invested assets (total investments
plus cash equivalents) on a cost basis consisted of investments in fixed
maturity and equity securities, respectively, versus 90.2% and 5.6%,
respectively, at December 31, 2002.

14



---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

During 2003 the relative percentage investment in tax-exempt fixed maturity
securities versus taxable fixed maturity securities increased due to the
Company taking advantage of the more favorable after-tax yields. As of June 30,
2003, on a cost basis, investment grade tax-exempt fixed maturity securities
represented 31.2% of the total invested assets, compared to 30.3% as December
31, 2002.

Collateralized mortgage and asset backed securities, on a cost basis, amounted
to $95.8 million and $311.6 million, respectively, as of June 30, 2003, and
$89.2 and $284.1, respectively, as of December 31 2002. The collateralized
mortgage and asset backed investments are shorter tranche securities possessing
favorable prepayment risk profiles.

The Company regularly performs various analytical procedures with respect to
its investments, including identifying any security whose fair value is below
its cost. Upon identification of such securities, a detailed review is
performed for all securities, except interests in securitized assets, meeting
predetermined thresholds, to determine whether such decline is other than
temporary. If the Company determines a decline in value to be other than
temporary, based upon its detailed review, or if a decline in value for an
equity investment has persisted continuously for nine months the cost basis of
the security is written down to its fair value. The factors considered in
reaching the conclusion that a decline below cost is other-than-temporary
include, but are not limited to, whether: the issuer is in financial distress;
the investment is secured; a significant credit rating action has occurred;
scheduled interest payments have been delayed or missed; or changes in laws
and/or regulations have impacted an issuer or industry. The amount of any
write down is included in earnings as a realized loss in the period the
impairment arose. This evaluation resulted in non-cash realized investment
losses of $0 million for the three months ended June 30, 2003 and 2002 and $0.9
million and $0 million, respectively, for the six months ended June 30, 2003
and 2002. The $0.9 million in non-cash realized investment losses resulted
from other than temporary declines in the fair value of certain holdings in the
Companys common stock portfolio. The Company primarily attributes these other
than temporary declines in fair value to an uncertain economic climate, the
overhang of corporate governance issues, high profile bankruptcies and the
recent war with Iraq.

Additionally, the Company conducts its impairment evaluation and recognition
for interests in securitized assets in accordance with the guidance provided by
the Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF). Under this guidance, impairment losses on securities must be
recognized if both the fair value of the security is less than its book value
and the net present value of expected future cash flows is less than the net
present value of expected future cash flows at the most recent (prior)
estimation date. If these criteria are met, an impairment charge, calculated
as the difference between the current book value of the security and its fair
value, is included in earnings as a realized loss in the period the impairment
arose. This evaluation resulted in non-cash realized investment losses of $1.6
million and $1.2 million, respectively, and $2.3 million and $1.2 million,
respectively, for the three and six months ended June 30, 2003 and 2002,
respectively. These non-cash realized investment losses were primarily due to
investments in collateralized bond obligations as a result of the current
historical highs in non-investment grade default rates.

The Companys fixed maturity portfolio amounted to $1,000.6 million and $854.5
million, as of June 30, 2003 and December 31, 2002, respectively, of which
98.6% of the portfolio is comprised of investment grade securities. Since the
fourth quarter of 2001, U.S. investment grade securities have experienced
varying price and ratings volatility, having been affected by the uncertain
economic climate following the September 11, 2001 terrorist attacks, the
corporate governance issues following the Enron scandal, and the subsequent
stream of corporate scandals and high profile bankruptcies. While these
circumstances have the potential to impact investment grade securities, the
high quality of the Companys overall AA+ rated fixed maturity portfolio and
the decline in interest rates have mitigated potential volatility. The Company
had fixed maturity investments with unrealized losses amounting to $12.8
million and $9.2 million as of June 30, 2003 and December 31, 2002,
respectively. Of this amount, interests in securitized assets had unrealized
losses amounting to $11.3 million and $7.3 million as of June
30, 2003 and December 31, 2002, respectively, and investments in aircraft
collateralized Enhanced Equipment Trust Certificates (EETCs) had unrealized
losses amounting to $0.7 and $1.3 million as of June 30, 2003 and December 31,
2002, respectively. As discussed above, the Companys impairment evaluation
and recognition for interests in securitized assets is conducted in accordance
with the guidance provided by the EITF. With respect to the EETCs, these
investments are current on interest and sinking fund payments, and are
subjected to a quarterly impairment

15



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

review which includes performing a
liquidation collateral analysis that incorporates various stress scenarios
impacting the securitys implied loan-to-value levels.

The following table identifies the period of time securities with an unrealized
loss at June 30, 2003 have continuously been in an unrealized loss position.
Included in the amounts shown in the table are $9.0 million of unrealized
losses due to non-investment grade fixed maturity securities having a fair
value of $13.8 million. No issuer of securities or industry represents more
than 5.3% and 7.8%, respectively, of the total estimated fair value, or 22.6%
and 32.6%, respectively, of the total gross unrealized loss included in the
table below. As previously discussed, there are certain risks and
uncertainties inherent in the Companys impairment methodology. Should the
Company subsequently determine a decline in the fair value below the cost basis
to be other than temporary, the security would be written down to its fair
value and the difference would be included in earnings as a realized loss for
the period such determination was made.

