SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

(Mark One)

(x)  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended      March 31, 2000
                                -----------------------------

                                       OR

( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from  _________________ to ___________________

Commission file number    0-22316
                       -------------

                            Penn-America Group, Inc.
        -----------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Pennsylvania                                   23-2731409
----------------------------------          -----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


                420 South York Road, Hatboro, Pennsylvania 19040
     -----------------------------------------------------------------------
          (Address of principal executive offices, including zip code)


                                 (215) 443-3600
     -----------------------------------------------------------------------
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12 months  (or for such other  period  that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.
Yes      X    No       .
       -----      ----

At May 10, 2000,  7,549,917  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 Unaudited Balance Sheets - March 31, 2000 and
                December 31, 1999                                             3

         Consolidated Unaudited Statements of Earnings - For the three
                months ended March 31, 2000 and 1999                          4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the three months ended March 31, 2000                     5

         Consolidated Unaudited Statements of Cash Flows -
                For the three months ended March 31, 2000 and 1999            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                                                  16









                                     Page 2
<PAGE>
<TABLE>
<CAPTION>
                                           PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                                  Consolidated Balance Sheets
                                                          (Unaudited)
                                        (In thousands, except share and per share data)

                                                                                            March 31,            December 31,
                                                                                              2000                   1999
                                                                                        ----------------     -----------------
ASSETS
<S>                                                                                           <C>                  <C>
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2000, $113,932; 1999,              $ 110,725            $ 111,419
       $115,975)
       Held to maturity, at amortized cost (fair value 2000, $23,051; 1999, $16,103)           23,231               16,294
    Equity securities, at fair value (cost 2000, $28,058; 1999, $28,014)                       25,754               26,020
    Short-term investments, at cost, which approximates fair value                                 --                  449
                                                                                        ----------------     -----------------
       Total investments                                                                      159,710              154,182
Cash                                                                                            7,227               12,045
Receivables:
    Accrued investment income                                                                   2,301                1,965
    Premiums receivable, net                                                                   10,848                8,981
    Reinsurance recoverable                                                                    19,935               18,284
                                                                                        ----------------     -----------------
       Total receivables                                                                       33,084               29,230
Prepaid reinsurance premiums                                                                    3,753                3,529
Deferred policy acquisition costs                                                               9,842                9,306
Capital lease                                                                                   1,818                1,840
Deferred income taxes                                                                           5,127                5,487
Income tax recoverable                                                                             --                1,652
Other assets                                                                                      417                  511
                                                                                        ----------------     -----------------
       Total assets                                                                          $220,978            $ 217,782
                                                                                        ================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                                 $ 95,050             $ 93,719
  Unearned premiums                                                                            38,411               36,332
  Accounts payable and accrued expenses                                                         2,020                1,755
  Capitalized lease obligation                                                                  1,787                1,821
  Other liabilities                                                                             4,008                3,537
  Income tax payable                                                                              361                   --
                                                                                        ----------------     -----------------
         Total liabilities                                                                    141,637              137,164
                                                                                        ----------------     -----------------

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 2000 and 1999, 9,990,436 shares, outstanding 2000,
     7,719,161 and 1999, 8,062,861 shares                                                         100                  100
  Additional paid-in capital                                                                   69,591               69,591
   Accumulated other comprehensive loss                                                        (3,638)              (4,324)
  Retained earnings                                                                            36,213               35,050
  Treasury stock, 2000, 2,271,275 shares; 1999, 1,927,575 shares, at cost                     (22,122)             (19,474)
   Officers' stock loans                                                                         (508)                  --
  Unearned compensation from restricted stock awards                                             (295)                (325)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            79,341               80,618
                                                                                        ----------------     -----------------

         Total liabilities and stockholders' equity                                         $ 220,978            $ 217,782
                                                                                        ================     =================

                             See accompanying notes to unaudited consolidated financial statements.
</TABLE>

                                                             Page 3

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

                            For the three months ended March 31, 2000 and 1999
                                  (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      Three months ended March 31,
                                                                    2000                        1999
                                                              --------------             ---------------
Revenues:
<S>                                                               <C>                        <C>
    Premiums earned                                               $ 21,546                   $ 21,462
    Net investment income                                            2,400                      2,410
    Net realized investment (losses) gains                             (13)                       556
                                                              --------------             ---------------
       Total revenues                                               23,933                     24,428
                                                              --------------             ---------------

