SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

(Mark One)

(x)  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended          March 31, 2002
                               ----------------------------------

                                       OR

( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                       to
                                -------------------       ------------------

Commission file number                   0-22316
                                   --------------------

                            Penn-America Group, Inc.
        -----------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Pennsylvania                                 23-2731409
---------------------------------          ------------------------------------
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
  incorporation or organization)


                420 South York Road, Hatboro, Pennsylvania 19040
     -----------------------------------------------------------------------
          (Address of principal executive offices, including zip code)


                                 (215) 443-3600
     -----------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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 other  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       .
       -----      ----

At May 9, 2002,  11,569,886  shares of the registrant's  common stock,  $.01 par
value, were outstanding.

                                     Page 1

<PAGE>



                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                      Index

                                                                     Page Number

Part I - Financial Information

         Consolidated Balance Sheets - March 31, 2002 (unaudited) and
                December 31, 2001                                             3

         Consolidated Unaudited Statements of Operations - For the three
                 months ended March 31, 2002 and 2001                         4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the three months ended March 31, 2002                     5

         Consolidated Unaudited Statements of Cash Flows -
                For the three months ended March 31, 2002 and 2001            6

         Notes to Unaudited Consolidated Financial Statements                 7

         Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                    11

         Quantitative and Qualitative Disclosure About Market Risk           14

Part II - Other Information                                                  15


                                     Page 2

<PAGE>



<TABLE>
<CAPTION>
                                           PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                                  Consolidated Balance Sheets
                                             (In thousands, except per share data)
                                                                                           March 31,           December 31,
                                                                                              2002                 2001
                                                                                        ----------------     -----------------
ASSETS                                                                                    (Unaudited)
<S>                                                                                           <C>                  <C>
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2002, $145,412; 2001,             $  148,232           $  135,253
       $130,976)
       Held to maturity, at amortized cost (fair value 2002, $9,885; 2001, $15,317)             9,779               15,084
    Equity securities, at fair value (cost 2002, $26,518; 2001, $27,770)                       23,812               25,149
                                                                                        ----------------     -----------------
       Total investments                                                                      181,823              175,486
Cash                                                                                           16,361               13,129
Accrued investment income                                                                       2,110                2,199
Premiums receivable                                                                            10,354               12,285
Reinsurance recoverable                                                                        25,839               25,804
Prepaid reinsurance premiums                                                                    4,800                4,241
Deferred policy acquisition costs                                                               9,785                9,083
Capital lease                                                                                   1,644                1,666
Deferred income taxes                                                                           4,467                3,790
Income tax recoverable                                                                             --                   66
Other assets                                                                                      373                  366
                                                                                        ----------------     -----------------
       Total assets                                                                        $  257,556           $  248,115
                                                                                        ================     =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                               $  124,177           $  119,598
  Unearned premiums                                                                            44,989               41,034
  Accounts payable and accrued expenses                                                         3,534                3,800
  Capitalized lease obligation                                                                  1,534                1,570
  Income tax payable                                                                              765                   --
  Other liabilities                                                                             1,362                1,722
                                                                                        ----------------     -----------------
         Total liabilities                                                                    176,361              167,724
                                                                                        ----------------     -----------------
Stockholders' equity:
  Preferred stock, $.01 par value; authorized 2,000,000 shares;
    None issued                                                                                    --                   --
  Common stock, $.01 par value; authorized 20,000,000 shares;
    issued 2002 and 2001, 15,299,954 and 15,228,351 shares, respectively;
    outstanding 2002 and 2001, 11,549,954 and 11,478,351 shares, respectively                     153                  152
  Additional paid-in capital                                                                   71,191               70,735
   Accumulated other comprehensive income                                                          75                1,092
  Retained earnings                                                                            34,678               33,334
  Treasury stock, 3,750,000 shares at cost                                                    (24,161)             (24,161)
   Officers' stock loans                                                                         (629)                (629)
  Unearned compensation from restricted stock awards                                             (112)                (132)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            81,195               80,391
                                                                                        ----------------     -----------------
         Total liabilities and stockholders' equity                                        $  257,556           $  248,115
                                                                                        ================     =================
</TABLE>


