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, 1999
                                ----------------------

                                       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 4, 1999, 8,131,261 shares of the registrant's common stock, $.01 par
value, were outstanding.


                                     Page 1
<PAGE>
                    Penn-America Group, Inc. and SubsidiarIES
                                      Index
<TABLE>
<CAPTION>
                                                                                               Page Number
<S>                                                                                           <C>
Part I - Financial Information

         Consolidated Unaudited Balance Sheets - September 30, 1999 and
                December 31, 1998                                                                    3

         Consolidated Unaudited Statements of Earnings - For the three
                 and nine months ended September 30, 1999 and 1998                                   4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the nine months ended September 30, 1999                                         5

         Consolidated Unaudited Statements of Cash Flows -
                For the nine months ended September 30, 1999 and 1998                                6

         Notes to Unaudited Consolidated Financial Statements                                        7

         Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                                           13

Part II - Other Information                                                                         25

</TABLE>


                                     Page 2
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                   (Unaudited)
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
<S>                                                                                     <C>                  <C>
                                                                                        September 30,          December 31,
                                                                                             1999                  1998
                                                                                        ----------------     -----------------
ASSETS
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 1999, $110,273; 1998, $103,365)    $ 107,574            $ 105,598
       Held to maturity, at amortized cost (fair value 1999, $22,248; 1998, $27,270)           22,309               26,956
    Equity securities, at fair value (cost 1999, $28,162; 1998, $23,358)                       27,168               25,238
    Short-term investments, at cost, which approximates fair value                                 --                  997
                                                                                        ----------------     -----------------
       Total investments                                                                      157,051              158,789
Cash                                                                                           12,459               24,077
Receivables:
    Accrued investment income                                                                   2,168                1,871
    Premiums receivable, net                                                                    9,788               10,349
    Reinsurance recoverable                                                                    18,607               18,766
                                                                                        ----------------     -----------------
       Total receivables                                                                       30,563               30,986
Prepaid reinsurance premiums                                                                    3,975                2,809
Deferred policy acquisition costs                                                               9,241                8,728
Capital lease                                                                                   1,862                2,051
Deferred income taxes                                                                           4,148                1,598
Income tax recoverable                                                                          2,126                  884
Other assets                                                                                      399                  582
                                                                                        ----------------     -----------------
       Total assets                                                                         $ 221,824            $ 230,504
                                                                                        ================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                               $   93,421           $   88,937
  Unearned premiums                                                                            36,613               34,253
  Accounts payable and accrued expenses                                                         2,402                1,179
  Capitalized lease obligation                                                                  1,855                2,080
  Other liabilities                                                                             3,025                3,425
                                                                                        ----------------     -----------------
         Total liabilities                                                                    137,316              129,874
                                                                                        ----------------     -----------------

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 1999, 9,990,436 and 1998, 9,938,179 shares, outstanding 1999,
     8,391,911 and 1998, 9,395,854 shares                                                         100                   99
  Additional paid-in capital                                                                   69,591               69,035
  Accumulated other comprehensive (loss) income                                            (    2,437)               2,714
  Retained earnings                                                                            34,598               34,779
  Treasury stock, 1999, 1,598,525 shares, 1998, 542,325 shares, at cost                    (   16,989)          (    5,643)
                                                                                        ----------------     -----------------
                                                                                               84,863              100,984
  Unearned compensation from restricted stock awards                                       (      355)          (      354)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            84,508              100,630
                                                                                        ----------------     -----------------

         Total liabilities and stockholders' equity                                         $ 221,824            $ 230,504
                                                                                        ================     =================
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.

                                     Page 3

<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                       Consolidated Statements of Earnings
                                   (Unaudited)

     For the three and nine month periods ended September 30, 1999 and 1998
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Three months ended           Nine months ended
                                                              September 30,                September 30,
                                                          ----------------------      ----------------------
                                                            1999          1998          1999           1998
                                                          --------      --------      --------      --------
Revenues:
<S>                                                       <C>           <C>           <C>           <C>
    Premiums earned                                       $ 21,555      $ 22,628      $ 64,375      $ 67,737
    Net investment income                                    2,403         2,667         7,163         8,191
    Net realized investment gains (losses)                       1          (418)        1,239            25
                                                          --------      --------      --------      --------
       Total revenues                                       23,959        24,877        72,777        75,953
                                                          --------      --------      --------      --------

Losses and expenses:
    Losses and loss adjustment expenses                     21,329        14,338        48,874        42,483
    Amortization of deferred policy acquisition costs        6,103         6,351        18,343        18,775
    Other underwriting expenses                              1,668         1,693         4,553         4,867
    Interest expense                                            36            44           109           133
                                                          --------      --------      --------      --------
       Total losses and expenses                            29,136        22,426        71,879        66,258
                                                          --------      --------      --------      --------

Earnings (losses) before income tax                         (5,177)        2,451           898         9,695

Income and tax expense (benefit)                            (1,933)          667          (263)        2,806
                                                          --------      --------      --------      --------
Net earnings (loss)                                       $ (3,244)     $  1,784      $  1,161      $  6,889
                                                          ========      ========      ========      ========

Net earnings (loss) per share
         Basic                                            $  (0.38)     $   0.18      $   0.13      $   0.70
         Diluted                                          $  (0.38)     $   0.18      $   0.13      $   0.69

Weighted average number of shares outstanding
         Basic                                               8,457         9,797         8,742         9,859
         Diluted                                             8,520         9,873         8,814         9,962

Cash dividends per share                                  $ 0.0525      $   0.05      $  0.155      $   0.15
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                     Page 4

