No.3154-028-E002


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

Attached to and forming part of PROPERTY AND CASUALTY CLASH EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 3154-0028 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, July 22, 2004, this Agreement is amended to read as
follows:

I.     The "Artificial Prosthetic Device Fitters Program" is added as an
       exception to Exclusion C.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;
                        n.   "Pet Pak";
                        o.   "Wellness Pak";
                        p.   "Massage Program";
                        q.   "Slender Lady Program"; or
                        r.   "Artificial Prosthetic Device Fitters Program".

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                                                               No. 3154-028-E002


II.    The "Artificial Prosthetic Device Fitters Program" is added as an
       exception to Exclusion C.22 of the Exclusions Article and the exclusion
       reads as follows:

       22.    Products Liability or Completed Operations Liability related to:
              a.     Drugs, except for liability arising from the retail sale or
                     wholesale distribution of drugs by insureds not engaged in
                     their manufacture;
              b.     Chemicals, except for liability arising from the retail
                     sale or wholesale distribution of household chemicals by
                     insureds not engaged in their manufacture;
              c.     Insecticides and pesticides, except sales that are 20% or
                     less of insured's total sales;
              d.     Aircraft or aircraft parts;
              e.     Animal feed, other than custom-blended grains without
                     chemical or pharmacological additives, except sales that
                     arc 20% or less of insured's total sales;
              f.     Cosmetics manufacturing, except for the manufacture of
                     soaps or shampoos where the insured's receipts are less
                     than 10% of total sales or skin and hair care products
                     prepared at beauty salons or similar establishments,
              g.     Tobacco and tobacco products, but this exclusion shall not
                     apply to liability arising from the retail sale or
                     wholesale distribution of tobacco products by insureds not
                     engaged in their manufacture;
              h.     Automobiles, trucks, motorcycles and all-terrain vehicles
                     or component pans critical to the operation of the
                     foregoing, hut Lbs exclusion shall not apply to the
                     liability arising from the retail sale or wholesale
                     distribution of component parts critical or non-critical to
                     the operation of the foregoing not engaged in their
                     manufacture;
              i.     Fiberglass, but this exclusion shall not apply to liability
                     arising from the retail sale or wholesale distribution of
                     fiberglass products by insureds not engaged in their
                     manufacture;
              j.     Firearms, except sales that are 20% or less of insured's
                     total sales;
              k.     Medical equipment; except for the "Artificial Prosthetic
                     Device Fitters Program";
              l.     Elevator or hoist manufacturing, installation, inspection,
                     service or repair;
              m.     Security and alarm system manufacturing, installation,
                     inspection, service or repair, except for coverage as
                     provided for in the Company's guidelines as of 9/01/01; or
              n.     Fire suppression system manufacturing, installation,
                     inspection, service or repair, except for coverage as
                     provided for in the Company's guidelines as of 9/01/01.


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                                                               No. 3154-028-E002

III.   The "Artificial Prosthetic Device Fitters Program" maximum policy limits
       are added to ARTICLE X, WARRANTY, and the Article reads as follows:


                                    ARTICLE X
                                    ---------

       WARRANTY
       --------

       Casualty
       --------

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

              3.     Umbrella and Excess General Liability- The Company will
                     purchase or so deemed 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.

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

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

              6.     Professional and General Liability - "Artificial Prosthetic
                     Device Fitters Program" - $1,000,000 each occurrence and
                     $3,000,000 general aggregate.

       Property
       --------

       A.     It shall be deemed that the company will purchase facultative
              reinsurance on all risks in excess of $2,000,000.

       B.     It shall be deemed that the company will purchase catastrophe
              reinsurance for $29,000,000 in excess of $1,000,000 for any one
              occurrence.


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                                                               No. 3154-028-E002


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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