                                                            Page 3
<PAGE>



                            PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                              Consolidated Statements of Operations
                                           (Unaudited)

                       For the three months ended March 31, 2002 and 2001
                              (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                Three months ended March 31,
                                                              ---------------------------------
                                                                   2002              2001
                                                              ----------------   --------------
Revenues
<S>                                                           <C>                <C>
Premiums earned                                               $       22,983     $      23,042
Net investment income                                                  2,833             2,850
Net realized investment gain (loss)                                     (252)              102
                                                              ----------------   --------------
    Total revenues                                                    25,564            25,994
                                                              ----------------   --------------

Losses and expenses
Losses and loss adjustment expenses                                   15,286            16,734
Amortization of deferred policy acquisition costs                      6,011             6,224
Other underwriting expenses                                            1,657             1,534
Corporate expenses                                                       111               162
Interest expense                                                          35                40
                                                              ----------------   --------------
    Total losses and expenses                                         23,100            24,694
                                                              ----------------   --------------


Income before income tax                                               2,464             1,300
Income tax expense                                                       678               333
                                                              ----------------   --------------

Net income                                                    $        1,786     $         967
                                                              ================   ==============

Net income per share
   Basic                                                      $         0.15     $        0.09
   Diluted                                                    $         0.15     $        0.08

Weighted average shares outstanding
   Basic                                                          11,536,694        11,367,942
   Diluted                                                        11,710,482        11,453,118

Cash dividend per share                                       $       0.0383     $      0.0350

</TABLE>


                                             Page 4


<PAGE>


<TABLE>
<CAPTION>
                                              PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

                                           Consolidated Statement of Stockholders' Equity
                                                             (Unaudited)

                                              For the three months ended March 31, 2002
                                                (In thousands, except per share data)




                                                                                  Accumulated
                                                               Additional            Other
                                                 Common          Paid-In         Comprehensive          Retained        Treasury
                                                  Stock         Capital              Income             Earnings         Stock
                                               ------------------------------------------------------------------------------------
<S>                                               <C>         <C>                 <C>                  <C>             <C>
Balance at December 31, 2001                        $ 152       $ 70,735            $ 1,092              $ 33,334        $ (24,161)
Net income                                             --             --                 --                 1,786               --
Other comprehensive income:
   net unrealized gain (loss) on investments,
   net of  tax and reclassification adjustment         --             --             (1,017)                   --               --



Comprehensive income


Issuance of common stock                                1            456                 --                    --               --
Amortization of compensation expense from
      restricted stock awards issued                   --             --                 --                    --               --
Cash dividend paid ($0.0383 per share)                 --             --                 --                  (442)              --
                                               ------------------------------------------------------------------------------------
Balance at March 31, 2002                           $ 153       $ 71,191              $  75              $ 34,678        $ (24,161)
                                               ====================================================================================





                                                                Unearned
                                                              Compensation
                                                                  From
                                               Officers'       Restricted             Total
                                                 Stock           Stock            Stockholders'
                                                 Loans           Awards              Equity
                                             ----------------------------------------------------
Balance at December 31, 2001                       $  (629)       $ (132)         $ 80,391
Net income                                              --            --             1,786
Other comprehensive income:
   net unrealized gain (loss) on investments,
   net of  tax and reclassification adjustment          --            --            (1,017)
                                                                                -----------------
Comprehensive income                                                                   769
                                                                                -----------------
Issuance of common stock                                --            --               457
Amortization of compensation expense from
      restricted stock awards issued                    --            20                20
Cash dividend paid ($0.0383 per share)                  --            --              (442)
                                             ----------------------------------------------------
Balance at March 31, 2002                          $  (629)       $ (112)         $ 81,195
                                             ====================================================






</TABLE>






                                                               Page 5


<PAGE>


<TABLE>
<CAPTION>
                                          PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                            Consolidated Statements of Cash Flows
                                                         (Unaudited)

                                      For the three months ended March 31, 2002 and 2001
                                                        (In thousands)