|                                                                |  |                         |      |                    |  |                    |      |                   |  |                   |       |  |  |   |      |  |  |   |       | 
|--------------------------------------------------------------- |  | ----------------------- | ---- | ------------------ |  | ------------------ | ---- | ----------------- |  | ----------------- | ----- |  |  | - | ---- |  |  | - | ----- | 
|                                                                |  | Gross Unrealized Losses
|                                                                |  | (in millions)          
|                                                                |  |                        
|                                                                |  | Fixed Maturities        |      |                    |  |                    |      |                   |  |                   |       |  |  |   |      |  |  |  
|Continuous                                                      |  | Available for Sale      |      |                    |  |                    |      | Total             |  |                   |       |  |  |   |      | 
|time in unrealized                                              |  | Excluding Interests     |      | Interests in       |  | Fixed Maturities   |      |                   |  |                   |       |  |  |  
|loss position                                                   |  | in Securitized Assets   |      | Securitized Assets |  | Available for Sale |      | Equity Securities |  | Total Investments
|                                                                |  |                         |      |                    |  |                    |      |                   |  |                  
|0 - 3 months                                                    |  | $                       | 0.3  |                    |  | $                  | 1.2  |                   |  | $                 | 1.5   |  |  | $ | 0.1  |  |  | $ | 1.6   | 
|4 - 6 months                                                    |  |                         |     |                    |  |                    |     |                   |  |                   |      |  |  |   | 0.2  |  |  |   | 0.2   | 
|7 - 9 months                                                    |  |                         |     |                    |  |                    | 0.2  |                   |  |                   | 0.2   |  |  |   | 0.2  |  |  |   | 0.4   | 
|10 - 12 months                                                  |  |                         |     |                    |  |                    | 1.8  |                   |  |                   | 1.8   |  |  |   |     |  |  |   | 1.8   | 
|13 - 18 months                                                  |  |                         |     |                    |  |                    | 6.5  |                   |  |                   | 6.5   |  |  |   |     |  |  |   | 6.5   | 
|19 - 24 months                                                  |  |                         | 1.2  |                    |  |                    | 0.1  |                   |  |                   | 1.3   |  |  |   |     |  |  |   | 1.3   | 
|> 24 months                                                     |  |                         |     |                    |  |                    | 1.5  |                   |  |                   | 1.5   |  |  |   |     |  |  |   | 1.5   | 
|                                                                |  |                         |      |                    |  |                    |      |                   |  |                   |       |  |  |   |      |  |  |   |       | 
|Total Gross
Unrealized Losses                                   |  | $                       | 1.5  |                    |  | $                  | 11.3 |                   |  | $                 | 12.8  |  |  | $ | 0.5  |  |  | $ | 13.3  | 
|                                                                |  |                         |      |                    |  |                    |      |                   |  |                   |       |  |  |   |      |  |  |   |       | 
|Estimated fair
value of securities
with a gross
unrealized loss |  | $                       | 39.5 |                    |  | $                  | 96.9 |                   |  | $                 | 136.4 |  |  | $ | 15.2 |  |  | $ | 151.6 | 
|                                                                |  |                         |      |                    |  |                    |      |                   |  |                   |       |  |  |   |      |  |  |   |       | 

The following table presents certain information with respect to individual
securities with a significant unrealized loss position as of June 30, 2003.

|                                  |  |                                           |                                                 |                |  |                 |      |  |  |   |     | 
|--------------------------------- |  | ----------------------------------------- | ----------------------------------------------- | -------------- |  | --------------- | ---- |  |  | - | --- | 
|                                  |  | Significant Unrealized Losses by Security |                                                 |                |  |                 |      |  |  |  
|                                  |  |                                           |                                                 |                |  |                 |      |  |  |  
|                                  |  | (in millions)                             |                                                 |                |  |                 |      |  |  |  
|Issuer                            |  | Security Type                             |                                                 | Carrying Value |  | Unrealized Loss
|                                  |  |                                           |                                                 |                |  |                
|Alliance CAP FDG CLO A-3 144A     |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  | $               | 3.4  |  |  | $ | 0.5 | 
|Continental Airlines 2000-1-C-2   |  |                                           | Fixed Maturity                                  |                |  |                 | 2.3  |  |  |   | 0.7 | 
|Conseco Fin SEC Corp 2000-4ml     |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  |                 | 0.9  |  |  |   | 1.2 | 
|Conseco Fin SEC Corp SER 2000-4ml |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  |                 | 0.3  |  |  |   | 0.9 | 
|Greentree Financial Corp. 99-2 B1 |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  |                 | 0.6  |  |  |   | 2.3 | 
|Nextcard CRCN MNT 2001-1 CLB144A  |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  |                 | 2.0  |  |  |   | 3.0 | 
|Waterside Loan TR JR NT CLO 144A  |  |                                           | Fixed Maturity - Interest in Securitized Assets |                |  |                 | 2.2  |  |  |   | 0.8 | 
|                                  |  |                                           |                                                 |                |  |                 |      |  |  |   |     | 
|                                  |  |                                           |                                                 |                |  | $               | 11.7 |  |  | $ | 9.4 | 
|                                  |  |                                           |                                                 |                |  |                 |      |  |  |   |     | 

For the six months ended June 30, 2003 the Companys gross loss on the sale of
fixed maturity and equity securities amounted to $0.1 million and $0.7 million,
respectively. The fair value of the fixed maturity and equity securities at

16



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

the time of sale was $1.5 million and $3.4 million, respectively. During the
three months ended June 30, 2003 the Companys gross loss on the sale of fixed
maturity and equity securities amounted to $0.1 million and $0.2 million,
respectively. The fair value of the fixed maturity and equity securities at
the time of sale was $1.5 million and $2.0 million, respectively. The decision
to sell these securities was based upon managements assessment of economic
conditions, and with respect to the equity security sales, the desire to limit
investment exposure to the equity market based upon this assessment.

