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, 1997

                                       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, 1997  6,740,770  shares of the  registrant's  common  stock,  $.01 par
value, were outstanding.


                                     Page 1
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                                      Index

                                                                    Page Number

Part I - Financial Information

         Consolidated Unaudited Balance Sheets - March 31, 1997 and
                December 31, 1996                                            3

         Consolidated Unaudited Statements of Earnings - For the three
                months ended March 31, 1997 and 1996                         4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the three months ended March 31, 1997                    5

         Consolidated Unaudited Statements of Cash Flows -
                For the three months ended March 31, 1997 and 1996           6

         Notes to Unaudited Consolidated Financial Statements                7

         Management's Discussion and Analysis of Results
                of Operations and Financial Condition                        7

Part II - Other Information                                                  9


                                     Page 2

<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                                   (unaudited)
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                         March 31,     December 31,
                                                                                           1997           1996
<S>                                                                                         <C>            <C>  
ASSETS
Investments:
    Fixed Maturities:
      Available for sale, at fair value (amortized cost 1997, $47,855; 1996, $49,244)   $  46,957      $  48,954
      Held to maturity, at amortized cost (fair value 1997, $53,457; 1996, $44,111)        54,488         44,227
    Equity securities, at fair value (cost 1997, $10,717; 1996, $10,597)                   12,390         12,390
    Short term investments, at cost, which approximates fair value                          4,900          7,000
                                                                                        ---------      ---------
      Total investments                                                                   118,735        112,571
Cash                                                                                        1,725          2,979
Receivables:
    Accrued investment income                                                               1,842          1,671
    Premiums receivable, net                                                               10,859         10,494
    Reinsurance recoverable                                                                15,817         15,719
    Note receivable, affiliate                                                                 75            275
                                                                                        ---------      ---------
      Total receivables                                                                    28,593         28,159
Prepaid reinsurance premiums                                                                2,632          2,668
Deferred policy acquisition costs                                                           7,726          7,231
Capital leases                                                                              1,929          1,950
Deferred income tax                                                                         2,515          2,211
Income tax recoverable                                                                         --            249
Other assets                                                                                  523            587
                                                                                        ---------      ---------
      Total assets                                                                      $ 164,378      $ 158,605
                                                                                        =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Unpaid losses and loss adjustment expenses                                          $  73,940      $  70,728
    Unearned premiums                                                                      32,128         30,865
    Accounts payable and accrued expenses                                                     991          1,773
    Capitalized lease obligations                                                           2,003          2,030
    Income tax payable                                                                        645             --
    Notes payable, bank                                                                     9,000          9,000
    Other liabilities                                                                       2,121          1,872
                                                                                        ---------      ---------
      Total liabilities                                                                   120,828        116,268
                                                                                        ---------      ---------
Stockholders' equity:
    Preferred stock, $.01 par value; authorized 2,000,000 shares;
      none issued                                                                              --             --
    Common stock, $.01 par value; authorized 10,000,000 shares;
      issued and outstanding 1997, 6,710,638 shares and 1996, 6,676,131 shares                 67             67
    Additional paid-in capital                                                             22,087         21,844
    Unrealized investment gains, net of tax                                                   511            993
    Unrealized loss on fixed maturities transferred to held to maturity                       (43)            --
    Retained earnings                                                                      21,015         19,533
                                                                                        ---------      ---------
                                                                                           43,637         42,437
    Unearned compensation from restricted stock awards                                        (87)          (100)
                                                                                        ---------      ---------
      Total stockholders' equity                                                           43,550         42,337
                                                                                        ---------      ---------

      Total liabilities and stockholders' equity                                        $ 164,378      $ 158,605
                                                                                        =========      =========
</TABLE>

      See accompanying notes to unaudited consolidated financial statements

                                     Page 3
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                       Consolidated Statements of Earnings
                                   (unaudited)

               For the three months ended March 31, 1997 and 1996
                (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                              1997            1996
Revenues:
<S>                                                       <C>            <C>       
    Premiums earned                                       $   20,899     $   15,623
    Net investment income                                      1,940          1,598
    Net realized investment gains                                  1             23
                                                          ----------     ----------
      Total revenues                                          22,840         17,244
                                                          ----------     ----------