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

                 Consolidated Statement of Stockholders' Equity
                                   (Unaudited)

                  For the nine months ended September 30, 1999
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                                               Unearned
                                                                                                             Compensation
                                                                             Accumulated                         From
                                               Common Stock      Additional     Other                         Restricted
                                           -------------------    Paid-In   Comprehensive  Retained  Treasury   Stock
                                             Shares    Amount     Capital   Income (Loss)  Earnings    Stock    Awards     Total
                                           ---------   -------   ---------  -------------  --------  -------- -----------  -----
<S>                                        <C>            <C>      <C>        <C>          <C>       <C>        <C>       <C>
Balance at December 31, 1998               9,938,179     $ 99    $ 69,035     $ 2,714      $ 34,779  $(5,643)   $(354)    $100,630
                                                                                              1,161                          1,161
Net earnings
Other comprehensive (loss) income, net of tax:
      Unrealized losses on investments, net of
       reclassification adjustment                                             (5,151)                                      (5,151)
                                                                                                                          --------
Comprehensive (loss) income                                                                                                 (3,990)
                                                                                                                          --------
Issuance of common stock                      52,257        1         556                                                      557
Unearned compensation  from  restricted
      stock awards                                                                                                (91)         (91)
 Amortization of compensation expense from
      restricted  stock awards issued                                                                              90           90
Cash dividends paid ($0.155 per share)                                                       (1,342)                        (1,342)
Purchase of treasury stock, 1,056,200 shares                                                         (11,346)              (11,346)
                                           ----------------------------------------------------------------------------------------
Balance at September 30, 1999              9,990,436     $100    $ 69,591     $(2,437)     $ 34,598 $(16,989)   $(355)    $ 84,508
                                           ========================================================================================
</TABLE>



     See accompanying notes to unaudited consolidated financial statements.

                                     Page 5

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

              For the nine months ended September 30, 1999 and 1998
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                        Nine months ended September 30,
                                                                                      -------------------------------------
                                                                                           1999                  1998
                                                                                      ---------------        --------------
Cash flows from operating activities:
<S>                                                                                       <C>                    <C>
    Net earnings                                                                          $   1,161              $   6,889
    Adjustments to reconcile net earnings to net cash provided by
      operating activities:
         Amortization and depreciation expense                                                  389                    511
         Net realized investment gains                                                     (  1,239)              (     25)
         Deferred income tax (benefit)                                                          104               (    421)
         Net decrease in premiums receivable, prepaid reinsurance premiums
           and unearned premiums                                                              1,755                    615
         Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                        4,642                  3,279
         (Increase) decrease in:
           Accrued investment income                                                       (    296)              (    331)
           Deferred policy acquisition costs                                               (    512)              (    360)
           Income tax recoverable                                                          (  1,242)              (    620)
           Other assets                                                                          89               (     71)
         Increase (decrease) in:
           Accounts payable and accrued expenses                                              1,223               (  1,086)
           Other liabilities                                                               (    400)              (    105)
                                                                                      ---------------        --------------
               Net cash provided by operating activities                                      5,674                  8,275
                                                                                      ---------------        --------------

Cash flows from investing activities:
    Purchases of equity securities                                                         (  7,372)               (15,539)
    Purchases of fixed maturities available for sale                                        (29,704)               (45,514)
    Purchases of fixed maturities held to maturity                                         (  2,785)              (  1,015)
    Proceeds from sales of equity securities                                                  3,764                 16,431
    Proceeds from sales and maturities of fixed maturities available for sale                22,877                 24,743
    Proceeds from maturities and calls of fixed maturities held to maturity                   7,256                 15,268
    Change in short-term investments                                                            997                  1,795
                                                                                      ---------------        --------------
         Net cash used by investing activities                                             (  4,967)              (  3,831)
                                                                                      ---------------        --------------

Cash flows from financing activities:
    Issuance of common stock                                                                    465                    634
    Purchase of treasury stock                                                             ( 11,346)              (  3,217)
    Principal payments on capital lease obligations                                        (    102)              (     95)
    Dividends paid                                                                         (  1,342)              (  1,480)
                                                                                      ---------------        --------------
         Net cash used by financing activities                                             ( 12,325)              (  4,158)
                                                                                      ---------------        --------------

(Decrease) increase in cash                                                                ( 11,618)                   286
Cash, beginning of period                                                                    24,077                  2,163
                                                                                      ---------------        --------------
Cash, end of period                                                                        $ 12,459              $   2,449
                                                                                      ===============        ==============

Supplemental  disclosure of cash flow  information:
   Cash paid during the period for:
      Interest                                                                           $      109             $      133
      Taxes                                                                                     875                  3,800
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                     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") is an insurance holding company whose
principal  asset  is  the  common  stock  of  Penn-America   Insurance   Company
("Penn-America").  The "Company" refers to PAGI and Penn-America,  as well as to
Penn-America's  wholly-owned  subsidiary,   Penn-Star  Insurance  Company.  Penn
Independent  Corporation ("Penn Independent") currently owns approximately 36.8%
of the outstanding common stock of PAGI as of September 30, 1999.

         The accompanying  unaudited consolidated financial statements should be
read in conjunction  with the financial  statements and notes for the year ended
December 31,  1998.  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 the Company's financial position,
results of  operations,  and cash flows for the interim  periods.  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 net of amounts ceded to reinsurers of $2.5 million
and $1.9  million  for the  three  months  ended  September  30,  1999 and 1998,
respectively.  Losses and loss  adjustment  expenses are net of amounts ceded to
reinsurers of $2.0 million and $1.9 million for the three months ended September
30, 1999 and 1998, respectively.