Results of Operations (Six Months ended June 30, 2003 vs. June 30, 2002)

Premiums:Gross written premiums grew $107.0 million (36.0%) to $404.2
million for the six months ended June 30, 2003 from $297.2 million for the same
period of 2002; gross earned premiums grew $102.7 million (41.0%) to $353.2
million for the six months ended June 30, 2003 from $250.5 million for the same
period of 2002; net written premiums increased $15.0 million (6.4%) to $249.9
million for the six months ended June 30, 2003 from $234.9 million for the same
period of 2002; and net earned premiums grew $80.3 million (42.4%) to $269.8
million in 2003 from $189.5 million in 2002.

The respective gross written premium increases for commercial lines, specialty
lines and personal lines segments for the six months ended June 30, 2003 vs.
June 30, 2002 amount to $82.7 million (41.5%), $19.4 million (37.1%) and $4.9
million (10.6%), respectively. The overall growth in gross written premiums is
primarily attributable to the following:



| |  | Further rating downgrades of certain major competitor property and
casualty insurance companies have led to their diminished presence in
the Companys commercial and specialty lines business segments and
continue to result in additional prospects and increased premium
writings, most notably for the Companys various commercial package
and non-profit D&O product lines.                                                                                                                                                                                                                                                                                  
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The displacement of certain competitor property and casualty insurance
companies and their independent agency relationships continues to
result in new agency relationship opportunities for the Company.
These relationship opportunities have resulted in additional
policyholders and premium writings for the Companys commercial and
specialty lines segments.                                                                                                                                                                                                                                                                                                
| 
| |  | Continued expansion of marketing efforts relating to commercial lines
and specialty lines products through the Companys field organization
and preferred agents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | As a result of firming prices in the property and casualty industry,
rate increases on renewal business have approximated 6.0%, 14.2%, and
9.0% for the commercial, specialty and the personal lines segments,
respectively. Additionally, in-force policy counts have increased
27.1% and 29.3% for the commercial and specialty lines segments,
respectively, primarily as a result of the factors discussed above.
Policy counts have decreased approximately 1.0% for the personal lines
segment as a result of restricting new business and not renewing
certain business to manage overall property exposures and the related
catastrophe loss considerations.

The respective net written premium increases (decreases) for commercial lines,
specialty lines and personal lines segments for the six months ended June 30,
2003 vs. June 30, 2002 amount to $23.2 million (14.4%), ($1.3) million (-2.8%)
and ($6.9) million (-27.4%) respectively. The differing percentage changes in
net written premiums versus gross written premiums for the commercial lines
segment during the period results from:



| |  | The Company entering into a Quota Share reinsurance agreement (effective
April 1, 2003) covering all of the Companys lines of business. Under
this agreement, the Company cedes 22% of its net written premium
(including 22% of net unearned premium reserves at April 1, 2003) and loss
and loss adjustment expenses. The Company also receives a provisional
commission of 33.0% adjusted pro-rata based upon the ratio of losses
incurred to premiums earned. Pursuant to this reinsurance agreement the
Company withholds the reinsurance premium reduced by the reinsurers expense
allowance, and the Companys ceding commission allowance in a Funds Held
Payable to Reinsurer account. This Funds Held Payable to Reinsurer account is
also reduced by ceded paid losses and loss adjustment expenses under this
agreement, and increased by an interest credit.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)



|  |  | During the six months ended
June 30, 2003, the Company ceded $103.6 million of written premium, which
included unearned premium reserves of $63.6 million at April 1, 2003.                                                                                                                               
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Lower reinsurance costs (ceded premiums) as a result
of increasing the Companys loss retention from $0.5
million to $2.0 million on its commercial lines
per-risk property reinsurance treaty and from $0.9
million to $1.0 million on its excess liability
reinsurance treaty effective January 1, 2003.

Net Investment IncomeNet investment income approximated $19.2 million for
the six months ended June 30, 2003 and $18.2 million for the same period of
2002. Total investments grew to $1,071.7 million at June 30, 2003 from $768.9
million at June 30, 2002. The growth in investment income is due to investing
net cash flows provided from operating activities The capital market
environment during most of 2002 and 2003 (low U.S. Treasury yields) had the
effect of increasing the level of prepayments in certain of the Companys
interest rate sensitive investments. The Companys average duration of its
fixed income portfolio approximated 3.2 years at June 30, 2003, compared to 3.5
years at June 30, 2002. Additionally, due to the capital market environment,
the Company has invested approximately $59.7 million in overall AAA rated
floating rate and shorter amortizing securities to reduce interest rate risk
with the expectation of reinvesting these funds into longer duration
investments at higher future fixed income rates. The Companys tax equivalent
book yield on its fixed income holdings was 4.8% at June 30, 2003, compared to
6.2% at June 30, 2002. Net investment income was reduced by $0.5 million due
to the interest credit on the Funds Held Account balance pursuant to the
Companys quota share reinsurance agreement (see Premiums).

The total return, which includes the effect of realized and unrealized gains
and losses, of the Companys fixed income portfolio was 2.68% and 4.11% for the
six months ended June 30, 2003 and 2002, respectively, versus the Lehman
Brothers Intermediate Aggregate Bond Index (the Index) total return of 3.18%
and 3.92% for the same periods, respectively. The performance during the six
months ended June 30, 2003 differed from the Index primarily due to recording
of non-cash realized investment losses as a result of the Companys impairment
evaluation (see Investments).