                                                                                          Three months ended March 31,
                                                                                      -------------------------------------
                                                                                           2002                   2001
                                                                                      ---------------        ---------------
Cash flows from operating activities:
<S>                                                                                        <C>               <C>
    Net income                                                                             $  1,786          $         967
    Adjustments to reconcile net income to net cash provided (used) by
      operating activities:
         Amortization and depreciation expense                                                  (43)                   (26)
         Net realized investment (gain) loss                                                    252                   (102)
         Deferred income tax                                                                   (154)                  (175)
         Net increase (decrease) in premiums receivable, prepaid reinsurance premiums
           and unearned premiums                                                              5,327                 (2,913)
         Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                        4,544                    209
         Accrued investment income                                                               89                    206
         Deferred policy acquisition costs                                                     (702)                   601
         Income tax recoverable/payable                                                         831                    508
         Other assets                                                                           (36)                   (41)
         Accounts payable and accrued expenses                                                 (266)                   226
         Other liabilities                                                                       (3)                   341
                                                                                      ---------------        ---------------
         Net cash provided (used) by operating activities                                    11,625                   (199)
                                                                                      ---------------        ---------------

Cash flows from investing activities:
    Purchases of equity securities                                                               --                 (2,065)
    Purchases of fixed maturities available for sale                                        (17,476)                (9,905)
    Proceeds from sales of equity securities                                                  1,000                     --
    Proceeds from sales and maturities of fixed maturities available for sale                 3,146                  6,636
    Proceeds from maturities and calls of fixed maturities held to maturity                   5,315                     --
                                                                                      ---------------        ---------------
         Net cash used by investing activities                                               (8,015)                (5,334)
                                                                                      ---------------        ---------------

Cash flows from financing activities:
    Issuance of common stock                                                                    100                     62
    Officers' stock loans                                                                        --                   (109)
    Principal payments on capital lease obligations                                             (36)                   (31)
    Dividends paid                                                                             (442)                  (398)
                                                                                      ---------------        ---------------
         Net cash used by financing activities                                                 (378)                  (476)
                                                                                      ---------------        ---------------

Increase (decrease) in cash                                                                   3,232                 (6,009)
Cash, beginning of period                                                                    13,129                 11,425
                                                                                      ---------------        ---------------
Cash, end of period                                                                       $  16,361            $     5,416
                                                                                      ===============        ===============

</TABLE>

                                                           Page 6
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements


Note 1 - Organization and Basis of Presentation

         Penn-America  Group,  Inc.  ("PAGI") is an insurance  holding  company.
Approximately  40% of the  outstanding  common  stock of PAGI was  owned by Penn
Independent Corporation ("Penn Independent") at March 31, 2002. The accompanying
financial  statements  include  the  accounts  of  PAGI  and  its  wholly  owned
subsidiary, Penn-America Insurance Company ("Penn-America") and its wholly owned
subsidiary,   Penn-Star  Insurance  Company  ("Penn-Star"),   (collectively  the
"Company").

         The Company  underwrites  commercial  property,  general  liability and
multi-peril  insurance for small businesses located primarily in small towns and
suburban and rural areas. The Company can write business in all fifty states and
the District of Columbia.  The Company  writes  business on both an admitted and
non-admitted  (excess and surplus lines) basis in thirty-six  states, on only an
admitted basis in two states and on only a  non-admitted  basis in twelve states
and the District of Columbia.

         The accompanying  condensed unaudited consolidated financial statements
and notes have been prepared in accordance with accounting  principles generally
accepted in the United States  ("GAAP") for interim  financial  information  and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the  information  and notes required by
GAAP for  complete  financial  statements.  In the  opinion of  management,  all
adjustments   (consisting  of  normal  and  recurring  adjustments)   considered
necessary for a fair  presentation  of results for the interim periods have been
included.  All  significant  intercompany  accounts and  transactions  have been
eliminated in  consolidation.  It is suggested  that these  condensed  unaudited
consolidated  financial  statements  and notes be read in  conjunction  with the
financial  statements  and notes in the  Company's  2001 Annual Report which was
incorporated  by  reference  into the  Company's  Form  10-K for the year  ended
December 31, 2001. The Company's  results of operations for interim  periods are
not necessarily indicative of the results to be expected for the entire year.

