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, 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 November 14, 2000,  7,565,025 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 - September 30, 2000 and
                December 31, 1999                                          3

         Consolidated Unaudited Statements of Operations - For the three
                 and nine months ended September 30, 2000 and 1999         4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the nine months ended September 30, 2000               5

         Consolidated Unaudited Statements of Cash Flows -
                For the nine months ended September 30, 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                                               25



















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

                                                                                         September 30,         December 31,
                                                                                              2000                 1999
                                                                                        ----------------     -----------------
<S>                                                                                           <C>                  <C>
ASSETS
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2000, $117,319;
         1999, $115,975)                                                                    $ 116,527            $ 111,419
       Held to maturity, at amortized cost (fair value 2000, $17,225; 1999, $16,103)           17,271               16,294
    Equity securities, at fair value (cost 2000, $27,324; 1999, $28,014)                       24,914               26,020
    Short-term investments, at cost, which approximates fair value                                 --                  449
                                                                                        ----------------     -----------------
       Total investments                                                                      158,712              154,182
Cash                                                                                           14,284               12,045
Accrued investment income                                                                       2,048                1,965
Premiums receivable, net                                                                       11,378                8,981
Reinsurance recoverable                                                                        17,607               18,284
Prepaid reinsurance premiums                                                                    4,596                3,529
Deferred policy acquisition costs                                                              11,050                9,306
Capital lease                                                                                   1,775                1,840
Deferred income taxes                                                                           4,655                5,487
Income tax recoverable                                                                          3,357                1,652
Other assets                                                                                      341                  511
                                                                                        ----------------     -----------------
       Total assets                                                                         $ 229,803            $ 217,782
                                                                                        ================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                                $ 105,484             $ 93,719
  Unearned premiums                                                                            43,687               36,332
  Accounts payable and accrued expenses                                                         2,544                1,755
  Capitalized lease obligation                                                                  1,731                1,821
  Other liabilities                                                                             3,548                3,537
                                                                                        ----------------     -----------------
         Total liabilities                                                                    156,994              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, 10,065,025 and 9,990,436 shares;
    outstanding 2000 and 1999, 7,565,025 and 8,062,861 shares                                     101                  100
  Additional paid-in capital                                                                   70,084               69,591
   Accumulated other comprehensive loss                                                        (2,114)              (4,324)
  Retained earnings                                                                            29,680               35,050
  Treasury stock, 2000, 2,500,000 shares; 1999, 1,927,575 shares, at cost                     (24,161)             (19,474)
   Officers' stock loans                                                                         (546)                  --
  Unearned compensation from restricted stock awards                                             (235)                (325)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            72,809               80,618
                                                                                        ----------------     -----------------

         Total liabilities and stockholders' equity                                         $ 229,803            $ 217,782
                                                                                        ================     =================
</TABLE>



                                                             Page 3
<PAGE>
<TABLE>
<CAPTION>
                                        PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                          Consolidated Statements of Operations
                                                       (Unaudited)

                         For the three and nine month periods ended September 30, 2000 and 1999
                                          (In thousands, except per share data)

                                                                 Three months ended               Nine months ended
                                                                   September 30,                     September 30,
                                                             -------------------------         -------------------------
                                                               2000             1999             2000             1999
                                                             --------         --------         --------         --------
<S>                                                           <C>              <C>              <C>              <C>
Revenues:
    Premiums earned                                           $23,366          $21,555          $67,392          $64,375
    Net investment income                                       2,753            2,403            7,613            7,163
    Net realized investment gain (loss)                        (1,148)               1           (1,177)           1,239
                                                             --------         --------         --------         --------
       Total revenues                                          24,971           23,959           73,828           72,777
                                                             --------         --------         --------         --------

Losses and expenses:
    Losses and loss adjustment expenses                        24,546           21,329           56,445           48,874
    Amortization of deferred policy acquisition costs           6,608            6,103           19,320           18,343
    Other underwriting expenses                                 1,690            1,668            5,062            4,553
    Interest expense                                               36               36              109              109
                                                             --------         --------         --------         --------
       Total losses and expenses                               32,880           29,136           80,936           71,879
                                                             --------         --------         --------         --------

Income (loss) before income tax benefit                        (7,909)          (5,177)          (7,108)             898

Income tax (benefit)                                           (2,831)          (1,933)          (2,951)            (263)

                                                             --------         --------         --------         --------
Net income (loss)                                             $(5,078)         $(3,244)         $(4,157)          $1,161
                                                             ========         ========         ========         ========

Basic and diluted net earnings (loss) per share                $(0.67)          $(0.38)          $(0.54)           $0.13


Weighted average number of shares outstanding
         Basic                                                  7,558            8,457            7,714            8,742
         Diluted                                                7,558            8,457            7,714            8,814

Cash dividends per share                                      $0.0525          $0.0525          $0.1575           $0.155
</TABLE>



                                                         Page 4
<PAGE>
<TABLE>
<CAPTION>
                                              PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

                                           Consolidated Statement of Stockholders' Equity
                                                             (Unaudited)