Net Realized Investment Loss:Net realized investment losses were $1.8
million for the six months ended June 30, 2003 and $3.1 million for the same
period in 2002. The Company realized net investment gains of $1.3 million and
$0.1 million from the sale of fixed maturity and equity securities,
respectively, for the six months ended June 30, 2003, and $2.3 million and $0.9
million in non-cash realized investment losses for fixed maturity and common
stock investments, respectively, as a result of the Companys impairment
evaluation. The Company realized net investment losses of $1.9 million
principally from the sales of common stock equity securities and $1.2 million
in non-cash realized investment losses for fixed maturity investments as a
result of the Companys impairment evaluation during the six months ended June
30, 2002.

Other
Income: Other income approximated $1.7 million for the six months
ended June 30, 2003 and $16,000 for the same period of 2002. Other income
primarily consists of commissions earned on brokered personal lines business,
and to a lesser extent brokered commercial lines business. The Company is
seeking to increase brokering activities in its personal lines segment as it is
restricting new business and not renewing certain policies in designated areas
of Florida as a result of its property exposures in these areas and related
catastrophe loss considerations.

Net Loss and Loss Adjustment Expenses:Net loss and loss adjustment
expenses increased $69.5 million (61.0%) to $183.4 million for the six months
ended June 30, 2003 from $113.9 million for the same period of 2002 and the
loss ratio increased to 68.0% in 2003 from 60.0% in 2002. This increase in net
loss and loss adjustment expenses was due to the 42.4% growth in net earned
premiums, and to the Company increasing the estimated gross and net loss for
unreported claims incurred and related claim adjustment expenses on residual
value polices issued during the years 1998 through 2002 by $33.0 million to $59.8 million and
$57.9 million, respectively. As of March 31, 2003 the Company had estimated a
total liability for unpaid loss and loss adjustment expenses for these policies
of $47.4 million ($40.0 million net of reinsurance). The residual value
policies provide coverage guaranteeing the value of a leased automobile at the
lease termination, which can be up to five years from lease inception. Adverse

18



---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

trends further deteriorated in both frequency and severity on leases expiring
in 2003. As part of the Companys monitoring and evaluation process, a
consulting firm was engaged during the second quarter of 2003 to aid in
evaluating the ultimate potential loss exposure under these policies. Based
upon the result of the indications and subsequent evaluation by the Company and
changes in the Companys assumptions relating to future frequency and severity
of losses, the estimate for unpaid loss and loss adjustment expenses was
increased. The Company primarily attributes this deterioration to the
following factors that led to a softening of prices in the used car market
subsequent to the September 11, 2001 terrorist attacks: prolonged 0% new car
financing rates and other incentives which increased new car sales and the
volume of trade-ins, daily rental units being sold into the market earlier and
in greater numbers than expected further adding to the oversupply of used cars;
and the overall general economic conditions. As of June 30, 2003,
approximately 61,000 leases were outstanding under the Companys residual value
policies. The Company is projecting a 42% loss frequency and average loss of
approximately $2,300 per claim with respect to these leases.

Additionally, during the period the Company ceded $19.0 million in net loss and
loss adjustment expenses pursuant to the quota share reinsurance agreement (see
Premiums) and decreased the gross and net liability for unpaid loss and loss
adjustment expenses for accident year 2002, principally in the property line of
its commercial package products, by approximately $9.0 million due to better
than expected loss experience.

Acquisition Costs and Other Underwriting Expenses:Acquisition costs and
other underwriting expenses increased $19.7 million (33.4%) to $78.6 million
for the six months ended June 30, 2003 from $58.9 million for the same period
of 2002. This increase was due primarily to the 42.4% growth in net earned
premiums. During the period the Company ceded $34.8 million of net earned
premium and earned $13.3 million in ceding commission under the quota share
reinsurance agreement (see Premiums).

Other
Operating Expenses: Other operating expenses increased $0.4 million
to $3.3 million for the six months ended June 30, 2003 from $2.9 million for
the same period of 2002 as the Company continues to control its expenses.

Income Tax Expense:The Companys effective tax rate for the six months
ended June 30, 2003 and 2002 was 28.7% and 32.2%, respectively. The effective
rates differed from the 35% statutory rate principally due to investments in
tax-exempt securities. The decrease in the effective tax rate is principally
due to a greater investment of cash flows in tax-exempt securities relative to
taxable securities.

Results of Operations (Three Months ended June 30, 2003 vs. June 30, 2002)

Premiums:Gross written premiums grew $50.1 million (31.2%) to $210.9
million for the three months ended June 30, 2003 from $160.8 million for the
same period of 2002; gross earned premiums grew $48.9 million (37.2%) to $180.2
million for the three months ended June 30, 2003 from $131.3 million for the
same period of 2002; net written premiums decreased $47.2 million (37.6%) to
$78.2 million for the three months ended June 30, 2003 from $125.4 million for
the same period of 2002; and net earned premiums grew $21.1 million (21.0%) to
$121.4 million in 2003 from $100.3 million in 2002.