Note 2 - Reinsurance

         Premiums  earned are  presented  net of amounts  ceded to reinsurers of
$3.1  million  and $3.0  million for the three  months  ended March 31, 2002 and
2001,  respectively.  Losses and loss  adjustment  expenses are presented net of
amounts  ceded to  reinsurers  of $1.7  million  and $2.7  million for the three
months ended March 31, 2002 and 2001, respectively.

Note 3 - Comprehensive Income

           Accumulated other comprehensive  income consists solely of unrealized
gains or losses on investment securities net of applicable income tax expense or
benefit and reclassification adjustments.  Comprehensive income was $769,000 for
the three months ended March 31, 2002  compared  with $1.6 million for the three
months ended March 31, 2001.



                                     Page 7
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 4 - Income Per Share

         Income per share for the three months ended March 31, 2002 and 2001 are
computed by dividing net income by the basic and diluted weighted average number
of common  shares  outstanding  during  the  quarter.  On April 11,  2002,  PAGI
announced a three-for-two  stock split to be effected in the form of a 50% stock
dividend   payable  to  stockholders  of  record  as  of  April  25,  2002.  The
distribution  date was May 9, 2002. The following table is a  reconciliation  of
the  numerators  and  denominators  of the basic and  diluted  income  per share
computations on both a pre stock split and post stock split basis:

<TABLE>
<CAPTION>
                                                                              Three Months Ended March 31,
                                                       ----------------------------------------------------------------------------


(in thousands, except per share data)                       Pre Stock Split Basis                    Post Stock Split Basis
                                                       ---------------------------------      -------------------------------------
                                                                2002              2001                2002                  2001
                                                            -----------        -----------        -----------        -----------
<S>                                                         <C>                <C>                <C>                <C>
Basic per share computation:
     Net income                                             $     1,786        $       967        $     1,786        $       967


     Weighted average common shares outstanding               7,691,129          7,578,628         11,536,694         11,367,942
                                                            -----------        -----------        -----------        -----------

Basic net income per share                                  $      0.23        $      0.13        $      0.15        $      0.09
                                                            ===========        ===========        ===========        ===========

Diluted per share computation:
     Net income                                             $     1,786        $       967        $     1,786        $       967

     Weighted average common shares outstanding               7,691,129          7,578,628         11,536,694         11,367,942

     Additional shares outstanding after the assumed
        assumed exercise of stock options
        by applying  the treasury stock method                  115,859             56,784            173,788             85,176
                                                            -----------        -----------        -----------        -----------


     Total shares                                             7,806,988          7,635,412         11,710,482         11,453,118
                                                            ===========        ===========        ===========        ===========

Diluted net income per share                                $      0.23        $      0.13        $      0.15        $      0.08
                                                            ===========        ===========        ===========        ===========

</TABLE>





                                                               Page 8
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 5 - Retroactive Adjustment for Stock Split

         The common stock issued and  outstanding and treasury stock at December
31, 2001 have been restated to reflect the  three-for-two  stock split announced
on April 11, 2002.  Accordingly,  the balance  sheet values for common stock and
additional paid-in capital have been adjusted for the effect of the stock split.
This  adjustment  resulted in a $51,000  increase in common  stock and a $51,000
decrease in additional  paid-in capital.  The following table  illustrates share
information on a pre stock split and a post stock split basis as of December 31,
2001:


                                Pre Stock Split               Post Stock Split
                                     Basis                         Basis
                              ---------------------        ---------------------

Common stock issued                  10,152,234                     15,228,351
Common stock outstanding              7,652,234                     11,478,351
Treasury stock                        2,500,000                      3,750,000



Note 6- Segment Information

         The  Company  had  two  reportable  segments:   non-standard   personal
automobile and commercial lines.  These segments were managed separately because
they have  different  customers,  pricing  and expense  structures.  The Company
exited the non-standard  personal automobile business in 1999 and announced that
it would  run-off its  remaining  portfolio of such  business.  The Company will
continue to report on this segment  separately until the amounts relating to the
non-standard  personal  automobile  business become  immaterial to the financial
statements  presented.  The Company does not allocate  assets  between  segments
because assets are reviewed in total by management for decision-making purposes.