Losses and expenses:
    Losses and loss adjustment expenses                       13,217          9,852
    Amortization of deferred policy acquisition costs          5,698          3,988
    Other underwriting expenses                                1,144          1,061
    Interest expense                                             192            217
                                                          ----------     ----------
      Total losses and expenses                               20,251         15,118
                                                          ----------     ----------

Earnings before income tax                                     2,589          2,126

Income tax                                                       839            697
                                                          ----------     ----------

Net earnings                                              $    1,750     $    1,429
                                                          ==========     ==========

Weighted average number of shares outstanding              6,689,457      6,649,818
                                                          ==========     ==========

Net earnings per share (See Note 1)                       $      .26     $      .21
                                                          ==========     ==========

Cash dividends per share (See Note 1)                     $      .04     $      .03
                                                          ==========     ==========
</TABLE>

      See accompanying notes to unaudited consolidated financial statements

                                     Page 4
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                 Consolidated Statement of Stockholders' Equity
                                   (unaudited)

                    For the three months ended March 31, 1997
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                         Unrealized
                                                                                          Loss on              Unearned
                                                                                        Transfer of           Compensation
                                                                              Unrealized   Fixed                 From
                                                                   Additional Investment Maturities            Restricted
                                                    Common Stock     Paid-In    Gains    to Held to  Retained    Stock
                                                 Shares    Amount    Capital   (Losses),  Maturity   Earnings    Awards      Total
                                                                                 Net
<S>                                            <C>           <C>     <C>         <C>      <C>       <C>         <C>       <C>    
Balance at December 31, 1996                    6,676,131     $67     $21,844     $993     $   0     $19,533     $(100)    $42,337
Net earnings                                                                                           1,750                 1,750
Issuance of common stock                           34,507      --         243                                                  243
Amortization of unearned 
     compensation from
     restricted stock awards                                                                                        13          13
Unrealized investment losses 
     from fixed maturities 
     available for sale and 
     equities, net of tax                                                         (532)                                        (532)
Unrealized loss on fixed maturities
     transferred to held to maturity                                                50         (50)                               0
Accretion of net loss on fixed maturities
     transferred to held to maturity                                                             7                                7
Cash dividends paid                                                                                     (268)                  (268)
                                                -----------------------------------------------------------------------------------
Balance at March 31, 1997                       6,710,638     $67     $22,087     $511     $(43)     $21,015     $ (87)    $43,550
                                                ===================================================================================
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.

                                     Page 5
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                                   (unaudited)

               For the three months ended March 31, 1997 and 1996
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                        1997          1996
<S>                                                                                  <C>           <C>     
Cash flows from operating activities
    Net earnings                                                                     $  1,750      $  1,429
    Adjustments to reconcile net earnings to net cash provided by
      operating activities
        Amortization and depreciation expense                                              85            71
        Net realized investment gains                                                      (1)          (23)
        Deferred income tax                                                               (55)          (93)
        Net decrease in premiums and notes receivable,
           prepaid reinsurance premiums and unearned premiums                           1,135           454
        Net increase in unpaid losses and loss adjustment expense
           and reinsurance recoverable                                                  3,114         1,912
        Decrease (increase) in:
           Accrued investment income                                                     (171)          (89)
           Deferred policy acquisition costs                                             (495)         (238)
           Income tax recoverable                                                         249           529
           Other assets                                                                    37          (183)
        Increase (decrease) in:
           Accounts payable and accrued expenses                                         (782)         (406)
           Income tax payable                                                             645           500
           Other liabilities                                                              249           204
                                                                                     --------      --------
        Net cash provided by operating activities                                       5,760         4,067
                                                                                     --------      --------