The respective gross written premium increases for commercial lines, specialty
lines and personal lines segments for the three months ended June 30, 2003 vs.
June 30, 2002 amount to $43.0 million (39.6%), $5.8 million (20.8%) and $1.3
million (5.4%), respectively. The overall growth in gross written premiums is
primarily attributable to the following:



| |  | Further rating downgrades of certain major competitor property and
casualty insurance companies have led to their diminished presence in the
Companys commercial and specialty lines business segments and continue to
result in additional prospects and increased premium writings, most notably for
the Companys various commercial package and non-profit D&O product lines.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The displacement of certain competitor property and
casualty insurance companies and their independent
agency relationships continues to result in new
agency relationship opportunities for the Company.
These                                                                                                                                                                   

19



---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)



|  |  | relationship opportunities have resulted in
additional policyholders and premium writings for the
Companys commercial and specialty lines segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Continued expansion of marketing efforts relating to
commercial lines and specialty lines products through
the Companys field organization and preferred
agents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | As a result of firming prices in the property and
casualty industry, rate increases on renewal business
have approximated 5.9%, 15.6%, and 7.7% for the
commercial, specialty and the personal lines
segments, respectively. Additionally, in force
policy counts have increased 27.1% and 29.3% for the
commercial and specialty lines segments,
respectively, primarily as a result of the factors
discussed above. Policy counts have decreased
approximately 1.0% for the personal lines segment as
a result of restricting new business and not renewing
certain business to manage overall property exposures
and the related catastrophe loss considerations.

Additionally, the respective net written premium decreases for commercial
lines, specialty lines and personal lines segments for the three months ended
June 30, 2003 vs. June 30, 2002 amount to $24.5 million (28.3%), $13.7 million
(53.5%) and $9.0 million (67.7%) respectively. The differing percentage
changes in net written premiums versus gross written premiums during the period
results from:



| |  | The Company entering into a Quota Share reinsurance agreement
(effective April 1, 2003) covering all of the Companys lines of
business. Under this agreement, the Company cedes 22% of its net
written premium (including 22% of net unearned premium reserves at
April 1, 2003) and loss and loss adjustment expenses. The Company
also receives a provisional commission of 33.0%, adjusted prorata
based upon the ratio of losses incurred to premiums earned. Pursuant
to this reinsurance agreement the Company withholds the reinsurance
premium reduced by the reinsurers expense allowance, and the
Companys ceding commission allowance in a Funds Held Payable to
Reinsurer account. This Funds Held Payable to Reinsurer account is
also reduced by ceded paid losses and loss adjustment expenses under
this agreement, and increased by an interest credit. During the three
months ended June 30, 2003, the Company ceded $103.6 million of
written premium which included unearned premium reserves of $63.6
million at April 1, 2003.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Lower reinsurance costs (ceded premiums) as a result of increasing the
Companys loss retention from $0.5 million to $2.0 million on its
commercial lines per-risk property reinsurance treaty, and from $0.9
million to $1.0 million on its excess liability reinsurance treaty
effective January 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Net Investment IncomeNet investment income approximated $9.4 million for
the three months ended June 30, 2003 and 2002. Total investments grew to
$1,071.7 million at June 30, 2003 from $768.9 million at June 30, 2002. The
capital market environment during most of 2002 and 2003 (low U.S. Treasury
yields) had the effect of increasing the level of prepayments in certain of the
Companys interest rate sensitive investments. The Companys average duration
of its fixed income portfolio approximated 3.2 years at June 30, 2003, compared
to 3.5 years at June 30, 2002. Additionally, due to the capital market
environment, the Company has invested approximately $59.7 million in overall
AAA rated floating rate and shorter amortizing securities to reduce interest
rate risk with the expectation of reinvesting these funds into longer duration
investments at higher future fixed income rates. The Companys tax equivalent
book yield on its fixed income holdings was 4.8% at June 30, 2003, compared to
6.2% at June 30, 2002. Net investment income was reduced by $0.5 million due
to the interest credit on the Funds Held to Reinsurer Account balance pursuant
to the Companys quota share reinsurance agreement (see Premiums).

The total return, which includes the effect of realized and unrealized
gains and losses, of the Companys fixed income portfolio was 1.69% and 3.45%
for the three months ended June 30, 2003 and 2002, respectively, versus the
Lehman Brothers Intermediate Aggregate Bond Index (the Index) total return of
1.89% and 3.59% for the same periods, respectively. While the performance
during the three months ended June 30, 2003 and 2002 was
similar to the total return of the Index, performance differed from the
Index primarily due to recording of non-cash realized investment losses as a
result of the Companys impairment evaluation (see Investments).

Net Realized Investment Loss:Net realized investment losses were $0.7
million for the three months ended June 30, 2003 and $3.2 million for the same
period in 2002. The Company realized net investment gains of $0.9

20



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

million and $0.1 million from the sale of fixed maturity and equity
securities, respectively, for the three months ended June 30, 2003, and $1.7
million in non-cash realized investment losses for fixed maturity investments
as a result of the Companys impairment evaluation. The Company realized net
investment losses of $2.0 million, principally from the sales of common stock
equity securities and $1.2 million in non-cash realized investment losses for
fixed maturity investments as a result of the Companys impairment evaluation
during the three months ended June 30, 2002.

Other
Income: Other income approximated $1.0 million for the three months
ended June 30, 2003 and $15,000 for the same period of 2002. Other income
primarily consists of commissions earned on brokered personal lines business,
and to a lesser extent brokered commercial lines business. The Company is
seeking to increase brokering activities in its personal lines segment as it is
restricting new business and not renewing certain policies in designated areas
of Florida as a result of its property exposures in these areas and related
catastrophe loss considerations.

