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     September 30, 2001
                                ------------------------------

                                       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 November 12, 2001, 7,651,234 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 - September 30, 2001 (unaudited) and
                December 31, 2000                                             3

         Consolidated Unaudited Statements of Operations - For the three and
                 nine months ended September 30, 2001 and 2000                4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the nine months ended September 30, 2001                  5

         Consolidated Unaudited Statements of Cash Flows -
                For the nine months ended September 30, 2001 and 2000         6

         Notes to Unaudited Consolidated Financial Statements                 7

         Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                    12

Part II - Other Information                                                  16










                                     Page 2
<PAGE>



<TABLE>
<CAPTION>
                                         PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                                Consolidated Balance Sheets
                                           (In thousands, except per share data)
                                                                                         September 30,         December 31,
                                                                                              2001                 2000
                                                                                        ----------------     -----------------
ASSETS                                                                                    (Unaudited)
<S>                                                                                           <C>                  <C>
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2001, $130,475; 2000,             $  136,522           $  125,477
       $123,873)
       Held to maturity, at amortized cost (fair value 2001, $15,658; 2000, $17,441)           15,320               17,282
    Equity securities, at fair value (cost 2001, $28,159; 2000, $27,324)                       24,674               24,491
                                                                                        ----------------     -----------------
       Total investments                                                                      176,516              167,250
Cash                                                                                            7,813               11,425
Accrued investment income                                                                        1,971               2,181
Premiums receivable, net                                                                        11,575               9,695
Reinsurance recoverable                                                                         24,842              24,447
Prepaid reinsurance premiums                                                                    3,868                4,635
Deferred policy acquisition costs                                                               8,902               10,317
Capital lease                                                                                   1,688                1,753
Deferred income taxes                                                                           3,385                4,272
Income tax recoverable                                                                          1,360                2,982
Other assets                                                                                      402                  529
                                                                                        ----------------     -----------------
       Total assets                                                                        $  242,322           $  239,486
                                                                                        ================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                               $  117,829           $  115,314
  Unearned premiums                                                                            39,257               43,239
  Accounts payable and accrued expenses                                                         2,525                2,353
  Capitalized lease obligation                                                                  1,608                1,701
  Other liabilities                                                                             1,817                2,828
                                                                                        ----------------     -----------------
         Total liabilities                                                                    163,036              165,435
                                                                                        ----------------     -----------------

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 2001 and 2000, 10,128,734 and 10,076,025 shares, respectively;
    outstanding 2001 and 2000, 7,628,734 and 7,576,025 shares, respectively                       101                  101
  Additional paid-in capital                                                                   70,574               70,164
   Accumulated other comprehensive income (loss)                                                1,691                 (811)
  Retained earnings                                                                            31,897               29,583
  Treasury stock, 2,500,000 shares in 2001 and 2000 at cost                                   (24,161)             (24,161)
   Officers' stock loans                                                                         (655)                (546)
  Unearned compensation from restricted stock awards                                             (161)                (279)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            79,286               74,051
                                                                                        ----------------     -----------------

         Total liabilities and stockholders' equity                                        $  242,322           $  239,486
                                                                                        ================     =================
</TABLE>

                                                          Page 3
<PAGE>

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

                               For the three and nine months ended September 30, 2001 and 2000
                                            (In thousands, except per share data)


                                                               Three months ended                    Nine months ended
                                                                  September 30,                         September 30,
                                                           --------------------------           ---------------------------
                                                             2001              2000               2001               2000
                                                           --------          --------           --------           --------
Revenues
<S>                                                        <C>               <C>                <C>                <C>
Premiums earned                                            $ 20,946          $ 23,366           $ 66,194           $ 67,392
Net investment income                                         2,851             2,753              8,516              7,613
Net realized investment gain (loss)                              40            (1,148)              (192)            (1,177)
                                                           --------          --------           --------           --------
    Total revenues                                           23,837            24,971             74,518             73,828
                                                           --------          --------           --------           --------

