No. 3154-0016-E001


                                   ENDORSEMENT

Attached  to and  forming  part of the  PROPERTY  AND  CASUALTY  EXCESS  OF LOSS
REINSURANCE  AGREEMENT NO. 3154-0016  between  PENN-AMERICA  INSURANCE  COMPANY,
PENN-STAR  INSURANCE  COMPANY,  both  of  Hatboro,  Pennsylvania,   (hereinafter
referred to as the "Company"),  and AMERICAN  RE-INSURANCE  COMPANY,  a Delaware
Corporation with  administrative  offices in Princeton,  New Jersey (hereinafter
referred to as the "Reinsurer").

It is mutually understood and agreed by the parties hereto that effective May 1,
2003,  as  respects  the  Company's  in-force,  new and renewal  policies,  this
Agreement is amended as follows:

I.   Subsection  p.,  Massage   Program,   is  added  as  an  exception  to  the
     Professional Liability Exclusion, C.1. and the exclusion reads as follows:

     1.   Professional Liability or Errors and Omissions Coverage other than for
          the following:

          a.   "Beau-T-Pak";
          b.   Barbers;
          c.   Opticians;
          d.   Veterinarians that treat household pets;
          e.   Morticians; f. Clergy;
          g.   Employee Benefits Liability (E&O Coverage); h. Druggists;
          i.   "Day Care Pak";
          j.   "Adult Day Care;
          k.   "Health Club Pak";
          l.   "Instructor Pak";
          m.   In-Home Day Care;
          n.   "Pet Pak";
          o.   "Wellness Pak"; or
          p.   Massage Program.

II.  Exclusion  C.23. is amended to reflect the change in the number of building
     stories to six and the exclusion reads as follows:

     23.  Wrecking  or  demolition  of  buildings,  structures,   watercraft  or
          aircraft, except for buildings six stories or less.

III. Exclusion  C.44. is amended to reflect the change in the number of building
     stories to six and the exclusion reads as follows:

     44.  Contractors   engaged  in  the  construction,   erection  or  exterior
          maintenance of structures in excess of six stories,  except for window
          washers or power washing operations.




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IV.  Exclusion  C.49.  is amended  to provide  for  amendment  to the  Company's
     contractor guidelines and the exclusion reads as follows:

     49.  Contractors,  except as provided for by the Company's  Penn  Amerigram
          dated November 7, 2001, that is attached to this Agreement as APPENDIX
          B, or when the Company's Penn Amerigram is subsequently amended by the
          Company and notice is provided the Reinsurer.

V.   Section 6,  WARRANTY of EXHIBIT B,  CASUALTY  EXCESS OF LOSS, is amended to
     include the maximum  policy  limits for Massage  Program  business  and the
     Section reads as follows:

                                    Section 6

         WARRANTY

         The maximum limits of liability for any one policy of the Company shall
         be deemed not to exceed the following:

          1.   General  Liability - $1,000,000  each  occurrence  and $2,000,000
               general   aggregate.   a)  As  respects  Products  and  Completed
               Operations - $1,000,000 in the aggregate.

          2.   Liquor Liability Coverage - $1,000,000 each occurrence (i.e., new
               and renewal Restaurant policies,  excluding Bars and Taverns, for
               the A, B, and C states as per attached  Appendix A, having liquor
               receipts of 40% or less of total sales, effective on or after the
               effective date of this Agreement).

          3.   Massage  Program -  $2,000,000  each  occurrence  and  $3,000,000
               general  aggregate.  However,  for the purposes of recovery under
               this  Exhibit,   only  the  first   $1,000,000  shall  be  deemed
               recoverable.

VI.  EXHIBIT C, MASSAGE  PROGRAM  EXCESS OF LOSS,  is added to the Agreement and
     the Exhibit reads as follows:

                                    EXHIBIT C

                         MASSAGE PROGRAM EXCESS OF LOSS

                                    Section 1

         BUSINESS COVERED

         A.       The Reinsurer agrees to reimburse the Company, on an excess of
                  loss basis,  for the  amounts of  ultimate  net loss which the
                  Company may pay as a result of losses  occurring  on and after
                  May 1,  2003,  as  respects  the  Company's  new  and  renewal
                  policies becoming  effective on and after said date,  covering






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                                                              No. 3154-0016-E001


                  the Massage  Program  business,  except as excluded  under the
                  EXCLUSIONS   Article  of  this   Agreement,   subject  to  the
                  limitations set forth herein.