         Premiums  earned are net of amounts ceded to reinsurers of $6.0 million
and  $5.7  million  for the nine  months  ended  September  30,  1999 and  1998,
respectively.  Losses and loss  adjustment  expenses are net of amounts ceded to
reinsurers of $6.1 million and $5.1 million for the nine months ended  September
30, 1999 and 1998, respectively

Note 3 - Comprehensive Income

           Accumulated other comprehensive (loss) income of the Company consists
solely of net unrealized (losses) gains on investment securities.



                                     Page 7

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

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)



The  following  are  components  of  other   comprehensive   (loss)  income  (in
thousands):
<TABLE>
<CAPTION>
<S>                                                        <C>                    <C>                    <C>
                                                                   Nine months ended September 30, 1999
                                                        ----------------------------------------------------------
                                                           Before Tax                Tax               Net of Tax
                                                             Amount                Expense               Amount
                                                        -----------------     ------------------    --------------
Unrealized losses on investments:
    Unrealized holding losses arising
       during period                                       $(6,565)               $ 2,232                $(4,333)
    Less: reclassification adjustment for
       gains realized in net earnings                       (1,239)                   421                (   818)
                                                        ----------------------------------------------------------
Other comprehensive loss                                   $(7,804)               $ 2,653                $(5,151)
                                                        ========================================================


                                                                   Nine months ended September 30, 1998
                                                        ----------------------------------------------------------
                                                           Before Tax                Tax               Net of Tax
                                                             Amount                Expense               Amount
                                                        -----------------     ------------------    --------------
Unrealized gains on investments:
    Unrealized holding gains arising
      during period                                        $ 1,664                $(  598)              $ 1,066
    Less: reclassification adjustment for
       gains realized in net earnings                       (   25)                     9              (     16)
                                                        ----------------------------------------------------------
Other comprehensive income                                 $ 1,639                $(  589)              $ 1,050
                                                        ========================================================
</TABLE>


For the three months ended September 30, 1999,  comprehensive loss of $4,679,000
consisted  of  a  net  loss  of  $3,244,000  and  other  comprehensive  loss  of
$1,435,000.

Comprehensive  income for the three and nine months ended September 30, 1998 was
$2,676,000  and  $7,939,000  which  consisted  of net income of  $1,784,000  and
$6,889,000  and  other   comprehensive   income  of  $892,000  and   $1,050,000,
respectively.

                                     Page 8
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 4 - Basic and Diluted Earnings Per Share

         The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations (in thousands,  except per
share data):
<TABLE>
<CAPTION>
                                                     Three months ended                     Nine months ended
                                                        September 30,                         September 30,
                                                  --------------------------            ---------------------------
                                                     1999           1998                  1999             1998
                                                  -----------     ----------            ----------       ----------
Basic EPS:
<S>                                                 <C>             <C>                   <C>              <C>
Net earnings (losses)                               $( 3,244)       $ 1,784               $ 1,161          $ 6,889
                                                  -----------     ----------            ----------       ----------

Weighted average common
      shares outstanding                               8,457          9,797                 8,742            9,859
                                                  -----------     ----------            ----------       ----------

Basic EPS                                           $(  0.38)        $ 0.18                $ 0.13           $ 0.70
                                                  ===========     ==========            ==========       ==========

Diluted EPS:
Net earnings (losses)                               $( 3,244)       $ 1,784               $ 1,161          $ 6,889
                                                  -----------     ----------            ----------       ----------
Weighted average common
      shares outstanding                               8,457          9,797                 8,742            9,859

Additional shares outstanding
      after the assumed exercise
      of options by applying the
      treasury stock method                               63             76                    72              103
                                                  -----------     ----------            ----------       ----------

Total weighted average common
      shares outstanding                               8,520          9,873                 8,814            9,962
                                                  ===========     ==========            ==========       ==========

Diluted EPS                                         $(  0.38)        $ 0.18                $ 0.13           $ 0.69
                                                  ===========     ==========            ==========       ==========
</TABLE>


Note 5- Change in accounting estimate

         During  the third  quarter of 1999,  the  Company  completed  a routine
actuarial  review,  which included a study by the Company's  outside  consulting
actuary.  As a result of this review, the Company  strengthened its prior years'
unpaid loss and loss adjustment  expense  (reserves) related to its non-standard
personal  automobile  insurance line, which is in run-off,  as well as its other
liability  line.  This reserve  strengthening  increased  loss  reserves by $5.5
million on a pretax basis, and reduced net income by $3.6 million or ($0.42) per
diluted share for the quarter.


                                     Page 9
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)



Note 6- Segment Information

         In 1998,  the Company  implemented  Statement of  Financial  Accounting
Standard  No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information", which establishes standards about a company's operating segments.

         The Company has two reportable segments:  non-standard personal minimum
limits automobile and commercial lines. The Company announced in April 1999 that
it would  run-off its  remaining  portfolio of the personal  lines  non-standard
automobile   business,   which  was  underwritten  through  a  single  agent  in
California.  This followed a move earlier this year to eliminate the rest of the
Company's  non-standard  personal automobile  portfolio of this 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 the
Company's annual report. The Company evaluates segment profit based on profit or
loss from operating  activities.  Segment  profits or losses from operations are
pre-tax and does not include  unallocated  expenses but does 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.

         As of September 30, 1999, the Company's  insurance  business  comprised
two distinct segments:  commercial lines, which represent approximately 86.7% of
the  Company's  gross written  premiums for the nine months ended  September 30,
1999, and minimum limits non-standard personal automobile insurance.