Cash flows from investing activities
    Purchases of equity securities                                                       (316)       (1,926)
    Purchases of fixed maturities available for sale                                   (8,000)      (11,033)
    Purchases of fixed maturities held to maturity                                     (3,028)      (11,064)
    Proceeds from sales of equity securities                                              197         1,266
    Proceeds from sales and maturities of fixed maturities available for sale           1,000        10,181
    Proceeds from maturities of fixed maturities held to maturity                       1,085         2,004
    Change in short term investments                                                    2,100         5,500
                                                                                     --------      --------
        Net cash used by investing activities                                          (6,962)       (5,072)
                                                                                     --------      --------

Cash flows from financing activities
    Issuance of common stock                                                              243            66
    Principal payment on note payable, affiliate                                           --           (50)
    Dividends paid                                                                       (268)         (177)
    Principal payments on capital lease obligations                                       (27)          (24)
                                                                                     --------      --------
        Net cash used by financing activities                                             (52)         (185)
                                                                                     --------      --------

Decrease in cash                                                                       (1,254)       (1,190)
Cash, beginning of period                                                               2,979         5,204
                                                                                     ========      ========
Cash, end of period                                                                  $  1,725      $  4,014
                                                                                     ========      ========

Supplemental  disclosure  of cash flow  information  Cash paid during the period
    for:
      Income tax refund                                                                    --          (240)
      Interest                                                                            197           189

Supplemental non-cash disclosure
      Cost of securities transferred from available for sale to held to maturity        8,002            --
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                     Page 6
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

              Notes to Unaudited Consolidated Financial Statements

Note 1 - Basis of Presentation

Penn-America  Group, Inc. (the "Company") is an insurance holding company.  Penn
Independent  Corporation  currently owns approximately  61.2% of the outstanding
common stock of the Company.

The accompanying  unaudited  consolidated financial statements should be read in
conjunction with the financial  statements and notes for the year ended December
31, 1996. In the opinion of management,  the financial  information reflects all
adjustments   (consisting  only  of  normal  recurring  adjustments)  which  are
necessary for a fair presentation of financial position,  results of operations,
and cash flows for the interim  periods.  The results of operations  for interim
periods are not  necessarily  indicative  of the results to be expected  for the
entire year.

On  January  29,  1997,  Penn-America  declared  a 3 for 2 stock  split  for all
shareholders of record on February 14, 1997. All earnings and dividend per share
data disclosed herein has been retroactively adjusted to reflect this split.

Note 2 - Reinsurance

Premiums  earned are net of amounts ceded to reinsurers of $1.8 and $1.6 million
for the three  month  period  ended  March 31,  1997 and 1996.  Losses  and loss
adjustment  expenses  are net of  amounts  ceded  to  insurers  of $1.8 and $2.5
million for the three months ended March 31, 1997 and 1996.


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

Results of Operations

Gross written premiums increased 32.7% to $24.0 million for the first quarter of
1997, as compared to $18.0 million for the same quarter in 1996. The increase in
gross  written  premiums  was  primarily  attributable  to  increased  volume in
addition to some rate increases which occurred  automatically because some risks
are  exposure  related.  The  increase  in volume came  primarily  from a 103.8%
increase in the personal  automobile lines to $9.7 million,  as compared to $4.8
million for the same period in 1996.  Commercial  lines volume increased 7.3% to
$14.3 million.

Net written  premiums  increased  35.5% to $22.2 million in the first quarter of
1997 as  compared  to $16.4  million in the first  quarter  of 1996.  Net earned
premium increased 33.8% to $20.9 million,  as compared to $15.6 million in 1996.
These increases are  attributable to the overall growth in gross and net written
premium.

Net  investment  income  increased  21.4% to $1.9  million as  compared  to $1.6
million in 1996. The increase in investment  income can be attributed to a 19.9%
increase in the  investment  portfolio to $118.7  million in 1997 as compared to
$99.1 million as of March 31, 1996. The increase in the investment portfolio was
funded by cash flow from operations.