Losses and expenses
Losses and loss adjustment expenses                          14,553            24,546             46,740             56,445
Amortization of deferred policy acquisition costs             4,957             6,608             17,188             19,320
Other underwriting expenses                                   2,028             1,520              5,246              4,437
Corporate expenses                                              141               170                492                625
Interest expense                                                 40                36                120                109
                                                           --------          --------           --------           --------
    Total losses and expenses                                21,719            32,880             69,786             80,936
                                                           --------          --------           --------           --------


Income (loss) before income tax                               2,118            (7,909)             4,732             (7,108)
Income tax expense (benefit)                                    567            (2,831)             1,220             (2,951)
                                                           --------          --------           --------           --------
Net income (loss)                                          $  1,551          $ (5,078)          $  3,512           $ (4,157)
                                                           ========          ========           ========           ========

Net income (loss) per share, basic and diluted             $   0.20          $  (0.67)          $   0.46           $  (0.54)

Cash dividends per share                                   $ 0.0525          $ 0.0525           $ 0.1575           $ 0.1575

</TABLE>

                                                           Page 4

<PAGE>


<TABLE>
<CAPTION>

                                         PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

                                       Consolidated Statement of Stockholders' Equity
                                                        (Unaudited)

                                        For the nine months ended September 30, 2001
                                           (In thousands, except per share data)





                                                                                                       Unearned
                                                                                                     Compensation
                                                    Accumulated                                          From
                                       Additional      Other                             Officers'    Restricted     Total
                              Common     Paid-In   Comprehensive   Retained   Treasury     Stock        Stock     Stockholders'
                               Stock    Capital    Income (Loss)   Earnings    Stock       Loans        Awards       Equity
                             --------------------------------------------------------------------------------------------------
<S>                          <C>     <C>            <C>           <C>        <C>         <C>         <C>         <C>
Balance at December 31, 2000   $ 101   $ 70,164      $ ( 811)      $ 29,583   $ (24,161)  $  (546)    $ (279)     $ 74,051
Net income                        --         --           --          3,512          --        --         --         3,512
Other comprehensive income:
 unrealized gains on
 investments, net of
 tax and reclassification
 adjustment                       --         --        2,502             --          --        --         --         2,502
                                                                                                                 -----------
Comprehensive income                                                                                                 6,014
                                                                                                                 -----------
Issuance of common stock          --        410           --             --          --        --         --           410
Officers' stock loans             --         --           --             --          --      (109)        --          (109)
Amortization of compensation
 expense from restricted
 stock awards issued              --         --           --             --          --        --        118           118
Cash dividends paid
 ($0.1575 per share)              --         --           --             --          --        --     (1,198)       (1,198)
                             --------------------------------------------------------------------------------------------------
Balance at September 30, 2001  $ 101   $ 70,574      $ 1,691       $ 31,897   $ (24,161)  $  (655)    $ (161)     $ 79,286
                             ==================================================================================================

</TABLE>


                                                          Page 5
<PAGE>

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

                                   For the nine months ended September 30, 2001 and 2000
                                                       (In thousands)
                                                                                        Nine months ended September 30,
                                                                                      -------------------------------------
                                                                                           2001                   2000
                                                                                      ---------------        ---------------
Cash flows from operating activities:
<S>                                                                                     <C>                  <C>
    Net income (loss)                                                                   $     3,512          $      (4,157)
    Adjustments to reconcile net income (loss) to net cash provided by operating
      activities:
         Amortization and depreciation expense                                                   48                    396
         Net realized investment loss                                                           192                  1,177
         Deferred income tax benefit                                                           (402)                  (306)
         Net increase (decrease) in premiums receivable, prepaid reinsurance
         premiums and unearned premiums                                                      (5,095)                 3,891
         Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                        2,120                 12,442
         Accrued investment income                                                              210                    (83)
         Deferred policy acquisition costs                                                    1,415                 (1,744)
         Income tax recoverable                                                               1,622                 (1,705)
         Other assets                                                                            20                     74
         Accounts payable and accrued expenses                                                  172                    789
         Other liabilities                                                                   (1,011)                    11
                                                                                      ---------------        ---------------
         Net cash provided by operating activities                                            2,803                 10,785
                                                                                      ---------------        ---------------