         The  accounting  policies  of the  segments  are the same as those more
fully described in the summary of significant  accounting  policies in Note 1 of
the Company's 2001 Annual Report,  which was  incorporated by reference into the
Company's 2001 Form 10-K. The Company  evaluates segment results based on profit
or loss from operating activities. Segment profits or losses from operations are
pre-tax and do not include unallocated expenses but do include investment income
attributable  to  insurance  transactions.  Segment  profit  or  loss  therefore
excludes  federal  income  taxes,  unallocated  expenses and  investment  income
attributable to equity.




                                     Page 9
<PAGE>




                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)




The  following  is a summary of the  Company's  segment  revenues,  expenses and
profit:

<TABLE>
<CAPTION>
(in thousands)                                                     Three months ended March 31, 2002
                                                                   ---------------------------------
                                                                                Personal
                                                              Commercial       Automobile         Total
                                                             ----------------------------------------------
<S>                                                             <C>                <C>            <C>
Premiums earned                                                 $  22,983          $    --        $ 22,983


Net investment income from insurance operations                     1,437               --           1,437
                                                             ----------------------------------------------
Total segment revenues                                             24,420               --          24,420
                                                             ----------------------------------------------

Segment losses and loss adjustment expenses                        15,286               --          15,286
Segment expenses                                                    6,321               --           6,321
                                                             ----------------------------------------------
Total segment expenses                                             21,607               --          21,607
                                                             ----------------------------------------------

Segment income                                                  $   2,813          $    --        $  2,813
                                                             ----------------------------------------------
Unallocated items:
Net investment income from equity                                                                    1,144
Unallocated expenses                                                                                (1,493)
Income tax expense                                                                                    (678)
                                                                                                -----------
Net income                                                                                        $  1,786
                                                                                                ===========


 (in thousands)                                                    Three months ended March 31, 2001
                                                                   ---------------------------------
                                                               Commercial       Personal
                                                                               Automobile         Total
                                                             ----------------------------------------------

Premiums earned                                                 $  23,026          $    16        $ 23,042
Net investment income from insurance operations                     1,866               84           1,950
                                                             ----------------------------------------------
Total segment revenues                                             24,892              100          24,992
                                                             ----------------------------------------------

Segment losses and loss adjustment expenses                        17,930           (1,196)         16,734
Segment expenses                                                    6,591                5           6,596
                                                             ----------------------------------------------
Total segment expenses                                             24,521           (1,191)         23,330
                                                             ----------------------------------------------

Segment income                                                  $     371          $ 1,291        $  1,662
                                                             ----------------------------------------------
Unallocated items:
Net investment income from equity                                                                    1,002
Unallocated expenses                                                                                (1,364)
Income tax expense                                                                                    (333)
                                                                                                -----------
Net income                                                                                        $    967
                                                                                                ===========

</TABLE>


                                    Page 10

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition
and Results of Operations

Results of Operations

Three Months Ended March 31, 2002 and 2001

         Premiums  earned was $23.0 million for the three months ended March 31,
2002,  unchanged  from $23.0  million for the three months ended March 31, 2001.
The Company previously announced that it was exiting both commercial  automobile
and  non-standard  personal  automobile  lines of business.  Earned premiums for
these exited lines of business decreased $2.1 million,  or 100.0%, for the three
months  ended March 31, 2002  compared to the three months ended March 31, 2001.
The Company's core commercial lines earned premiums  (excluding  exited lines of
business) increased $2.1 million,  or 9.9%,  attributable to the increase in net
written  premiums  for the three  months ended March 31, 2002 as compared to the
same period of 2001.

         Gross written premiums increased 26.1% for the three months ended March
31, 2002 to $30.0  million  compared to $23.8 million for the three months ended
March 31, 2001. Gross written premiums for core commercial lines increased 32.6%
to $30.0  million for the three  months  ended March 31, 2002  compared to $22.7
million  for  the  three  months  ended  March  31,  2001.   This  increase  was
attributable  mainly to rate increases  and, to a lesser  extent,  growth in new
business.