                                     Page 7
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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


Losses and loss  adjustment  expenses  increased  34.2% to $13.2  million in the
first quarter of 1997 as compared to $9.9 million in 1996.  The increase in loss
and loss adjustment expenses was fairly consistent with the growth in net earned
premiums,  as the loss and loss  adjustment  expense ratio was 63.2 and 63.1 for
the periods ended March 31, 1997 and 1996, respectively. The Company's statutory
combined ratio  increased to 95.6%,  as compared to 94.3% in 1996. The 1.3 point
increase is  primarily  attributed  to growth in the personal  automobile  lines
premium  volume.   Commission  rates  for  the  personal  automobile  lines  are
approximately 5 percentage  points higher than the commercial  lines  commission
rates.  The  overall net  commission  rates were 24.7% and 23.2% for the periods
ended March 31, 1997 and 1996, respectively.

Amortization  of  deferred  policy  acquisition  costs  increased  42.9% to $5.7
million in the first  quarter of 1997 as compared  to $4.0  million for the same
period in 1996.  This  increase  is  attributed  to the  growth in gross  earned
premiums and the higher percentage of written premium in the auto business.

Net earnings  increased  22.4% to $1.8  million in the first  quarter of 1997 as
compared  to $1.4  million  for the  same  period  in  1996.  This  increase  is
principally  attributed to increased  earned  premiums and increased  investment
return.

New Accounting Standard

In March 1997,  the Financial  Accounting  Standards  Board issued SFAS No. 128,
"Earnings  per  Share",  which  defines  the  computation,   presentation,   and
disclosure   requirements  for  earnings  per  share  (EPS).  It  requires  dual
presentation  of Basic EPS and Diluted EPS on the face of the income  statement.
Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities  or other  contracts  to  reissue  common  stock  were  exercised  or
converted into common stock. The statement is effective for financial statements
issued for periods ending after December 15, 1997,  including  interim  periods,
earlier  application is not permitted When adopted,  all  prior-period  EPS data
presented will be restated.

Liquidity and Capital Resources

Net cash provided by operating  activities  was $5.8 million as compared to $4.1
million for the three months ended March 31, 1997 and 1996,  respectively.  This
increase in cash provided by operations  primarily  reflects the increase in net
premiums written during the period.

Net cash used by  investing  activities  was $7.0  million for the three  months
ended March 31, 1997 as compared to $5.1  million in the first  quarter of 1996.
This  increase  was  primarily  due to the  higher  amount of cash  provided  by
operating  activities  for the first  quarter of 1997 which was used to purchase
securities.


                                     Page 8
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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


Net cash used by financing  activities  was $52 thousand in 1997, as compared to
$185 thousand used for the same period in 1996.  The decrease in the use of cash
for financing  activities  was primarily due to $268 thousand cash dividend paid
to stockholders offset by $243 thousand  contribution to paid in capital through
the exercise of stock options by some of the Company's stockholders.

During April of 1997,  the Company  signed a  commitment  letter to increase its
credit  facility  with PNC Bank to $15 million from its present $9 million.  The
structure  of the credit  facility is expected to provide that the $9 million is
to be repaid over a five year period and a $6 million revolving credit line with
principal to be repaid after the second  anniversary,  over a three year period.
Both  portions of the credit  facility are  expected to incur  interest at LIBOR
plus a factor which could vary between 100 and 225 basis  points.  The increased
facility  will  be  used  to add  to the  capital  of  the  Company's  insurance
subsidiary,  Penn-America  Insurance  Company,  and its newly formed subsidiary,
Penn-Star Insurance Company. Penn-Star is domiciled in the State of Pennsylvania
and its focus will be to write  directly the  non-standard  automobile  coverage
that currently is written by Penn-America Insurance Company. Until Penn-Star has
been admitted in the states where we currently  write  automobile  coverage,  it
will assume the auto premium written directly by its parent,  Penn-America under
a reinsurance agreement.

                                     Page 9
<PAGE>



                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

                           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 - None



                                    Page 10

<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 9, 1997                        By: /s/ Jon S. Saltzman
                                             Jon S. Saltzman
                                             President and
                                             Chief Executive Officer



                                         By: /s/ Rosemary R. Ferrero
                                             Rosemary R. Ferrero
                                             Principal Accounting and
                                             Finance Officer



                                     Page 11