Losses and expenses:
    Losses and loss adjustment expenses                             13,905                     13,724
    Amortization of deferred policy acquisition costs                6,239                      6,153
    Other underwriting expenses                                      1,650                      1,453
    Interest expense                                                    36                         36
                                                              --------------             ---------------
       Total losses and expenses                                    21,830                     21,366
                                                              --------------             ---------------

Earnings before income tax                                           2,103                      3,062

Income tax                                                             520                        853
                                                              --------------             ---------------

Net earnings                                                       $ 1,583                    $ 2,209
                                                              ==============             ===============

Net earnings per share:
         Basic                                                       $0.20                      $0.24
         Diluted                                                     $0.20                      $0.24

Weighted average number of shares outstanding:
         Basic                                                       7,972                      9,129
         Diluted                                                     8,010                      9,204

Cash dividends per share                                             .0525                    $0.0525



                  See accompanying notes to unaudited consolidated financial statements.

</TABLE>
                                                  Page 4


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

                                           Consolidated Statement of Stockholders' Equity
                                                             (Unaudited)

                                              For the three months ended March 31, 2000
                                                  (In thousands, except share data)

                                                                                                                Unearned
                                                                                                              Compensation
                                                                 Accumulated                                      From
                                   Common Stock      Additional     Other                           Officers'  Restricted
                               -------------------    Paid-In   Comprehensive  Retained  Treasury    Stock       Stock
                                 Shares    Amount     Capital   Income (Loss)  Earnings    Stock     Loans       Awards     Total
                               ---------   -------   ---------  -------------  --------  --------  ---------   -----------  -----
<S>                            <C>            <C>      <C>        <C>          <C>       <C>       <C>         <C>
Balance at
 December 31, 1999             9,990,436    $ 100    $ 69,591      $(4,324)    $35,050  $(19,474)      -         $ (325)  $ 80,618
Net earnings                                                                     1,583                                       1,583
Other comprehensive
 income, net of tax:
  Unrealized gains on
    investments, net of
    reclassification adjustment                                        686                                                     686
                                                                                                                            ------
Comprehensive income                                                                                                         2,269
                                                                                                                            ------
Officers' stock loans                                                                                 (508)                   (508)
 Amortization of compensation
  expense from restricted
  stock awards issued                                                                                                30         30
Cash dividends paid
 ($0.0525 per share)                                                              (420)                                       (420)
Purchase of treasury stock,
 343,700 shares                                                                           (2,648)                           (2,648)
                              ----------------------------------------------------------------------------------------------------
Balance at March 31, 2000      9,990,436     $100    $ 69,591      $(3,638)   $ 36,213  $(22,122)     (508)      $ (295)  $ 79,341
                              ====================================================================================================





                               See accompanying notes to unaudited consolidated financial statements.
</TABLE>


                                                               Page 5

<PAGE>

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

                               For the three months ended March 31, 2000 and 1999
                                                 (In thousands)
                                                                                   Three months ended March 31,

                                                                                       2000          1999
                                                                                     --------      --------
Cash flows from operating activities:
<S>                                                                                  <C>           <C>
    Net earnings                                                                     $  1,583      $  2,209
    Adjustments to reconcile net earnings to net cash provided by operating
         Amortization and depreciation expense                                            154           190
         Net realized investment losses / (gains)                                          13          (556)
         Deferred income tax                                                                7          (114)
         Net decrease in premiums receivable, prepaid reinsurance premiums
           and unearned premiums                                                          (12)       (1,197)
         Net (decrease) / increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                   (323)          312
         (Increase) decrease in:
           Accrued investment income                                                     (335)         (317)
           Deferred policy acquisition costs                                             (536)           36
           Income tax recoverable                                                       1,652           884
           Other assets                                                                    52            46
         Increase (decrease) in:
           Accounts payable and accrued expenses                                          265          (341)
           Income taxes payable                                                            --            83
           Other liabilities                                                              833           252
                                                                                     --------      --------
               Net cash provided by operating activities                                3,353         1,487
                                                                                     --------      --------

Cash flows from investing activities:
    Purchases of equity securities                                                     (2,260)       (5,179)
    Purchases of fixed maturities available for sale                                   (8,276)      (13,013)
    Purchases of fixed maturities held to maturity                                     (9,899)       (1,058)
    Proceeds from sales of equity securities                                            2,736         2,131
    Proceeds from sales and maturities of fixed maturities available for sale           9,689         3,948
    Proceeds from maturities and calls of fixed maturities held to maturity             3,000         5,773
    Change in short-term investments                                                      449           997
                                                                                     --------      --------
         Net cash used by investing activities                                         (4,561)       (6,401)
                                                                                     --------      --------