         The Company  currently has one major customer  accounting for more than
10% of the Company's revenue.  The Company derived  approximately 8.5% and 17.2%
of its revenues  from this agent for the three months ended  September  30, 1999
and 1998, respectively,  and 10.7% and 19.2% of its revenues from this agent for
the nine months  ended  September  30, 1999 and 1998,  respectively.  This agent
produces  the  personal  non-standard  automobile  coverage  in  the  states  of
California and Nevada that the Company is currently running off.

                                    Page 10
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 6- Segment Information (Continued)

         The following is a summary of the Company's segment revenues,  expenses
and profit for the three months ended September 30, 1999 and 1998:

(in thousands)                        Three months ended September 30, 1999
                                      -------------------------------------
                                                    Personal
                                      Commercial    Automobile       Total
                                      -------------------------------------
Premiums earned                       $ 18,632      $  2,923      $ 21,555
Net investment income from
  insurance operations                   1,138           237         1,375
                                      -------------------------------------
Total segment revenues                  19,770         3,160        22,930
                                      -------------------------------------

Segment losses and LAE                  16,278         5,051        21,329
Segment expenses                         5,770         1,020         6,790
                                      -------------------------------------
Total segment expenses                  22,048         6,071        28,119
                                      -------------------------------------


Segment (loss)                        $ (2,278)     $ (2,911)     $ (5,189)
                                      -------------------------------------

Plus unallocated items:
Net investment income from equity                                     1,029
Unallocated expenses                                                 (1,017)
Income tax expense                                                    1,933
                                                                   ---------
Net loss                                                           $ (3,244)
                                                                   =========





(in thousands)                        Three months ended September 30, 1998
                                      -------------------------------------
                                                    Personal
                                      Commercial    Automobile       Total
                                      -------------------------------------
Premiums earned                       $ 16,387      $  6,241      $ 22,628
Net investment income from
  insurance operations                     851           195         1,046
                                      -------------------------------------
Total segment revenues                  17,238         6,436        23,674
                                      -------------------------------------

Segment losses and LAE                   9,674         4,664        14,338
Segment expenses                         4,865         2,009         6,874
                                      -------------------------------------
Total segment expenses                  14,539         6,673        21,212
                                      -------------------------------------


Segment profit (loss)                 $  2,699      $   (237)     $  2,462
                                      -------------------------------------

Plus unallocated items:
Net investment income from equity                                     1,203
Unallocated expenses                                                 (1,214)
Income tax expense                                                     (667)
                                                                   ---------
Net earnings                                                       $  1,784
                                                                   =========


                                    Page 11
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 6- Segment Information (Continued)

The  following  is a summary of the  Company's  segment  revenues,  expenses and
profit for the nine months ended September 30, 1999 and 1998:

(in thousands)                       Nine months ended September 30, 1999
                                     -------------------------------------
                                     Commercial     Personal
                                                   Automobile      Total
                                     -------------------------------------
Premiums earned                       $ 52,667      $ 11,708     $ 64,375
Net investment income from
  insurance operations                   3,761           698        4,459
                                     -------------------------------------
Total segment revenues                  56,428        12,406       68,834
                                     -------------------------------------

Segment losses and LAE                  36,970        11,904       48,874
Segment expenses                        15,996         3,870       19,866
                                     -------------------------------------
Total segment expenses                  52,966        15,774       68,740
                                     -------------------------------------
Segment profit (loss)                 $  3,462       ( 3,368)    $     94
                                     -------------------------------------
Plus unallocated items:
Net investment income from equity                                   3,943
Unallocated expenses                                               (3,139)
Income tax expense                                                    263
                                                             ------------
Net earnings                                                     $  1,161
                                                             ============




(in thousands)                       Nine months ended September 30, 1998
                                     -------------------------------------
                                                    Personal
                                     Commercial    Automobile      Total
                                     -------------------------------------
Premiums earned                       $ 46,855      $ 20,882     $ 67,737
Net investment income from
  insurance operations                   3,135           718        3,853
                                     -------------------------------------
Total segment revenues                  49,990        21,600       71,590
                                     -------------------------------------

Segment losses and LAE                  28,247        14,236       42,483
Segment expenses                        13,909         6,724       20,633
                                     -------------------------------------
Total segment expenses                  42,156        20,960       63,116
                                     -------------------------------------

Segment profit                        $  7,834      $    640     $  8,474
                                     -------------------------------------
Plus unallocated items:
Net investment income from equity                                   4,363
Unallocated expenses                                               (3,142)
Income tax expense                                                 (2,806)
                                                             ------------
Net earnings                                                     $  6,889
                                                             ============

                                    Page 12
<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, 1999 and 1998

         Premiums  earned  decreased  4.7% to $21.6 million for the three months
ended September 30, 1999 from $22.6 million for the three months ended September
30, 1998,  due to a 53.2%  decline in  non-standard  personal  lines  automobile
premiums  earned caused by the run off of personal  lines,  as discussed  below,
partially offset by an 13.7% increase in commercial premiums earned.

         Gross  written  premiums  increased  7.5% for the  three  months  ended
September 30, 1999 to $26.2 million  compared to $24.3 million in 1998, due to a
29.0% increase in commercial gross written premiums  partially offset by a 60.2%
decline in  non-standard  personal lines  automobile net written  premiums.  The
company  announced in April of 1999 that it is running off the  remainder of its
non-standard personal automobile business.

         Net  written  premiums  decreased  0.4%  for  the  three  months  ended
September 30, 1999 to $22.4 million  compared to $22.5 million in 1998, due to a
60.2% decline in non-standard  personal lines automobile net written,  partially
offset by a 20.5% increase in commercial net written premiums.