Cash flows from investing activities:
    Purchases of equity securities                                                           (3,062)               (11,957)
    Purchases of fixed maturities available for sale                                        (25,625)               (60,771)
    Purchases of fixed maturities held to maturity                                               --                 (9,949)
    Proceeds from sales of equity securities                                                  2,020                 12,753
    Proceeds from sales and maturities of fixed maturities available for sale                19,242                 57,972
    Proceeds from maturities and calls of fixed maturities held to maturity                   2,000                  9,000
    Change in short-term investments                                                             --                    449
                                                                                      ---------------        ---------------
         Net cash used by investing activities                                               (5,425)                (2,503)
                                                                                      ---------------        ---------------

Cash flows from financing activities:
    Issuance of common stock                                                                    410                    493
    Purchase of treasury stock                                                                   --                 (4,687)
    Officers' stock loans                                                                      (109)                  (546)
    Principal payments on capital lease obligations                                             (93)                   (90)
    Dividends paid                                                                           (1,198)                (1,213)
                                                                                      ---------------        ---------------
         Net cash used by financing activities                                                 (990)                (6,043)
                                                                                      ---------------        ---------------

(Decrease) increase in cash                                                                  (3,612)                 2,239
Cash, beginning of period                                                                    11,425                 12,045
                                                                                      ---------------        ---------------
Cash, end of period                                                                     $     7,813           $     14,284
                                                                                      ===============        ===============

Supplemental disclosure of cash flow information:
      Interest paid                                                                     $       120           $        109
      Taxes recovered                                                                            --                   (950)


</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" or the  "Company")  is an insurance
holding  company.  Approximately  41% of the  outstanding  common  stock  of the
Company  was  owned by Penn  Independent  Corporation  ("Penn  Independent")  at
September 30, 2001. The accompanying  financial  statements include the accounts
of the Company and its wholly owned subsidiary,  Penn-America  Insurance Company
("Penn-America")  and its wholly owned subsidiary,  Penn-Star  Insurance Company
("Penn-Star").

         Penn-America and Penn-Star  underwrite  commercial property and general
liability  insurance  and  multi-peril  insurance for small  businesses  located
primarily  in small  towns  and  suburban  and  rural  areas.  Penn-America  and
Penn-Star can write business in all 50 states and the District of Columbia.  The
companies  write business on both an admitted and excess and surplus lines basis
in 36 states, on an admitted basis only in 2 states and on an excess and surplus
lines basis only in 12 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  2000 Annual Report which was
incorporated  by  reference  into the  Company's  Form  10-K for the year  ended
December 31, 2000. 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
$2.8 million and $2.9 million for the three months ended  September 30, 2001 and
2000,  respectively.  Losses and loss  adjustment  expenses are presented net of
amounts  ceded to  reinsurers  of $1.1 million and $400,000 for the three months
ended September 30, 2001 and 2000, respectively.

         Premiums  earned are net of amounts ceded to reinsurers of $8.8 million
and  $8.4  million  for the nine  months  ended  September  30,  2001 and  2000,
respectively.  Losses and loss  adjustment  expenses are net of amounts ceded to
reinsurers of $4.5 million and $2.9 million for the nine months ended  September
30, 2001 and 2000, respectively.

Note 3 - Comprehensive Income (Loss)

           Accumulated other comprehensive income (loss) of the Company consists
solely of unrealized gains or losses on investment  securities net of applicable
income tax expense or benefit and  reclassification  adjustments.  Comprehensive
income was $3.6 million for the three months ended September 30, 2001,  compared
with a  comprehensive  loss of $3.1 million for the three months ended September
30,  2000.  Comprehensive  income was $6.0  million  for the nine  months  ended
September 30, 2001 compared  with a  comprehensive  loss of $1.9 million for the
nine months ended September 30, 2000.