Cash flows from financing activities:
    Purchase of treasury stock                                                         (2,648)       (7,309)
    Principal payments on capital lease obligations                                       (34)          (34)
    Officers' stock loans                                                                (508)           --
    Dividends paid                                                                       (420)         (448)
                                                                                     --------      --------
         Net cash used by financing activities                                         (3,610)       (7,791)
                                                                                     --------      --------

Decrease in cash                                                                       (4,818)      (12,705)
Cash, beginning of period                                                              12,045        24,077
                                                                                     --------      --------
Cash, end of period                                                                  $  7,227      $ 11,372
                                                                                     ========      ========

Supplemental  disclosure of cash flow information:
    Cash paid (recovered) during the period for:
      Interest paid                                                                  $     36      $     36
      Income taxes recovered                                                         $  1,500            --



                     See accompanying notes to unaudited consolidated financial statements.
</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. ("PNG") is an insurance holding company whose
principal  asset  is  the  common  stock  of  Penn-America   Insurance   Company
("Penn-America").  The "Company" refers to PNG 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 40.0%
of the outstanding common stock of PAGI as of March 31, 2000.

         The accompanying  unaudited consolidated financial statements should be
read in conjunction  with the financial  statements and notes for the year ended
December 31,  1999.  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 $2.6 million
and  $1.7  million  for  the  three  months  ended  March  31,  2000  and  1999,
respectively.  Losses and loss  adjustment  expenses are net of amounts ceded to
reinsurers  of $1.9  million and  $600,000  for the three months ended March 31,
2000 and 1999, respectively.


Note 3 - Comprehensive Income

           Accumulated other comprehensive 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  income / (losses)  (in
thousands):

<TABLE>
<CAPTION>
                                                        Three months ended March 31, 2000
                                                  ----------------------------------------------
                                                  Before Tax           Tax           Net of Tax
                                                   Amount            Expense           Amount
                                                   -------           -------          -------
<S>                                                <C>               <C>              <C>
Unrealized gains on investments:                  $1,026              $ (349)          $  677
    Unrealized holding gains arising
    Add: reclassification adjustment for              13                  (4)               9
                                                  ------              ------           ------
Other comprehensive income                        $1,039              $ (353)          $  686
                                                  ======              ======           ======
</TABLE>


<TABLE>
<CAPTION>
                                                        Three months ended March 31, 1999
                                                  ----------------------------------------------
                                                  Before Tax           Tax           Net of Tax
                                                   Amount            Expense           Amount
                                                   -------           -------          -------
<S>                                                <C>               <C>              <C>
Unrealized losses on investments:                  $(1,468)          $   499          $  (969)
    Unrealized holding losses arising
    Less: reclassification adjustment for             (556)              189             (367)
                                                   -------           -------          -------
Other comprehensive loss                           $(2,024)          $   688          $(1,336)
                                                   =======           =======          =======
</TABLE>


For the three  months  ended  March 31, 2000 and 1999,  comprehensive  income of
$2,269,000 and $873,000 consisted of net income of $1,583,000 and $2,209,000 and
other comprehensive income of $686,000 and a loss of $1,336,000.


                                     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):

                                                    Three months ended
                                                        March 31,
                                               ---------------------------
                                               2000                   1999
                                               ------               ------

Basic EPS:

Net Earnings                                   $1,583               $2,209
                                               ------               ------

Weighted  average common
      shares outstanding                        7,972                9,129
                                               ------               ------

Basic EPS                                      $ 0.20               $ 0.24
                                               ======               ======

Diluted EPS:

Net Earnings                                   $1,583               $2,209
                                               ------               ------

Weighted average common
      shares outstanding                        7,972                9,129

Additional shares outstanding
      after the assumed exercise
      of options by applying the
      treasury stock method                        38                   75
                                               ------               ------

Total weighted average common
     shares outstanding                         8,010                9,204
                                               ======               ======

Diluted EPS                                    $ 0.20               $ 0.24
                                               ======               ======



                                     Page 9

<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)




Note 5- Segment Information

         The Company has two reportable segments:  personal lines and commercial
lines.  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.  Segments  profits or losses from operations is
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.