         Net  investment  income  decreased  9.9% to $2.4  million for the three
months ended  September  30, 1999,  from $2.7 million for the three months ended
September 30, 1998. This decrease  resulted  principally  from a decrease in the
tax equivalent investment yield to 6.23% as of September 30, 1999, from 6.50% as
of September  30, 1998,  and an increased  investment  in  tax-exempt  municipal
securities  held during the third  quarter of 1999 compared to the third quarter
of 1998. The company's  investment in tax-exempt  municipal securities increased
29.3% to $38.3  million held during the third  quarter of 1999 compared to $29.3
million held during the same quarter of 1998.

         Losses and loss  adjustment  expenses  increased 48.8% to $21.3 million
for the three months ended  September 30, 1999, from $14.3 million for the three
months ended  September  30, 1998.  The Company  announced on September 30, 1999
that it was strengthening  reserves following a review which included a study by
the Company's outside consulting  actuary, as well as having incurred additional
property losses during the quarter. This accounts for the increase in losses and
loss adjustment expenses.

         Amortization  of deferred  policy  acquisition  costs decreased 3.9% to
$6.1  million for the three  months ended  September  30, 1999  compared to $6.4
million in 1998, due primarily to the 4.7% decrease in net premiums earned.

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

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

         Other  underwriting  expenses were unchanged,  at $1.7 million for both
the three month periods ended September 30, 1999 and 1998.

         The  overall  statutory  combined  ratio for the Company  increased  to
133.2% for the three months ended  September 30, 1999,  from 98.6% for the three
months ended September 30, 1998, primarily due to the increase in the loss ratio
to 99.0% in 1999,  compared to 63.4% in 1998.  The increase in the loss ratio is
primarily due to the reserve  strengthening and property losses described above.
The expense  ratio  declined to 34.2% for the three months ended  September  30,
1999, compared to 35.2% for the three months ended September 30, 1998.

         As a result of the factors  described above, the Company recorded a net
loss for the three months ended  September 30, 1999 of ($3.2 million) or ($0.38)
per share (basic and  diluted),  compared to net income of $1.8 million or $0.18
per share (basic and diluted) for the three months ended September 30, 1998. Per
share  amounts  for the  three  months  ended  September  30,  1999 are based on
weighted  averages  shares   outstanding  of  8,457,000  (basic)  and  8,520,000
(diluted).  Per share amounts for the three months ended  September 30, 1998 are
based on weighted average shares  outstanding of 9,797,000 (basic) and 9,873,000
(diluted).

Nine Months Ended September 30, 1999 and 1998

         Premiums  earned  decreased  5.0% to $64.4  million for the nine months
ended  September 30, 1999 from $67.7 million for the nine months ended September
30, 1998.  This  decrease was due to a 43.9%  decline in  non-standard  personal
lines  automobile  premiums earned caused by the run off of personal,  which was
partially offset by a 12.4% increase in commercial premiums earned.

         Gross  written  premiums  decreased  0.3%  for the  nine  months  ended
September 30, 1999 to $72.7 million  compared to $72.9 million in 1998, due to a
16.2% increase in commercial gross written premiums offset by a 48.3% decline in
non-standard personal lines automobile net written premiums.

         Net written premiums decreased 2.9% for the nine months ended September
30,  1999 to $65.6  million  compared to $67.5  million in 1998,  due to a 48.3%
decline  in  non-standard   personal  lines  automobile  net  written  premiums,
partially offset by a 14.4% increase in commercial net written premiums.

         Net  investment  income  decreased  12.6% to $7.2  million for the nine
months ended  September  30,  1999,  from $8.2 million for the nine months ended
September 30, 1998. This decrease  resulted  principally  from a decrease in the
tax equivalent investment yield to 6.24% as of September 30, 1999, from 6.58% as
of September 30, 1998.

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

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

         Losses and loss  adjustment  expenses  increased 15.0% to $48.9 million
for the nine months ended  September  30, 1999,  from $42.5 million for the nine
months ended  September  30, 1998.  The company  announced on September 30, 1999
that it was  strengthening  reserves  following a review which  included a study
conducted by the Company's outside consulting  actuarial firm, as well as having
incurred additional  property losses during the quarter,  which accounts for the
increase  in losses  and loss  adjustment  expenses  for the nine  months  ended
September 30, 1999 as compared to the same period ended September 30, 1998.

         Amortization  of deferred  policy  acquisition  costs decreased 2.3% to
$18.3 million for the nine months ended  September  30, 1999,  compared to $18.8
million for the nine months ended September 30, 1998, primarily due a decline in
net premiums earned.

         The  overall  statutory  combined  ratio for the Company  increased  to
110.3% for the nine months ended  September  30,  1999,  from 96.7% for the nine
months ended September 30, 1998, primarily due to the increase in the loss ratio
to 75.9% in 1999,  compared to 62.7% in 1998.  The increase in the loss ratio is
primarily due to the reserve  strengthening and property losses described above.
The expense  ratio  increased to 34.4% for the nine months ended  September  30,
1999, compared to 34.0% for the nine months ended September 30, 1998.

         As a result of the factors  described  above,  the Company's net income
for the nine months ended  September 30, 1999 decreased 83.1% to $1.2 million or
$0.13 per share  (basic  and  diluted),  from  $6.9  million  or $0.70 per share
(basic) and $0.69 per share  (diluted)  for the nine months ended  September 30,
1998.  Per share amounts for the nine months ended  September 30, 1999 are based
on weighted  averages  shares  outstanding  of 8,742,000  (basic) and  8,814,000
(diluted).  Per share  amounts for the nine months ended  September 30, 1998 are
based on weighted average shares  outstanding of 9,859,000 (basic) and 9,962,000
(diluted).

