No. 3154-0026-E002



                                  ENDORSEMENT

     Attached  to and  forming  part of  PROPERTY  AND  CASUALTY  EXCESS OF LOSS
     REINSURANCE AGREEMENT NO. 3154-0026 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:

          I.   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".

     11.  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;



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                                                             No. 3154-0026-E002

               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 are
                    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  parts critical to the operation of the foregoing,
                    but this 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";
               I.   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.

     II.  "Artificial  Prosthetic  Device Fitters Program" maximum policy limits
          are added to Section 6,  WARRANTY  of  EXHIBIT B,  CASUALTY  EXCESS OF
          LOSS, and Section 6 reads as follows:

                                        Section 6
                                        ---------

     WARRANTY
     --------

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

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




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                                                              No. 3154-0026-E002


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

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

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

     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