         Net written  premiums  increased 25.3% for the three months ended March
31, 2002 to $26.4  million  compared to $21.1 million for the three months ended
March 31, 2001. Consistent with gross written premiums, net written premiums for
the core commercial  lines increased 30.8% to $26.4 million for the three months
ended March 31, 2002  compared to $20.2 million for the three months ended March
31, 2001.

         Net investment income was $2.8 million for the three months ended March
31, 2002 which was  unchanged  from the same period of last year.  While average
invested assets  increased 7.2% for the first quarter of 2002, this increase was
offset by a decine in the  investment  yield of the  fixed-income  portfolio and
interest rates on overnight cash balances compared to the first quarter of 2001.

         Net  realized  investment  loss was $252,000 for the three months ended
March 31, 2002  compared  to a net  investment  gain of  $102,000  for the three
months   ended   March   31,   2001.   The   current    quarter    included   an
other-than-temporary impairment writedown on the Company's equity investments of
$199,000.

           Losses and loss adjustment  expenses  decreased 8.7% to $15.3 million
for the three  months  ended  March 31,  2002 from $16.7  million  for the three
months  ended March 31,  2001.  This  reduction  is the result of improved  loss
experience in both property and liability lines of business.

         Amortization of deferred  policy  acquisition  costs ("DAC")  decreased
3.4% to $6.0  million  for the three  months  ended  March 31,  2002,  from $6.2
million  for the three  months  ended March 31,  2001.  The Company is writing a
larger  portion of its business in its  non-admitted  company which  resulted in
lower premium taxes.

         Other  underwriting  expenses  increased  8.0% to $1.7  million for the
three  months  ended March 31, 2002 from $1.5 million for the three months ended
March 31, 2001.


                                     Page 11

<PAGE>



                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

         The overall GAAP combined  ratio for the Company  decreased to 99.9 for
the three  months  ended March 31,  2002,  from 106.3 for the three months ended
March 31, 2001,  primarily due to the decrease in the loss ratio to 66.5 in 2002
compared to 72.6 in 2001.  The expense ratio was 33.4 for the three months ended
March 31, 2002 and 33.7 for the three months ended March 31, 2001.

         The factors described above resulted in net income for the three months
ended March 31,  2002 of $1.8  million or $0.15 per share  (basic and  diluted),
compared to net income of $1.0  million or $0.09 per share  (basic and  diluted)
for the three months ended March 31, 2001.

Liquidity and Capital Resources

         PAGI is a holding  company,  the principal asset of which is the common
stock of Penn-America. The principal source of cash for the payment of dividends
to PAGI's stockholders,  PAGI operating expenses and repurchase of PAGI stock is
dividends  from  Penn-America.  Penn-America's  principal  sources  of funds are
underwriting   operations,   investment  income  and  proceeds  from  sales  and
redemptions  of  investments.  Funds  are  used by  Penn-America  and  Penn-Star
principally to pay claims and operating expenses, to purchase investments and to
make dividend payments to PAGI.

         Penn-America  and Penn-Star are  restricted by statute as to the amount
of dividends that they may pay without the prior approval from the  Pennsylvania
Insurance  Department.  Penn-America  may pay dividends to PAGI without  advance
regulatory approval only from unassigned surplus and only to the extent that all
dividends  in the past  twelve  months do not exceed the greater of 10% of total
statutory  policyholders  surplus,  or statutory  net income for the prior year.
Using these criteria, the available ordinary dividend for 2002 is $6,473,325. No
ordinary  dividends  have been paid to PAGI during the three  months ended March
31, 2002.  Ordinary  dividends  paid by  Penn-America  to PAGI in 2001 were $1.6
million.

         Penn-America  and  Penn-Star  are required by law to maintain a certain
minimum  level of  policyholders'  surplus on a statutory  basis.  The  National
Association of Insurance  Commissioners  adopted  risk-based  capital  standards
designed to identify  property and casualty  insurers  that may be  inadequately
capitalized based on inherent risks of each insurer's assets and liabilities and
its mix of net written premiums.  Insurers falling below a calculated  threshold
may be subject to varying degrees of regulatory  action.  Based on the currently
adopted  standards,  Penn-America's  and Penn-Star's  capital and surplus are in
excess of the prescribed risk-based capital requirements.