Liquidity and Capital Resources

         PAGI is a holding  company,  the principal asset of which is the common
stock of Penn-America. PAGI's cash flows depend primarily on dividends and other
payments from Penn-America and its subsidiary,  Penn-Star. PAGI uses these funds
to pay (i)  operating  expenses,  (ii)  taxes  and  other  payments,  and  (iii)
dividends  to  PAGI  stockholders.   Penn-America's  source  of  funds  consists
primarily of premiums, 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.

         Net cash  provided  by  operating  activities  decreased  31.4% to $5.7
million for the nine months ended  September 30, 1999, from $8.3 million for the
nine  months  ended  September  30,  1998,  due  primarily  to  the  decline  in
non-standard personal lines automobile gross written premiums in 1999.


                                    Page 15
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         Net cash used by investing  activities  increased 29.7% to $5.0 million
for the nine month periods ended  September 30, 1999,  from $3.8 million for the
nine months ended September 30, 1998.

         Net cash used by financing  activities  increased to $12.3  million for
the nine months ended September 30, 1999,  compared to $4.2 million for the same
period in 1998. This increase is due to the repurchase of stock of $11.3 million
for the nine month period ended September 30, 1999, compared to $3.2 million for
the nine months  ended  September  30, 1998.  The Company  announced a corporate
stock  buy-back  program in July  1998.  On  September  30,  1999,  the Board of
Directors  had  authorized  the  repurchase of up to 2.5 million  shares.  As of
September  30, 1999,  the Company has acquired 1.6 million  shares at an average
cost of $10.63 per share.  The funding for the treasury  stock  program has been
provided by dividends  from the  Company's  insurance  subsidiary,  Penn-America
Insurance Company.

         For the nine months ended  September 30, 1999,  Penn-America  Insurance
Company paid dividends of $14.5 million to the Company.  Principally as a result
of the dividends paid by Penn-America to the Company,  its statutory  surplus as
of  September  30, 1999  decreased  to $69.4  million  from $85.0  million as of
September 30, 1998.

         The  Company  believes  that 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
determining  desired investment  maturities.  In addition,  maturities have been
staggered   to  produce   cash  flows  for  loss   payments   and   reinvestment
opportunities.  The  average  duration  of the fixed  maturity  portfolio  as of
September 30, 1999 was approximately 4.7 years.

         The Company's fixed maturity portfolio of $129.9 million was 83% of the
total investment portfolio as of September 30, 1999.  Approximately 99% of these
securities were rated "A-" or better by Standard & Poor's or Moody's.  Equities,
the majority of which consist of preferred stocks,  were $27.2 million or 17% of
total investments as of September 30, 1999.

         As of September 30, 1999,  the  investment  portfolio  contained  $19.6
million of mortgage/  asset-backed  obligations,  which  represents 12.5% of the
total  investments as of September 30, 1999.  All of these  securities are "AAA"
rated securities 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 other
derivative  financial  instruments,  real estate or mortgages in the  investment
portfolio as of September 30, 1999.

                                    Page 16
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         In 1999,  the Company  engaged a third asset manager,  Madison  Monroe,
Inc., to manage  $10,000,000  of its investment  portfolio.  As of September 30,
1999,  approximately $8.2 million was invested in U.S. Treasury strip bonds. One
of the  principals  of  Madison  Monroe is a party  related  to the  controlling
shareholder of the Company.

         The  principal  source of cash for the payment of  dividends  to PAGI's
stockholders  is  dividends  from   Penn-America   Insurance   Company  and  its
subsidiary,  Penn-Star  Insurance  Company.  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
regulatory  authorities.  The  maximum  dividend  that  may be  paid  in 1999 by
Penn-America  to PAGI  without  prior  approval  of  regulatory  authorities  is
$9,455,000.  For the twelve-month period ended September 30, 1999,  Penn-America
had paid regular  dividends of  $9,455,000  and had obtained  approval  from the
Pennsylvania Insurance Department to pay extraordinary dividends of $10,295,000.
These  dividends were used to fund the Company's  stock  repurchase  program and
operating expenses of the Company.

The Year 2000

Introduction

         The "Year 2000", or Y2K, refers to the problems that automated  systems
could  encounter  as the  year  2000  approaches  due  to  computers'  or  other
electronic  devices' inability to register the year 2000 correctly,  rather than
as the year 1900. In this regard, the Company relies on its existing information
technology systems ("IT systems") to operate and to monitor all major aspects of
the Company's  business,  including  underwriting,  claims and various financial
systems.  The Company also relies,  to a lesser extent, on the IT systems of its
general  agents and,  indirectly,  on those of the  producing  retail  insurance
brokers.  Finally,  the  Company  relies  on  certain  critical  non-information
technology  systems  ("non-IT  systems"),   such  as  electricity,   telephones,
facsimile machines,  heating and  air-conditioning  and fire protection systems.
Any  disruption  in the  operation  of the IT and  non-IT  systems of either the
Company or any of its  critical  customers,  vendors or  suppliers  could have a
material  adverse  effect on the  Company's  business,  results of operations or
financial condition.