Net Loss and Loss Adjustment Expenses:Net loss and loss adjustment
expenses increased $32.2 million (53.0%) to $93.0 million for the three months
ended June 30, 2003 from $60.8 million for the same period of 2002 and the loss
ratio increased to 76.6% in 2003 from 60.7% in 2002. This increase in net loss
and loss adjustment expenses was due to the 21.0% growth in net earned
premiums, and to the Company increasing the estimated gross and net loss for
unreported claims incurred and related claim adjustment expenses on residual
value polices issued during the years 1998 through 2002 by $33.0 million to
$59.8 million and $57.9 million, respectively. As of March 31, 2003 the
Company had estimated a total liability for unpaid loss and loss adjustment
expenses for these policies of $47.4 million ($40.0 million net of
reinsurance). The residual value policies provide coverage guaranteeing the
value of a leased automobile at the lease termination, which can be up to five
years from lease inception. Adverse trends further deteriorated in both
frequency and severity on leases expiring in 2003. As part of the Companys
monitoring and evaluation process, a consulting firm was engaged during the
second quarter of 2003 to aid in evaluating the ultimate potential loss
exposure under these policies. Based upon the result of the indications and
subsequent evaluation by the Company and changes in the Companys assumptions
relating to future frequency and severity of losses, the estimate for unpaid
loss and loss adjustment expenses was increased. The Company primarily
attributes this deterioration to the following factors that led to a softening
of prices in the used car market subsequent to the September 11, 2001 terrorist
attacks: prolonged 0% new car financing rates and other incentives which
increased new car sales and the volume of trade-ins, daily rental units being
sold into the market earlier and in greater numbers than expected further
adding to the oversupply of used cars; and the overall general economic
conditions. As of June 30, 2003, approximately 61,000 leases were outstanding
under the Companys residual value policies. The Company is projecting a 42%
loss frequency and average loss of approximately $2,300 per claim with respect
to these leases.

Additionally, during the period the Company ceded $19.0 million in net loss and
loss adjustment expenses pursuant to the quota share reinsurance agreement (see
Premiums) and decreased the gross and net liability for unpaid loss and loss
adjustment expenses for accident year 2002, principally in the property line of
its commercial package products, by approximately $9.0 million due to better
than expected loss experience.

Acquisition Costs and Other Underwriting Expenses:Acquisition costs and
other underwriting expenses increased $1.1 million (3.6%) to $32.2 million for
the three months ended June 30, 2003 from $31.1 million for the same period of
2002. This increase was due primarily to the 21.0% growth in net earned
premiums. During the period the company ceded $34.8 million in net earned
premiums and earned $13.3 million in ceding commission under the quota share
reinsurance agreement (see Premiums).

Other
Operating Expenses: Other operating expenses increased $0.1 million
to $1.6 million for the three months ended June 30, 2003 from $1.5 million for
the same period of 2002 as the Company continues to control its expenses.

Income Tax Expense:The Companys effective tax rate for the three months
ended June 30, 2003 and 2002 was 17.4% and 31.9%, respectively. The effective
rates differed from the 35% statutory rate principally due to

21



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

investments in tax-exempt securities. The decrease in the effective tax
rate is principally due to a greater investment of cash flows in tax-exempt
securities relative to taxable securities.

Liquidity and Capital Resources

For the six months ended June 30, 2003, the Companys investments
experienced unrealized investment appreciation of $4.0 million, net of the
related deferred tax expense of $2.2 million. At June 30, 2003, the Company had
total investments with a carrying value of $1,071.7 million, of which 93.4%
consisted of investments in fixed maturity securities, including U.S. treasury
securities and obligations of U.S. government corporations and agencies,
obligations of states and political subdivisions, corporate debt securities,
collateralized mortgage securities and asset backed securities. The
collateralized mortgage securities and asset backed securities consist of short
tranche securities possessing favorable pre-payment risk profiles. The
remaining 6.6% of the Companys total investments consisted primarily of
publicly traded common stock securities.

The Company produced net cash from operations of $160.9 million and $84.5
million, respectively, for the six months ended June 30, 2003 and 2002.
Sources of operating funds consist primarily of net premiums written and
investment income. Funds are used primarily to pay claims and operating
expenses and for the purchase of investments. The source of cash from
operations for the six months ended June 30, 2003 was primarily generated from
strong premium growth during the current year due to increases in the number of
policies written and price increases realized on renewal business. Net loss
and loss expense payments were $96.4 million and $76.1 million, respectively,
for the six months ended June 30, 2003 and 2002. Management believes that the
Company has adequate liquidity to pay all claims and meet all other cash needs.

Two of the Companys insurance subsidiaries are members of the Federal
Home Loan Bank of Pittsburgh (FHLB). A primary advantage of FHLB membership
is the ability of members to access credit products from a reliable capital
markets provider. The availability of any one members access to credit is
based upon its FHLB eligible collateral. At June 30, 2003 the insurance
subsidiaries borrowing capacity was $70.5 million. The insurance subsidiaries
have utilized a portion of their borrowing capacity to purchase a diversified
portfolio in investment grade floating rate securities. These purchases were
funded by floating rate FHLB borrowings to achieve a positive spread between
the rate of interest on these securities and borrowing rates. The remaining
borrowing capacity will provide an immediately available line of credit.
Borrowings aggregated $48.1 million at June 30, 2003, bear interest at adjusted
LIBOR, mature twelve months from inception and are collateralized by $61.8
million of the Companys fixed maturity securities. The weighted-average
interest rate on borrowings outstanding as of June 30, 2003 was 1.3%.