         The Company had an agent who  exclusively  sold  non-standard  personal
automobile  insurance  for the  Company  accounting  for 12.8% of the  Company's
revenue  at March  31,  1999.  As of  March  31,  2000,  this  agent's  business
represents less than 10% of the companies' revenue as the Company is exiting the
non-standard personal automobile line.











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

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)
         The following is a summary of the Company's segment revenues,  expenses
and profit for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>

(in thousands)                                          March 31, 2000
                                                        --------------
                                           Commercial       Personal         Total
                                         -------------     -----------    -------------
<S>                                           <C>              <C>             <C>
Premiums earned                               $19,776          $1,770          $21,546
Net investment income from
  insurance operations                          1,197             156            1,353
                                         -------------     -----------    -------------
Total segment revenues                         20,973           1,926           22,899
                                         -------------     -----------    -------------

Segment losses and LAE                         12,753           1,152           13,905
Segment expenses                                6,055             645            6,700
                                         -------------     -----------    -------------
Total segment expenses                         18,808           1,797           20,605
                                         -------------     -----------    -------------



Segment profit                                 $2,165           $ 129           $2,294

Plus unallocated items:
Net investment income from equity                                               1,034
Unallocated expenses                                                           (1,225)
Income taxes                                                                     (520)
                                                                          -------------
Net earnings                                                                  $ 1,583
                                                                          =============


(in thousands)                                          March 31, 1999
                                                        --------------
                                           Commercial       Personal         Total
                                         -------------     -----------    -------------
Premiums earned                              $ 16,614         $ 4,848         $ 21,462
Net investment income from
  insurance operations                          1,297             228            1,525
                                         -------------     -----------    -------------
Total segment revenues                         17,911           5,076           22,987
                                         -------------     -----------    -------------

Segment losses and LAE                         10,117           3,607           13,724
Segment expenses                                5,000           1,577            6,577
                                         -------------     -----------    -------------
Total segment expenses                         15,117           5,184           20,301
                                         -------------     -----------    -------------



Segment profit (loss)                          $2,794         $ (108)           $2,686

Plus unallocated items:
Net investment income from equity                                                1,441
Unallocated expenses                                                            (1,065)
Income taxes                                                                      (853)

                                                                          -------------
Net earnings                                                                    $2,209
                                                                          =============
</TABLE>



                                    Page 11

<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements
                                   (continued)

         The Company  announced  on April 28,  1999,  that it would  run-off its
remaining  portfolio  of the  personal  lines  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 personal  automobile  portfolio
of this business in six other states.

         Total  segment  revenue  of  $22.9  million  and  $23.0  million,  plus
unallocated net investment income of $1.0 million and $1.4 million, equals total
Company revenue of $23.9 million and $24.4 million.



















                                    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 March 31, 2000 and 1999

         Gross written  premiums  increased  19.0% to $26.3 million in the first
quarter of 2000,  compared to $22.1  million in the first  quarter of 1999.  The
increase  resulted from a 40.6%  increase in  commercial  lines premium to $24.8
million,  partially  offset by a 67.1%  decrease  in personal  automobile  lines
premium to $1.5 million, which decrease was due to the run-off by the company of
the non-standard personal automobile segment.

         Net  written  premium  increased  12.8% to $23.4  million for the first
quarter of 2000,  compared to $20.7 million for the first quarter of 1999.  This
increase resulted from a 34.5% increase in commercial lines net premium to $21.9
million,  partially offset by a 67.1% decrease in personal  automobile lines net
premium to $1.5 million.

         Premiums  earned and Net  investment  income  were  unchanged  at $21.5
million and $2.4 million, respectively for the three months ended March 31, 2000
and 1999.

         Net  realized  investment  gains  (losses)  before taxes were a loss of
$13,000 for the first  quarter  ended March 31, 2000 compared to a realized gain
of $556,000 for the first quarter ended March 31, 1999.  The realized gains were
due principally from sales from the Company's equity portfolio.

         Losses and loss adjustment expenses increased 1.3% to $13.9 million for
the three months ended March 31, 2000,  from $13.7  million for the three months
ended March 31, 1999, due to an increase in the  commercial  lines loss ratio to
64.5% for the  quarter  ended  March 31,  2000  compared  to 60.9% for the first
quarter  of 1999.  The  first  quarter  1999 loss  ratio  does not  reflect  the
strengthening  of reserves  that was made by the Company in the third quarter of
1999.  The  first  quarter  of  2000  commercial  loss  ratio  reflects  a  more
conservative  reserving  posture by the Company for the current  accident  year.
This  increase was  partially  offset by a decrease in the  personal  lines loss
ratio to 65.1% for the first  quarter of 2000,  compared  to 74.4% for the first
quarter  of 1999.  Personal  lines,  which  is  entirely  non-standard  personal
automobile is currently in run-off by the Company.