         Penn-America  provides  strong  incentives  to its  general  agents  to
produce  profitable  business through a contingent profit  commission  structure
that is tied directly to underwriting profitability. Payment of these contingent
profit  commissions has been through the issuance of PAGI common stock and cash.
In the first quarter of 2002, PAGI issued 33,900 shares of its common stock at a
value of $10.55 per share as part of the payment of the 2001  contingent  profit
commission due to the general agents of Penn-America.

         Net cash  provided by operating  activities  was $11.6  million for the
three  months  ended  March 31,  2002,  compared  to net cash used by  operating
activities of $0.2 million for the three months ended March 31, 2001.


                                     Page 12

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)


         Net cash used by  investing  activities  was $8.0 million for the three
months ended March 31, 2002,  compared to $5.3 million for the nine months ended
March 31, 2001.

         Net cash used by  financing  activities  was $0.4 million for the three
months ended March 31, 2002, compared to $0.5 million for the three months ended
March 31, 2001.

         Statutory  surplus as of March 31, 2002 increased to $65.7 million from
$64.7  million as of December 31, 2001.  This  increase is due to statutory  net
income of $1.0 million.

         The  Company   believes  it  has  sufficient   liquidity  to  meet  its
anticipated  insurance  obligations and operating and capital expenditure needs.
The   Company's   investment   strategy   emphasizes   quality,   liquidity  and
diversification, as well as total return. With respect to liquidity, the Company
considers  liability  durations,  specifically  related to loss  reserves,  when
determining  desired investment  maturities.  In addition,  maturities have been
staggered   to  produce   cash  flows  for  loss   payments   and   reinvestment
opportunities.

         The Company's  fixed maturity  portfolio of $158.0 million was 86.9% of
the total investment portfolio as of March 31, 2002.  Approximately 90% of these
securities were rated "A" or better by Standard & Poor's or Moody's. The average
duration of the fixed maturity  portfolio as of March 31, 2002 was approximately
3.7 years. Equity securities,  the majority of which consist of preferred stocks
and exchange traded funds,  were $23.8 million or 13.1% of total  investments as
of March 31, 2002.

         As of March 31, 2002, the investment  portfolio contained $46.2 million
of mortgage-backed,  asset-backed and collateralized mortgage obligations, which
represented  25.4% of the total  investments  as of March 31, 2002. All of these
securities were "AA-"- rated or better and 76.6% were  "AAA"-rated by Standard &
Poor's  or  Moody's.   These  securities,   which  were  issued  by  government,
government-related agencies or publicly held corporations,  are publicly traded,
and have market values obtained from an independent pricing service.  Changes in
estimated cash flows due to changes in prepayment  assumptions from the original
purchase  assumptions  are  revised  based on  current  interest  rates  and the
economic environment. The Company had no derivative financial instruments,  real
estate or mortgages in the investment portfolio as of March 31, 2002.


Critical Accounting Estimates

         The establishment of loss and loss adjustment expense reserves requires
an estimate of the ultimate  liability based primarily on past  experience.  The
Company applies a variety of traditional  actuarial  techniques to determine its
estimate of ultimate liability.  The techniques recognize,  among other factors,
the  Company's and the  industry's  experience,  historical  trends in reserving
patterns and loss  payments,  the pending  level of unpaid  claims,  the cost of
claim  settlements,  the line of business  mix and the economic  environment  in
which property and casualty insurance companies operate.  Estimates  continually
are  reviewed  and,  based  on  subsequent  developments  and  new  information,
adjustments of the probable ultimate liability are included in operating results
for the periods in which the  adjustments  are made.  In general,  reserves  are
established initially based upon the actuarial and underwriting data utilized to
set pricing levels and are reviewed as additional information,  including claims
experience, becomes available. The establishment of loss and loss adjustment



                                     Page 13

<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

expense   reserves  makes  no  provision  for  the  broadening  of  coverage  by
legislative  action or judicial  interpretation or for the extraordinary  future
emergence of new types of losses not  sufficiently  represented in the Company's
historical experience, or which cannot yet be quantified.  The Company regularly
analyzes  its reserves and reviews its pricing and  reserving  methodologies  so
that future adjustments to prior year reserves can be minimized.  However, given
the complexity of this process,  reserves will require continual updates and the
ultimate liability may be higher or lower than previously indicated.