Risk-based capital is a method developed by the NAIC designed to measure
the acceptable amount of capital and surplus an insurer should have based on
the inherent specific risks of each insurer. The adequacy of a companys
actual capital and surplus is evaluated by a comparison to the risk-based
capital results. Insurers failing to meet minimum risk-based capital
requirements may be subject to scrutiny by the insurers domiciliary insurance
department and ultimately rehabilitation or liquidation. Based on the
standards currently adopted, the Companys insurance subsidiaries capital and
surplus is in excess of the prescribed risk-based capital requirements.

Forward-Looking Information

Certain information included in this report and other statements or
materials published or to be published by the Company 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 similar
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

22



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

the Company operates, including inflation and interest rates; (ii) changes
in taxes, governmental laws, and regulations; (iii) competitive product and
pricing activity; (iv) difficulties of managing growth profitably; (v) claims
development and the adequacy of our liability for unpaid loss and loss
adjustment; (vi) severity of natural disasters and other catastrophe losses;
(vii) adequacy of reinsurance coverage which may be obtained by the Company;
(viii) ability and willingness of our reinsurers to pay; and (ix) future
terrorist attacks.

23



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Companys financial instruments are subject to the market risk of
potential losses from adverse changes in market rates and prices. The primary
market risks to the Company are equity price risk associated with investments
in equity securities and interest rate risk associated with investments in
fixed maturities. The Company has established, among other criteria, duration,
asset quality and asset allocation guidelines for managing its investment
portfolio market risk exposure. The Companys investments are held for
purposes other than trading and consist of diversified issuers and issues.

The table below provides information about the Companys financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. The information is presented
in U.S. dollar equivalents.

|                                     |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | -------------------------------------------- | ------ | ----- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                     |  | JUNE 30, 2003                                |        |       |  |     
|                                     |  | EXPECTED MATURITY DATES                      |        | TOTAL
|                                     |  | (In thousands, except average interest rate) |        | FAIR 
|                                     |  | 2003                                         |        | 2004  |  | 2005 |         | 2006 |  | 2007 |         | Thereafter |  | TOTAL |         | VALUE
|                                     |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |      
|FIXED MATURITIES
AVAILABLE FOR SALE: |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Principal Amount                     |  | $                                            | 28,050 |       |  | $    | 139,981 |      |  | $    | 190,869 |            |  | $     | 132,536 |       |  | $ | 100,663 |   |  | $ | 374,401 |   |  | $ | 966,500 |   |  | $ | 977,261 |  
|Book Value                           |  | $                                            | 28,086 |       |  | $    | 141,673 |      |  | $    | 196,667 |            |  | $     | 134,444 |       |  | $ | 102,819 |   |  | $ | 369,433 |   |  | $ | 973,122 |   |  |   |        |  
|Average Interest Rate                |  |                                              | 5.21   | %     |  |      | 3.74    | %    |  |      | 3.70    | %          |  |       | 3.77    | %     |  |   | 4.36    | % |  |   | 4.55    | % |  |   | 4.15    | % |  |   | 3.60    | %
|PREFERRED:                           |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Principal Amount                     |  | $                                            | 4,750  |       |  | $    | 1,500   |      |  | $    | 1,000   |            |  | $     | 3,500   |       |  |   |        |   |  | $ | 125     |   |  | $ | 10,875  |   |  | $ | 11,560  |  
|Book Value                           |  | $                                            | 4,883  |       |  | $    | 1,489   |      |  | $    | 1,040   |            |  | $     | 3,666   |       |  |   |        |   |  | $ | 126     |   |  | $ | 11,204  |   |  |   |        |  
|Average Interest Rate                |  |                                              | 5.91   | %     |  |      | 6.06    | %    |  |      | 6.84    | %          |  |       | 6.33    | %     |  |   |        |   |  |   | 6.20    | % |  |   | 6.20    | % |  |   | 6.01    | %
|SHORT-TERM INVESTMENTS:              |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Principal Amount                     |  | $                                            | 56,834 |       |  |      |        |      |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  | $ | 56,834  |   |  | $ | 56,834  |  
|Book Value                           |  | $                                            | 56,857 |       |  |      |        |      |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  | $ | 56,857  |   |  |   |        |  
|Average Interest Rate                |  |                                              | 1.22   | %     |  |      |        |      |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  |   | 1.22    | % |  |   | 1.22    | %
|LOANS PAYABLE:                       |  |                                              |        |       |  |      |         |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Principal Amount                     |  | $                                            | 17,272 |       |  | $    | 30,839  |      |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  | $ | 48,111  |   |  |   |        |  
|Average Interest Rate                |  |                                              | 1.45   | %     |  |      | 1.18    | %    |  |      |        |            |  |       |        |       |  |   |        |   |  |   |        |   |  |   | 1.31    | % |  |   |        |  

24



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 4. Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures. The Companys Chief
Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) have concluded that, as of the end of the period covered
by this report on Form 10-Q, the
Companys disclosure controls and procedures were effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by others within such entities, particularly during
the period in which this quarterly report on Form 10-Q was being prepared.

(b)  Changes in Internal Controls. There were no significant changes in
the Companys internal controls or in other factors that could significantly
affect those controls subsequent to the Evaluation Date, including any
corrective actions with regard to deficiencies and material weaknesses in such
controls.