                                     Page 7
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 4 - Income (Loss) Per Share

         The following is a reconciliation of the numerators and denominators of
the basic and diluted income (loss) per share computations:

<TABLE>
<CAPTION>
                                                              Three months ended                Nine Month Ended
(in thousands, except per share data)                           September 30,                    September 30,
                                                         ------------------------           ------------------------
                                                          2001              2000             2001             2000
                                                         -------          -------           -------          -------
<S>                                                      <C>              <C>               <C>              <C>
Basic per share computation:
Net income (loss)                                        $ 1,551          $(5,078)          $ 3,512          $(4,157)


Weighted average common shares outstanding                 7,625            7,558             7,603            7,714
                                                         -------          -------           -------          -------

Basic net income (loss) per share                        $  0.20          $(0.67)           $  0.46          $ (0.54)
                                                         =======          =======           =======          =======

Diluted per share computation:
Net income (loss)                                        $ 1,551          $(5,078)          $ 3,512          $(4,157)


Weighted average common shares outstanding                 7,625            7,558             7,603            7,714


Additional shares outstanding after the assumed
      exercise of stock options by applying the
      treasury stock method                                   63                *                57                *
                                                         -------          -------           -------          -------


Total shares                                               7,688            7,558             7,660            7,714
                                                         =======          =======           =======          =======

Diluted net income (loss)  per share                     $  0.20          $ (0.67)          $  0.46          $ (0.54)
                                                         =======          =======           =======          =======
</TABLE>



*The potential  impact of common stock purchase options is not considered as the
impact is anti-dilutive.





                                     Page 8
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 5- Segment Information

         The  Company  has  two  reportable  segments:   non-standard   personal
automobile and  commercial  lines.  The Company  announced in April 1999 that it
would  run-off its  remaining  personal  lines  automobile  business,  which was
underwritten  through a single  agent in  California.  This  followed a decision
earlier in 1999 to eliminate  the  Company's  non-standard  personal  automobile
business  in nine other  states.  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.
These segments are managed  separately  because they have  different  customers,
pricing and expense  structures.  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 2000 Annual Report,  which was  incorporated by reference into the
Company's 2000 Form 10-K. The Company  evaluates  segment profit 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 as opposed to investment income attributable to insurance
transactions.

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

<TABLE>
<CAPTION>
(in thousands)                                        Three months ended September 30, 2001
                                                      -------------------------------------
                                                                     Personal
                                                   Commercial       Automobile         Total
                                                  ------------------------------------------
<S>                                                    <C>             <C>         <C>
Premiums earned                                        $20,946         $    0      $ 20,946
Net investment income from insurance operations          1,926             85         2,011
                                                  ------------------------------------------
Total segment revenues                                  22,872             85        22,957
                                                  ------------------------------------------
Segment losses and loss adjustment expenses             14,553              0        14,553
Segment expenses                                         5,731              5         5,736
                                                  ------------------------------------------
Total segment expenses                                  20,284              5        20,289
                                                  ------------------------------------------
Segment income                                         $ 2,588         $   80       $ 2,668
                                                  ------------------------------------------
Unallocated items:
Net investment income from equity                                                       880
Unallocated expenses                                                                 (1,430)
Income tax expense                                                                     (567)
                                                                                 -----------
Net income                                                                           $1,551
                                                                                 ===========
</TABLE>

                                     Page 9
<PAGE>


                               PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

                         Notes to Unaudited Consolidated Financial Statements
                                              (continued)