State of Readiness

         IT systems:  In an effort to remediate the problems associated with the
Year 2000, the Company,  in 1996,  evaluated all its computer codes to determine
what software  programs would be affected by date-sensitive  fields.  After this
identification  process was  completed,  the Company hired an outside  vendor to
implement the recoding that was required. In July 1997, the Company successfully
ran its second  trial of all the revised  programs.  Based upon testing to date,
the Company  believes  that its programs are Year 2000  compliant.  The Company,
however,

                                    Page 17
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

continues  to run  periodic  tests  to make  sure  the  programs  will  function
properly. The latest Y2K testing occurred successfully on October 1, 1999. As of
this date, over 30,000 policies have been successfully processed as new policies
and renewals with an expiration date of January 1, 2000 or after.

         The  Company's  IT systems have also been tested  against  hypothetical
information supplied by its general agents. The IT systems currently are able to
read properly the information provided.  Assuming the general agents don't alter
their records, the Company reasonably believes that its IT systems will function
properly. To the extent the general agents' records change, the Company requires
that the agents provide notice.

         The  Company's  management  information  systems  rely  primarily on an
integrated property-casualty software package that is processed on an IBM AS/400
computer system.  The system is leased from IBM and kept current or near current
in both  hardware  and  operating  systems.  The IBM AS/400  model  hardware was
upgraded in the fourth  quarter of 1998 to the latest  processor  platform.  The
AS/400 software was most recently  upgraded in the second quarter of 1999, which
is software reported by IBM to be fully compliant with Year 2000.

         The Company uses a Microsoft NT 4.0 Server to connect all  employees to
the computer system.  The LAN is reported to be Year 2000 compliant.  The LAN is
used   primarily  for  "service"   applications   including   word   processing,
spreadsheets  and  E-mail.  The  majority  of  the  LAN-based  applications  are
Microsoft products and are current or near current in their software releases.

         The LAN also consists of personal  computers  ("PCs") that are attached
to a series of servers.  All PCs have been tested and  correctly  recognize  the
Year 2000.  The IT Department  of the Company  supports an Internet web site and
various  stand-alone third party PC software  applications.  These packages were
assessed  for  any  Year  2000  problems  and  testing  of  these  packages  was
successfully  completed in September 1999. The IT Department also supports IPPS,
a document management  software package developed by DocuCorp,  which is used by
the majority of general agents to produce Penn-America  policies.  FormMaker has
been tested and, in its current release, is reported by DocuCorp to be Year 2000
compliant.

         Non-IT  systems:  The  Company  has  identified,  and  relies  on,  the
following  non-IT  systems  in  its  daily  operations:  telephones,  voicemail,
facsimile machines and heating and air conditioning and fire protection systems.
The  telephone  system  was  tested  as  compliant.  The  voicemail  system  was
identified  as  non-compliant  and  was  replaced  with a  compliant  system  in
September  1998. The heating and air  conditioning  systems have been tested and
are compliant.  The Company has been informed that all of the remaining  systems
will not be  affected  by the Year 2000 and the  Company  has  received  written
confirmation to this effect.

                                    Page 18
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         Key Customers,  Suppliers and Vendors: As part of its remediation plan,
the Company is  analyzing  the Year 2000  readiness  of the  Company's  critical
outside  customers  (including  general  agents),  vendors and  suppliers.  Each
department  of the Company was asked to identify key  customers,  suppliers  and
vendors  with  whom  the  Company  has  an  interdependent,   material  business
relationship.  In September 1998, the Company sent  approximately 188 surveys to
those identified customers/suppliers/vendors to ask them: to provide the current
status of their Y2K plan;  whether they will be  compliant;  and what plans they
have in place in the event they will not be  compliant.  Of the 188 surveys sent
out, 100 were returned with responses  indicating  that the  recipients  were or
would be compliant, 88 did not respond. In December 1998, the Company sent out a
second request for  information to those who had not yet responded and for newly
identified critical customers,  suppliers and vendors. As of April 30, 1999, the
responses were as follows: 55 indicated that they were compliant;  112 indicated
that they would be compliant before January 1, 2000; and 24 have yet to respond.
In September  1999,  the Company sent out a final  request for those who had not
yet  certified  compliance.  As of October 19,  1999,  135  certified  they were
compliant,  24 indicated  they would be compliant by December  1999, and 24 have
yet to respond.  The Company is currently  re-assessing the materiality of those
who did not yet certify  compliance.  To the extent the Company  does not obtain
certifications, or written contingency plans from those ultimately identified as
material,  the Company may replace these  customers,  vendors and suppliers with
others who can represent that they are compliant.

         Despite all the  procedures  the Company has in place,  there can be no
guarantee  that the systems of other  companies on which the Company's  business
relies will be  converted  in a timely  fashion,  or that  failure to convert by
another company or a conversion that is incompatible with the Company's systems,
will not have a materially adverse effect on the Company and its operations.

         Responses to  Inquiries:  The Company  continues to respond to requests
for information from customers, suppliers and vendors with whom the Company does
business,  including various departments of insurance.  The Company was recently
examined by a consultant  retained by the Insurance  Department of Pennsylvania,
the  Company's  state of  domicile.  The  Consultant's  examination  focused  on
assessing the Company's efforts to attain Y2K readiness.  The Consultant has not
yet issued a final  report to the  Company.  However,  the  Company has not been
advised  by the  Department  of  Insurance  that it deems  any of the  Company's
efforts to be deficient.

