No. 3154-0031-E001

                                   ENDORSEMENT
                                   -----------

Attached to and forming part of FEDERAL TERRORISM ACT AGGREGATE QUOTA SHARE
REINSURANCE AGREEMENT NO. 3154-0031 between PENN-AMERICA INSURANCE COMPANY,
PENN-STAR INSURANCE COMPANY, both of Hatboro, Pennsylvania and PENN-PATRIOT
INSURANCE COMPANY of Richmond, Virginia (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 understood and agreed by the parties hereto, that effective 12:01 a.m.,
Eastern Standard Time, January 1, 2004, this Agreement is amended to read as
follows:

1.     Professional I.iability maximum policy limits are added to ARTICLE IV,
       COMPLIANCE WARRANTY, and the Article reads as follows:

                                   ARTICLE IV
                                   ----------

       COMPLIANCE WARRANTY
       -------------------

       A.     The Company warrants that it will seek to obtain coverage under
              the Terrorism Risk Insurance Act and will comply with all
              provisions of the Terrorism Risk Insurance Act necessary to obtain
              coverage thereunder, with respect to all property and casualty
              insurance as defined in the Act, written by the Company, including
              but not limited to the prescribed notice and offer of coverage and
              the disclosures of premium to the policyholder as required under
              the Act.

       B.     The Company further warrants that:
              1.     for any policy where the insurer receives a written
                     statement from the insured that affirmatively authorizes an
                     exclusion; or
              2.     where the insured fails to pay the premium charged for
                     providing terrorism coverage, an exclusion for such
                     terrorism coverage will be attached to the Company's policy
                     as permitted under law.

       C.     The Company shall charge no less than 5% of all other Total Gross
              Premium for Certified Terrorism coverage on each policy covered
              hereunder unless:
              1.     The original insured declines such terrorism coverage in
                     accordance with the Act and such declination is not
                     prohibited by law.
              2.     Otherwise prohibited from doing so by law.

       D.     The Company warrants that all reinsurance in place at the
              inception of each Agreement Year hereunder shall remain unchanged
              during such Agreement Year or so deemed.


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                                                              No. 3154-0031-E00l

       E.     The Company and the Reinsurer have mutually agreed to the
              Company's underwriting guidelines for Terrorism as respects
              certified acts of terrorism. The Company warrants that these
              guidelines shall he applied to all business reinsured hereunder
              and shall remain unchanged unless agreed to in writing by American
              Re-Insurance prior to the implementation of any such changes. The
              terms and conditions of this Agreement shall take precedence over
              any other agreement between the Company and the Reinsurer
              regarding such guidelines.

       F.     It shall be deemed that the Company will purchase umbrella
              facultative reinsurance and excess general liability reinsurance
              covering Extra Contractual Obligations and Excess Judgments
              liability as defined within this Agreement for an amount equal to
              and in addition to the umbrella policy limit subject to an annual
              aggregate limit of $5,000,000. Facultative reinsurance coverage
              for any umbrella extra contractual obligations or excess judgments
              liability shall inure to the benefit of this Agreement.

       G.     Professional Liability - $1,000,000 each occurrence and $2,000,000
              general aggregate.

       H.     Professional Liability "Slender Lady Program" - $1,000,000 each
              occurrence and $3,000,000 general aggregate.

II.    The "Slender Lady Program" is added as an exception to Exclusion B.1 of
       the EXCLUSIONS Article 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;


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                                                              No. 3154-0031-E001



                      n.   "Pet Pak"; o. "Wellness Pak";
                      p.   "Massage Program"; or
                      q.   "Slender Lady Program".

IN WITNESS WHEREOF the parties hereto have caused this Endorsement to be
executed in duplicate in Hatboro, Pennsylvania, this 10th day of September,
2004;


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





----------------------------------
and in Princeton, New Jersey, this                  9th Day of September 2004.

                                                   AMERICAN RE-INSURANCE COMPANY



                                                   -----------------------------
                                                   Vice President


DATED: August 9, 2004
RG/rg



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