         Amortization of deferred policy acquisition costs was unchanged at $6.2
million for the three months ended March 31, 2000, and 1999.

         Other  underwriting  expenses  increased  13.6% to $1.7 million for the
first  quarter of 2000 from $1.5  million  for the first  quarter of 1999.  This
increase  is  primarily  attributable  to the 19.0%  increase  in gross  written
premiums experienced in the first quarter of 2000, compared to the first quarter
of 1999.


                                    Page 13
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         As a result of the factors  described  above,  the Company's net income
for the three  months  ended March 31, 2000  decreased  28.4% to $1.6 million or
$0.20 per share (basic and diluted), from $2.2 million or $0.24 per share (basic
and diluted) for the three months ended March 31, 1999.  March 31, 1999 earnings
per share (basic & diluted) include $0.04 of realized  investment gains compared
to no per share  impact from  investment  transactions  in the first  quarter of
2000.

         As  part of the  Company's  corporate  stock  repurchase  program,  the
Company has continued to repurchase  its common stock.  The Company  repurchased
approximately  1.0 million  shares  between  March 31, 1999 and March 31,  2000,
resulting in a reduction  of weighted  average  diluted  shares  outstanding  to
approximately 8.0 million shares  outstanding  during the first quarter of 2000,
compared  to  approximately  9.2  million  shares  outstanding  during the first
quarter of 1999.  The  Company's  stock  repurchase  program  has  impacted  the
comparability of earnings per share.  Between March 31, 2000 and March 31, 1999,
weighted average shares outstanding decreased by approximately 11%.

Liquidity and Capital Resources

         PNG is a holding  company,  the principal  asset of which is the common
stock of Penn-America.  PNG's cash flows depend primarily on dividends and other
payments from Penn-America.  PNG uses these funds to pay (i) operating expenses,
(ii)  taxes  and  other  payments,  and  (iii)  dividends  to PNG  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  principally  to pay claims and  operating  expenses,  to  purchase
investments and to make dividend and other payments to PNG.

         Net cash  provided by  operating  activities  increased  125.4% to $3.4
million for the three  months  ended March 31,  2000,  from $1.5 million for the
three months ended March 31, 1999,  due primarily to a refund of federal  income
taxes received during the first quarter of 2000.

         Net cash used by  investing  activities  was $4.6 million for the three
months ended March 31, 2000, compared to $6.4 million for the three months ended
March 31, 1999.

         Net cash used by  financing  activities  was $3.6 million for the three
months  ended March 31,  2000,  compared to $7.8  million for the same period in
1999.  The  principal  use of cash by financing  activities  was the purchase of
343,700 shares of treasury stock at approximately  $2.7 million during the first
quarter of 2000,  compared to the purchase of 669,800  shares of treasury  stock
totaling  $7.3 million  during the quarter ended March 31, 1999. As of March 31,
2000,  the  Company has  acquired  approximately  2.3 million  shares of the 2.5
million shares approved by the Board at an average cost of $9.74 per share.  The
funding for the treasury stock program has been primarily  provided by dividends
from the Company's  insurance  subsidiary,  Penn-America.  The Company has a $25
million  line of credit  which  also can be  accessed,  if  needed,  to fund the
purchases of treasury stock.


                                    Page 14
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

         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 March
31, 2000 was approximately 3.5 years.

         The Company's fixed maturity portfolio was $134.0 million or 84% of the
total  investment  portfolio  as of March 31, 2000.  Approximately  98% 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 $25.8 million or 16% of
total investments as of March 31, 2000.

         The  investment   portfolio   contained   $19.5  million  of  mortgage/
asset-backed obligations,  which represents 12.2% of the total investments as of
March 31, 2000.  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 March 31, 2000.

         The  principal  source of cash for the  payment of  dividends  to PNG's
stockholders is dividends from Penn-America.  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 2000 by
Penn-America  to  PNG  without  prior  approval  of  regulatory  authorities  is
$6,950,000.


                                    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 - None














                                    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: May 10, 2000                     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















                                    Page 17