Note 5- Segment Information (Continued)
<TABLE>
<CAPTION>
 (in thousands)                                               Three months ended September 30, 2000
                                                              -------------------------------------
                                                                            Personal
                                                        Commercial         Automobile           Total
                                                         --------           --------          --------
<S>                                                      <C>                <C>               <C>
Premiums earned                                          $ 22,749           $    617          $ 23,366
Net investment income from insurance operations               831                100               931
                                                         --------           --------          --------
Total segment revenues                                     23,580                717            24,297
                                                         --------           --------          --------
Segment losses and loss adjustment expenses                24,359                187            24,546
Segment expenses                                            5,367                217             5,584
                                                         --------           --------          --------
Total segment expenses                                     29,726                404            30,130
                                                         --------           --------          --------
Segment income (loss)                                    $ (6,146)          $    313          $ (5,833)
                                                         --------           --------          --------
Unallocated items:
Net investment income from equity                                                                  674
Unallocated expenses                                                                            (2,750)
Income tax benefit                                                                               2,831
                                                                                              --------
Net loss                                                                                      $ (5,078)
                                                                                              ========



(in thousands)                                                Nine months ended September 30, 2001
                                                              ------------------------------------
                                                                            Personal
                                                        Commercial         Automobile           Total
                                                         --------           --------          --------

Premiums earned                                           $66,172            $    22           $66,194
Net investment income from insurance operations             5,360                240             5,600
                                                         --------           --------          --------
Total segment revenues                                     71,532                262            71,794
                                                         --------           --------          --------
Segment losses and loss adjustment expenses                48,233             (1,493)           46,740
Segment expenses                                           18,880                 15            18,895
                                                         --------           --------          --------
Total segment expenses                                     67,113             (1,478)           65,635
                                                         --------           --------          --------
Segment income                                            $ 4,419            $ 1,740           $ 6,159
                                                         --------           --------          --------
Unallocated items:
Net investment income from equity                                                                2,724
Unallocated expenses                                                                            (4,151)
Income tax expense                                                                              (1,220)
                                                                                              --------
Net income                                                                                      $3,512
                                                                                              ========




                                                Page 10
<PAGE>


(in thousands)                                                 Nine months ended September 30, 2000
                                                               ------------------------------------
                                                                            Personal
                                                        Commercial         Automobile           Total
                                                         --------           --------          --------
Premiums earned                                          $ 63,616           $  3,776          $ 67,392
Net investment income from insurance operations             3,332                402             3,734
                                                         --------           --------          --------
Total segment revenues                                     66,948              4,178            71,126
                                                         --------           --------          --------
Segment losses and loss adjustment expenses                54,047              2,398            56,445
Segment expenses                                           17,904              1,358            19,262
                                                         --------           --------          --------
Total segment expenses                                     71,951              3,756            75,707
                                                         --------           --------          --------
Segment income (loss)                                    $ (5,003)          $    422          $ (4,581)
                                                         --------           --------          --------
Unallocated items:
Net investment income from equity                                                                2,702
Unallocated expenses                                                                            (5,229)
Income tax benefit                                                                               2,951
                                                                                              --------
Net loss                                                                                      $ (4,157)
                                                                                              ========
</TABLE>




                                               Page 11

<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 September 30, 2001 and 2000

         Premiums  earned  decreased 10.4% to $20.9 million for the three months
ended September 30, 2001 from $23.4 million for the three months ended September
30, 2000. The Company  previously  announced that it was exiting both commercial
and non-standard personal automobile business.  Earned premiums for these exited
lines of business  decreased  $1.8 million,  or 69.1% for the three months ended
September  30, 2001  compared to the three months ended  September  30, 2000. In
addition,  the Company's core commercial lines earned premiums (excluding exited
lines of business)  decreased $0.6 million,  or 2.9%, due to the withdrawal from
writing certain classes of residential contractors.

         Gross  written  premiums  decreased  17.4% for the three  months  ended
September  30, 2001 to $23.6  million  compared  to $28.5  million for the three
months ended September 30, 2000. Of this decline, $3.4 million resulted from the
Company's  decision in October 2000 to exit the  commercial  automobile  line of
business.