         B.       The term  "policies" as used herein means each of the Company'
                  s binders,  policies and  contracts  providing  insurance  and
                  reinsurance on the Classes of Insurance covered hereunder.

                                    Section 2

         LIMITS OF COVER

         As respects the class of business as stated in Section 1, the Reinsurer
         shall not be liable for any loss until the Company's  ultimate net loss
         in each occurrence  exceeds  $1,000,000 and then the Reinsurer shall be
         liable  for the  amount of the  Company'  s  ultimate  net loss in each
         occurrence in excess of $1,000,000 but the Reinsurer's  liability shall
         not exceed 100% of  $1,000,000  in any one  occurrence or $3,000,000 in
         any one Agreement Year.

                                    Section 3

         REINSURANCE PREMIUM

         A.       The premium for the  reinsurance  provided  under this Exhibit
                  shall be computed at the rate of 10.837% of the  Company's net
                  written  premium  for  the new and  renewal  business  covered
                  hereunder as of May 1, 2003.

         B.       Notwithstanding Section 4 of this Exhibit, the minimum premium
                  for the period May 1, 2003,  through  December 31,  2003,  for
                  reinsurance  provided  under this  Exhibit  shall be  $67,000,
                  which has been pro-rated from $100,000  because of the partial
                  period.

         C.       "Net written  premium"  shall mean the total of the  Company's
                  gross premium  written during the agreement year for the lines
                  of business  covered  hereunder,  less  expense  constants  on
                  admitted policies,  and less return premiums and premiums paid
                  for  reinsurance,  if  any,  inuring  to  the  benefit  of the
                  Agreement.

                                    Section 4

         COMMISSION

         The  Reinsurer  shall  make a  commission  allowance  of  37.50% to the
         Company on the premiums ceded to this Agreement.




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                                                              No. 3154-0016-E001


                                    Section 5
         REPORTS AND REMITTANCES

         A.       The Company will provide the Reinsurer with all necessary data
                  respecting  premiums and forward it to the Reinsurer within 45
                  days  after  the  close of each  quarter,  on  forms  mutually
                  acceptable.

         B.       Any  balance  due the  Reinsurer,  shall  be  remitted  by the
                  Company with the Account  Current.  The Reinsurer  shall remit
                  any  balance  due the Company  promptly  upon the  Reinsurer's
                  receipt of the Account  Current.  Within 15 days after the end
                  of each Agreement  Year, and upon  cancellation or termination
                  at the  end of  each  Agreement  Year  thereafter,  until  all
                  premiums are  accounted  for, the Company  shall render to the
                  Reinsurer a statement of the  Company's  net written  premiums
                  during  the  year  and a  calculation  of the  annual  premium
                  computed  by the  application  of the  rate  set  forth in the
                  Premium Section to the Company's net written premiums.  If the
                  actual  reinsurance  premium  previously paid is less than the
                  annual  minimum  premium  owed  to the  Reinsurer  under  this
                  Agreement,  such additional premium due the Reinsurer shall be
                  forwarded to the Reinsurer with the statement.

         C.       Payment  by the  Reinsurer  of its  portion  of loss  and loss
                  expenses  paid by the Company will be made by the Reinsurer to
                  the  Company  within  5 days  after  proof of  payment  by the
                  Company is received by the Reinsurer.

                                    Section 6

                  WARRANTY

                  The  maximum  limits of  liability  for any one  policy of the
                  Company shall be deemed not to exceed the following:

                  Massage  Program - $2,000,000  each  occurrence and $3,000,000
                  general aggregate.

         This Exhibit C is attached to and forms part of  Reinsurance  Agreement
         No.  3154-0116  issued to  PENN-AMERICA  INSURANCE  COMPANY,  PENN-STAR
         INSURANCE COMPANY.

Nothing herein contained shall alter,  vary or extend any provision or condition
of the Agreement other than as above stated.





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IN WITNESS  WHEREOF,  the parties  hereto have  caused  this  Endorsement  to be
executed by their duly authorized officers.

In Hatboro, PA, this 14th day of August, 2003;

ACCEPTED:
PENN-AMERICA INSURANCE COMPANY
PENN-STAR INSURANCE COMPANY


/s/ Joseph F. Morris
___________________________________

and in Princeton, New Jersey, this 11th day of August, 2003.

                                               AMERICAN RE-INSURANCE COMPANY


                                                /s/
                                                _______________________________
                                                Vice President

Dated:  August 11, 2003


RG/rg













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