         During the first quarter of 2002, there were no material adjustments to
prior year reserves.

Three-for-Two Stock Split

         On April 11, 2002, the Company announced a three-for-two stock split to
be  effected  in the form of a 50% stock  dividend  payable to  stockholders  of
record as of April 25, 2002.  The  distribution  date was May 9, 2002.  Cash was
paid in lieu of  fractional  shares based on the closing  price of the Company's
common stock on the record date.

Quantitative and Qualitative Disclosures About Market Risk

         The Company's  market risk is the potential  economic loss  principally
arising from adverse changes in the market value of financial  instruments.  The
major components of market risk affecting the Company are interest rate risk and
equity price risk.

         The Company had  fixed-income  and preferred stock  investments  with a
market value of $173.9  million at March 31, 2002 subject to interest rate risk.
The Company  manages its exposure to interest  rate risk  through a  disciplined
asset/liability  matching and capital management  process.  In the management of
this risk, the characteristics of duration, credit and variability of cash flows
are critical  elements.  These risks constantly are assessed and balanced within
the context of the liability and capital position of the Company.

         The Company had common equity  investments  with a market value of $8.0
million at March 31, 2002. The Company attempts to mitigate equity price risk to
its common stock  portfolio by investing  exclusively in  exchange-traded  funds
(ETFs).  ETFs are securities that represent an interest in a trust that owns and
holds a basket of common stocks that replicate a major market index (such as the
S&P 500 or the Dow Jones  Industrial  Average)  or a portion  of a major  market
index (such as the Value Component of the S&P). Since these securities represent
an interest in the equity capital markets as a whole,  or a sub-sector  thereof,
they are a  diversified,  index-based  exposure to common  stocks.  As such, the
value of these ETFs will be determined by the  performance of the equity capital
markets in general or of a particular  sub-sector  and reduces equity price risk
to a single issuer of stock.

         The Company's market risk at March 31, 2002 has not materially  changed
from those identified at December 31, 2001.






                                     Page 14

<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



Item 1.       Legal Proceedings - None

Item 2.       Changes in Securities - None

Item 3.       Default Upon Senior Securities - None

Item 4.       Submission of Matters to a Vote by Security Holders - None

Item 5.       Other Information - None

Item 6.       Exhibits and Reports on Form 8-K

              On March 1, 2002,  the Company filed a current  report on Form 8-K
              announcing the availability of annual  statements of its insurance
              subsidiaries,   Penn-America   Insurance   Company  and  Penn-Star
              Insurance Company, on the Company's website, in hard copy from the
              Company, or from the Pennsylvania Insurance Department.

              On April 1, 2002,  the Company filed a current  report on Form 8-K
              announcing the  availability of the Combined  Annual  Statement of
              its insurance  subsidiaries,  Penn-America  Insurance  Company and
              Penn-Star  Insurance Company,  on the Company's  website,  in hard
              copy  from  the  Company,  or  from  the  Pennsylvania   Insurance
              Department.

              On April 11, 2002,  the Company filed a current report on Form 8-K
              announcing that the Board of Directors of the Company  unanimously
              approved a  three-for-two  stock split of the common  stock of the
              Company.  The  three-for-two  stock  split is in the form of a 50%
              stock dividend,  effective for stockholders of record on April 25,
              2002 and was distributed on May 9, 2002.





                                     Page 15

<PAGE>

                                    SIGNATURE



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.




                                     Penn-America Group, Inc.




Date:    May 14, 2002                   By:     /s/ Jon S. Saltzman
     ---------------------                      -------------------------
                                                Jon S. Saltzman
                                                President and
                                                Chief Executive Officer



                                        By:     /s/ Joseph F. Morris
                                                -------------------------
                                                Joseph F. Morris
                                                Senior Vice President,
                                                Chief Financial Officer
                                                Chief Financial Officer
                                                and Treasurer










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