Cost

         The  Company  incurred  costs of  approximately  $60,000  to recode its
internal  programs.  The costs were incurred by the Company to test  significant
insurance  hardware and software that the Company believes are compliant.  These
costs  are and will be  minimal  as these  costs are  built  into the  Company's
standard disaster  recovery testing program.  The current standard testing costs
approximately  $28,000  per year.  The  Company  does not  separately  track the
internal costs

                                    Page 19
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

incurred for the Y2K project.  Such costs are related primarily to payroll costs
for the Company's information technology personnel. The Company also incurred an
additional  $13,000 to upgrade its  voicemail  system.  Additional  expenses may
arise during 1999. Management believes that at this time these costs,  including
the estimated cost associated  with the  Pennsylvania  Insurance  Department Y2K
audit, will approximate $20,000 to $25,000.

Risks

         The risks  associated with the Company's  inability to resolve all Year
2000  issues  include the  possibility  of system  failures  or  miscalculations
causing disruption in operations including,  among other things, an inability to
process  transactions,  to  send  invoices,  to send or to  receive  E-mail  and
voicemail, or conduct similar normal business activities.  Additionally, failure
of third parties upon whom the Company's business relies to remediate their Year
2000 problems in a timely  fashion could result in disruption in the receipt and
processing of insurance  policies,  claims,  payment of receivables  and general
problems   related  to  the  Company's  daily   operations.   If  any  of  these
contingencies  were to occur,  the  disruption in business could be temporary or
permanent, depending on the degree of failure. The overall risks associated with
the Year 2000 remain difficult to describe accurately and to quantify; and there
can be no  guarantee  that the Year 2000 issue will not have a material  adverse
effect on the Company and its operations.

         In general,  if the Company and its business  partners do not solve the
Year 2000  problem,  the Company  could face  business  disruption,  operational
problems,  financial losses,  legal liability and similar risks to the business.
These risks could have a material adverse impact on the Company.

         Additionally,  the Company may be exposed to insurance  risk related to
Y2K  exposures  of its  insureds.  In order to mitigate  this risk,  the Company
generally  began  endorsing  applicable new and renewal  policies with effective
dates after November 1, 1998 with a Y2K exclusion.  Certain states, however, may
not accept this exclusion in all cases.

Contingency Plan

         The  Company  has  completed  its Year  2000  Contingency  Plan,  which
addresses  contingencies  the  Company  has in place  in the  event of a loss of
network  capabilities.  The Company also  maintains a Disaster  Recovery Plan to
address  various  other  potential  business  interruptions,  such  as a loss of
electricity, heat, water, telephones and office space.

         The Company is currently testing its Contingency  Plan.  Testing should
be complete by the end of November  1999.  The current  Disaster  Recovery  Plan
addresses the availability  and  compatibility of hardware offsite that could be
placed into action by the Company.  In September  1998,  the Company  tested the
offsite  facility and the operation of significant  insurance  software that had
been made Year 2000 compliant, as well as the operation of the offsite hardware.
Under

                                    Page 20
<PAGE>
                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

these test  conditions,  all dates were rolled  forward to January 1, 2000.  The
test results indicated that the Company's significant insurance-related software
is compliant.  The Company conducted further testing at the facility in June and
October of 1999. All Y2K related tests have been successful.

         The testing  facility has  indicated  that the majority of its hardware
and  equipment is fully  compliant  as of December  1998.  The Company  recently
followed up with the testing  facility on its system  upgrades to see where they
stand.  The  Company  has been  assured  that  the  facility  has  substantially
completed all activities  required to be Y2K compliant.  The testing facility is
also available if electric,  heat, water,  telephones and office space should be
required.

         The  foregoing is a "Year 2000  Readiness  Disclosure"  pursuant to the
Year 2000 Readiness  Disclosure Act. Readers are cautioned that  forward-looking
statements contained in the Year 2000 disclosure contained herein should be read
in conjunction with the Company's  disclosure  titled "Safe Harbor Provisions of
the  Private  Securities   Litigation  Reform  Act  of  1995".   Forward-looking
statements  include,  but are not limited to,  whether the Company will complete
its remediation and testing in a timely fashion,  whether  remediation will cost
more than  anticipated,  the impact of redeploying staff and the effect of third
parties on the Company's ability to function after the century date change.


New Accounting Standards

         In September 1998,  Statement of Financial  Accounting Standards (SFAS)
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities",  was
issued and  established  standards  for  accounting  and reporting of derivative
instruments and hedging activities.  The statement as amended by SFAS No. 137 is
effective for all fiscal  quarters of fiscal years beginning after September 15,
2000. The Company is in the process of determining  the effect,  if any, of this
statement on its financial statements.




                                    Page 21
<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 18,  1999,  the Company  filed with the  Securities  and
              Exchange  Commission a Form 8-K which  reported  that at a meeting
              held on August 18, 1999,  the Board of  Directors of  Penn-America
              Group,  Inc.  ratified the approval of the Audit  Committee of the
              Board of Directors to engage Ernst & Young LLP as its  independent
              auditors for the fiscal year ending  December  31,  1999.  Ernst &
              Young LLP  replaces  the firm of KPMG LLP,  who were  dismissed as
              auditors.

              On September 30, 1999,  the Company filed with the  Securities and
              Exchange  Commission a Form 8-K which  reported  that on September
              30, 1999,  the Company issued a press release  announcing  reserve
              strengthening of $3.6 million after taxes to increase net reserves
              and a $1.3 million charge after taxes for property losses incurred
              during the third quarter. As a result of these actions,  the third
              quarter  estimate is expected to be an operating  loss of $0.38 to
              $0.40 per share.  The Company also  announced  that the  Company's
              board approved the increase of the stock buyback  authorization by
              500,000 shares to 2.5 million.






                                    Page 22
<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 4, 1999           By: /s/ Jon S. Saltzman
       ----------------               ---------------------
                                      Jon S. Saltzman
                                      President and
                                      Chief Executive Officer



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