         Net  written  premiums  decreased  16.6%  for the  three  months  ended
September  30, 2001 to $21.1  million  compared  to $25.3  million for the three
months ended September 30, 2000. This is primarily due to the Company's decision
to exit the  commercial  automobile  line of business  which  accounts  for $2.7
million of the decline.

         Net  investment  income  increased  3.6 % to $2.9 million for the three
months ended  September  30, 2001,  from $2.8 million for the three months ended
September 30, 2000. This increase  resulted  principally from an increase in the
investment  yield of the fixed  income  investment  portfolio  and the growth in
invested  assets which were  partially  offset by a decline in interest rates on
overnight cash balances.

         Losses and loss  adjustment  expenses  decreased 40.7% to $14.6 million
for the three months ended  September 30, 2001, from $24.5 million for the three
months ended  September  30, 2000.  The three  months ended  September  30, 2000
included a strengthening of prior year loss reserves of $7.6 million.

         Amortization of deferred  policy  acquisition  costs ("DAC")  decreased
25.0% to $5.0 million for the three months ended  September 30, 2001,  from $6.6
million for the three  months  ended  September  30, 2000 due to a reduction  in
overall commissions which are a function of the decline in earned premium.

         Other  underwriting  expenses  increased  33.4% to $2.0 million for the
three months ended  September  30, 2001,  from $1.5 million for the three months
ended September 30, 2000.

         The overall statutory combined ratio for the Company decreased to 100.5
for the three months ended  September 30, 2001,  from 139.5 for the three months
ended  September  30, 2000,  primarily  due to the decrease in the loss ratio to
69.5 in 2001  compared to 105.1 in 2000.  The ratios for the three  months ended
September 30, 2000 included a strengthening  of prior year loss reserves of $7.6
million which added 32.4 points to the ratio for that period.  The expense ratio
was 31.0 for the three  months ended  September  30, 2001 and 34.4 for the three
months ended September 30, 2000.





                                    Page 12
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         The factors described above resulted in net income for the three months
ended September 30, 2001 of $1.6 million or $0.20 per share (basic and diluted),
compared to net loss of $5.1  million or $0.67 per share (basic and diluted) for
the three months ended September 30, 2000.

Nine  Months Ended September 30, 2001 and 2000

         Premiums  earned  decreased  1.8% to $66.2  million for the nine months
ended  September 30, 2001 from $67.4 million for the nine months ended September
30, 2000.  Premiums  earned for the Company's core commercial  lines  (excluding
exited lines of business)  increased $3.1 million, or 5.3%. This was offset by a
decrease in premiums earned on the exited  commercial and non-standard  personal
automobile lines of business of $4.3 million, or 49.4%.

         Gross  written  premiums  decreased  14.6%  for the nine  months  ended
September  30,  2001 to $71.0  million  compared  to $83.1  million for the nine
months ended September 30, 2000. Of this decline,  $10.4 million is attributable
to the  Company's  decision to exit the  commercial  and  non-standard  personal
automobile lines of business.

         Net  written  premiums  decreased  14.5%  for  the  nine  months  ended
September  30,  2001 to $63.0  million  compared  to $73.7  million for the nine
months ended September 30, 2000. This is due primarily to the Company's decision
to exit the commercial and non-standard personal automobile lines of business.

         Net  investment  income  increased  11.9% to $8.5  million for the nine
months ended  September  30,  2001,  from $7.6 million for the nine months ended
September 30, 2000. This increase  resulted  principally from an increase in the
investment  yield of the fixed  income  investment  portfolio  and the growth in
invested  assets,  partially  offset by a decline in interest rates on overnight
cash balances.

         Losses and loss  adjustment  expenses  decreased 17.2% to $46.7 million
for the nine months ended  September  30, 2001,  from $56.4 million for the nine
months ended  September  30,  2000.  The nine months  ended  September  30, 2000
included a strengthening of prior year loss reserves of $9.4 million.

         Amortization of deferred  policy  acquisition  costs ("DAC")  decreased
11.0% to $17.2 million for the nine months ended  September 30, 2001 compared to
$19.3  million for the nine months ended  September  30, 2000.  This is due to a
reduction in overall  commissions  which are a function of the decline in earned
premiums.