25



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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION



|Item 1. |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | On April 30, 2002, U.S. Bank, N.A. d/b/a Firstar Bank (Firstar), a bank
to which one of the Companys insurance subsidiaries, Philadelphia
Indemnity Insurance Company (PIIC), issued insurance coverages, filed a
complaint against PIIC in the United States District Court for the
Southern District of Ohio (Western Division). This matter was reported
in Part II, Item 1 of the Companys Form 10-Q for the period ended June
30, 2002. Firstar subsequently has requested that the court permit
Firstar to amend its complaint against PIIC, which amended complaint would
add a bad faith claim for compensatory damages and punitive damages in
three times the amount of any compensatory damage award. Firstars
original complaint indicated that its projected damage estimates exceed
$75.0 million. The proposed amended complaint does not specify the amount
of Firstars alleged or projected damages. The Court has not ruled on
Firstars request to amend its complaint.
|       
|        |  | On July 30, 2003 PIIC requested the court to allow PIIC to file a
counterclaim to Firstars complaint against PIIC seeking money damages and
equitable relief relating to certain residual value insurance policies
issued by PIIC to Firstar for policy years 1994, 1995, 1996, 1997 and
1998, as a result of material misrepresentations by Firstar in its
applications for residual value insurance coverage. The counterclaim
seeks money damages representing the amount of claim payments to date
under the policies, less the amount of premium paid by Firstar, and a
declaratory judgment that PIIC has no obligation to pay pending or future
claims arising under the policies. The Court has not ruled on PIICs
request to file a counterclaim to Firstars complaint.                                                                                                                                                                                                               
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|Item 3. |  | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        |  | At the Companys annual meeting of shareholders held on May 1, 2003 the
following nominees were elected to the Board of Directors:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                        |  |           |            |                |  |  |         | 
|----------------------- |  | --------- | ---------- | -------------- |  |  | ------- | 
|                        |  | Votes For |            | Votes Withheld
|                        |  |           |            |               
|Michael J. Cascio       |  |           | 19,913,821 |                |  |  | 141,317 | 
|Elizabeth H. Gemmill    |  |           | 19,913,821 |                |  |  | 141,317 | 
|William J. Henrich, Jr. |  |           | 19,913,821 |                |  |  | 141,317 | 
|Paul R. Hertel, Jr.     |  |           | 19,894,476 |                |  |  | 160,662 | 
|James J. Maguire        |  |           | 19,910,821 |                |  |  | 144,317 | 
|James J. Maguire, Jr.   |  |           | 19,191,993 |                |  |  | 863,145 | 
|Margaret M. Mattix      |  |           | 19,913,821 |                |  |  | 141,317 | 
|Maureen H. McCullough   |  |           | 19,913,821 |                |  |  | 141,317 | 
|Michael J. Morris       |  |           | 19,913,821 |                |  |  | 141,317 | 
|Sean S. Sweeney         |  |           | 19,169,648 |                |  |  | 885,940 | 
|J. Eustace Wolfington   |  |           | 19,913,821 |                |  |  | 141,317 | 

26



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##### 



| |  | The following other matters were approved at the Annual Meeting:
| |  | ----------------------------------------------------------------

|                                                                                                                               |  |           |            |               |  |             |         |                 |  |  |     |  |  |  |   | 
|------------------------------------------------------------------------------------------------------------------------------ |  | --------- | ---------- | ------------- |  | ----------- | ------- | --------------- |  |  | --- |  |  |  | - | 
|                                                                                                                               |  | Votes For |            | Votes Against |  | Abstentions |         | Broker
NonVotes
|                                                                                                                               |  |           |            |               |  |             |         |                
|Approval of the
Appointment of
PricewaterhouseCoopers LLP as
Independent Auditors for the
Fiscal Year Ending
December 31, 2003 |  |           | 19,883,225 |               |  |             | 171,693 |                 |  |  | 220 |  |  |  | 0 | 



|Item 5. |  | Other information               
|------- |  | --------------------------------
|       
|        |  | Not applicable.                 
|       
|Item 6. |  | Exhibits and Reports on Form 8-K
|       
|        |  | a.     Exhibits:                

|            |  |                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                    
|            |  |                                                                                                                                                                
|10.1 *      |  | Florida Hurricane Catastrophe Fund reimbursement contract effective
June 1, 2003                                                                               
|            |  |                                                                                                                                                                
|31.1 *      |  | Certification of the Companys chief executive officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            |  |                                                                                                                                                                
|31.2 *      |  | Certification of the Companys chief financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            |  |                                                                                                                                                                
|32.1 *      |  | Certification of the Companys chief executive officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                                                                                
|32.2 *      |  | Certification of the Companys chief financial officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

*     Filed herewith.



| |  | b.     The Company filed the following report on Form 8-K during the
quarterly period ended June 30, 2003:
| |  | ----------------------------------------------------------------------------------------------------------

|               |  |                                                                  
|-------------- |  | -----------------------------------------------------------------
|Date of Report |  | Item Reported                                                    
|               |  |                                                                  
|April 21, 2003 |  | First Quarter Conference Call Presentation                       
|April 23, 2003 |  | First Quarter Results March 31, 2003 and Regulation FD Disclosure

27



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##### 



SIGNATURES

Pursuant to the requirements 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.
| |  | Registrant                             

|                       |  |                                      
|---------------------- |  | -------------------------------------
|Date    August 8, 2003 |  | James J. Maguire, Jr.                
|                       |  |                                      
|                       |  | James J. Maguire, Jr.                
|                       |  | President and Chief Executive Officer
|                       |  | (Principal Executive Officer)        
|                       |  |                                      
|Date    August 8, 2003 |  | Craig P. Keller                      
|                       |  |                                      
|                       |  | Craig P. Keller                      
|                       |  | Executive Vice President, Secretary, 
|                       |  | Treasurer and Chief Financial Officer
|                       |  | (Principal Financial and Accounting  
|                       |  | Officer)                             

28