         Other  underwriting  expenses  increased  18.2% to $5.2 million for the
nine months  ended  September  30,  2001,  from $4.4 million for the nine months
ended September 30, 2000.

         The overall statutory combined ratio for the Company decreased to 103.9
for the nine months ended  September  30,  2001,  from 118.6 for the nine months
ended  September  30, 2000,  primarily  due to the decrease in the loss ratio to
70.6 in 2001 compared to 83.8 in 2000.  The loss ratio for the nine months ended
September   30,  2000   included  the  effect  of  a  prior  year  loss  reserve
strengthening  of $9.4  million  that added  13.9  points to the ratios for that
period.  The expense ratio decreased to 33.3 for the nine months ended September
30, 2001, compared to 34.8 for the nine months ended September 30, 2000.




                                    Page 13
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         The factors  described above resulted in net income for the nine months
ended September 30, 2001 of $3.5 million or $0.46 per share (basic and diluted),
compared to net loss of $4.2  million or $0.54 per share (basic and diluted) for
the nine months ended September 30, 2000.

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 and Penn-Star.  Penn-America's  principal sources of
funds are 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 and
other payments to PAGI.

         Penn-America  is required by law to maintain a certain  minimum surplus
on a  statutory  basis and is subject to  risk-based  capital  requirements  and
regulations  under which payment of dividends from statutory surplus may require
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  surplus,  or  statutory  net
income for the prior year. Using this criteria,  the available ordinary dividend
for 2001 is $5.5 million.  No ordinary  dividends  were paid to PAGI in 2000. In
2000,  Penn-America  paid a $6.4  million  return  of  capital  to  PAGI,  after
receiving approval from the Pennsylvania  Insurance Department,  which PAGI used
to  repurchase  stock  and  to  pay  dividends  and  PAGI  operating   expenses.
Penn-America  paid  ordinary  dividends  of $1.1 million to PAGI in 2001 through
September 18, 2001.

         Net cash provided by operating activities was $2.8 million for the nine
months ended September 30, 2001, compared to $10.8 million provided by operating
activities for the nine months ended September 30, 2000.

         Net cash used by  investing  activities  was $5.4  million for the nine
months ended  September  30, 2001,  compared to $2.5 million for the nine months
ended September 30, 2000.

         Net cash used by  financing  activities  was $1.0  million for the nine
months ended  September  30, 2001,  compared to $6.0 million for the nine months
ended  September 30, 2000. In 2000,  $4.7 million was used to purchase  treasury
stock, and no such purchases were made in 2001.

         Statutory  surplus as of September 30, 2001  increased to $61.9 million
from $55.5  million as of December 31, 2000.  This  increase is due to statutory
net income of $5.0 million and a $3.3 million net positive  impact from adopting
the standard set of statutory accounting principles known as "codification."

         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



                                    Page 14
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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


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 $151.8 million was 86.0% of
the total investment  portfolio as of September 30, 2001.  Approximately  97% 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 September 30, 2001 was
approximately  3.6 years.  Equity  securities,  the majority of which consist of
preferred stocks and exchange traded funds, were $24.7 million or 14.0% of total
investments as of September 30, 2001.

         As of September 30, 2001,  the  investment  portfolio  contained  $50.6
million of  mortgage/asset-backed  obligations,  which  represents  28.6% of the
total  investments  as of  September  30,  2001.  All of these  securities  were
"AA"-rated or better and 75.5% 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 September 30, 2001.




                                    Page 15
<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 August 16, 2001, the Company filed a current report on Form 8-K
              announcing the  availability  of second quarter  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.




                                    Page 16

<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:  November 13, 2001                By:     /s/ Jon S. Saltzman
       -----------------                        -----------------------------
                                                Jon S. Saltzman
                                                President and
                                                Chief Executive Officer



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





                                    Page 17