                                            For the nine months ended September 30, 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 loss                                                                       (4,157)                                     (4,157)
Other comprehensive income:
  unrealized gains
  on investments,
  net of tax
  and reclassification
  adjustment                                                       2,210                                                    2,210
                                                                                                                           ------
Comprehensive income                                                                                                       (1,947)
                                                                                                                           ------

Issuance of common stock           74,589       1        493                                                                  494
Officers' stock loans                                                                                 (546)                  (546)
Amortization of compensation
  expense from restricted
  stock awards issued                                                                                            90            90
Cash dividends paid
  ($0.1575 per share)                                                          (1,213)                                     (1,213)
Purchase of treasury
  stock, 572,425 shares                                                                    (4,687)                         (4,687)
                               ----------------------------------------------------------------------------------------------------
Balance at September 30, 2000  10,065,025    $101    $70,084     $(2,114)     $29,680    $(24,161)   $(546)   $(235)      $72,809
                               ====================================================================================================

</TABLE>











                                                               Page 5
<PAGE>

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

                                 For the nine months ended September 30, 2000 and 1999
                                                    (In thousands)

<S>                                                                                      <C>               <C>
                                                                                      Nine months ended September 30,
                                                                                        -------------------------
                                                                                          2000             1999
                                                                                        --------         --------
Cash flows from operating activities:
    Net income (loss)                                                                    $(4,157)          $1,161
    Adjustments to reconcile net earnings to net cash provided by
      Operating activities:
         Amortization and depreciation expense                                               396              389
         Net realized investment (gains) losses                                            1,177           (1,239)
         Deferred income tax (benefit)                                                      (306)             104
         Net decrease in premiums receivable, prepaid reinsurance premiums
           And unearned premiums                                                           3,891            1,755
         Net increase in unpaid losses and loss adjustment expenses
           And reinsurance recoverable                                                    12,442            4,642
         Accrued investment income                                                           (83)            (296)
         Deferred policy acquisition costs                                                (1,744)            (512)
         Income tax recoverable                                                           (1,705)          (1,242)
         Other assets                                                                         74               89
         Accounts payable and accrued expenses                                               789            1,223
         Other liabilities                                                                    11             (400)
                                                                                        --------         --------
               Net cash provided by operating activities                                  10,785            5,674
                                                                                        --------         --------

Cash flows from investing activities:
    Purchases of equity securities                                                       (11,957)          (7,372)
    Purchases of fixed maturities available for sale                                     (60,771)         (29,704)
    Purchases of fixed maturities held to maturity                                        (9,949)          (2,785)
    Proceeds from sales of equity securities                                              12,753            3,764
    Proceeds from sales and maturities of fixed maturities available for sale             57,972           22,877
    Proceeds from maturities and calls of fixed maturities held to maturity                9,000            7,256
    Change in short-term investments                                                         449              997
                                                                                        --------         --------
              Net cash used by investing activities                                       (2,503)          (4,967)
                                                                                        --------         --------

Cash flows from financing activities:
    Issuance of common stock                                                                 493              465
    Purchase of treasury stock                                                            (4,687)         (11,346)
    Officers' stock loans                                                                   (546)            --
    Principal payments on capital lease obligations                                          (90)            (102)
    Dividends paid                                                                        (1,213)          (1,342)
                                                                                        --------         --------
              Net cash used by financing activities                                       (6,043)         (12,325)
                                                                                        --------         --------

Increase (decrease) in cash                                                                2,239          (11,618)
Cash, beginning of period                                                                 12,045           24,077
                                                                                        --------         --------
Cash, end of period                                                                      $14,284          $12,459
                                                                                        ========         ========

Supplemental  disclosure of cash flow  information:  Cash paid during the period
    for:
      Interest                                                                              $109             $109
      Taxes (recovered)                                                                     (950)             875
</TABLE>








                                                        Page 6
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

Note 1 - Organization and Basis of Presentation

         Penn-America  Group, Inc. ("PAGI") is an insurance holding company that
operates through its wholly owned subsidiaries,  Penn-America  Insurance Company
("Penn-America")  and Penn-Star Insurance Company.  "The Company" refers to PAGI
and its subsidiaries.  Penn Independent  Corporation  ("Penn  Independent") owns
approximately  41% of the  outstanding  common stock of PAGI as of September 30,
2000.

         The accompanying  condensed unaudited consolidated financial statements
and notes have been prepared in accordance with accounting  principles generally
accepted in the United States  ("GAAP") for interim  financial  information  and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the  information  and notes required by
GAAP for  complete  financial  statements.  In the  opinion of  management,  all
adjustments   (consisting  of  normal  and  recurring  adjustments)   considered
necessary for a fair  presentation  of results for the interim periods have been
included. It is suggested that these condensed unaudited  consolidated financial
statements  and notes be read in conjunction  with the financial  statements and
notes  included in the  Corporation's  Form 10-K for the year ended December 31,
1999.  The  Company's   results  of  operations  for  interim  periods  are  not
necessarily indicative of the results to be expected for the entire year.

Note 2 - Reinsurance

         Premiums  earned are  presented  net of amounts  ceded to reinsurers of
$2.9 million and $2.5 million for the three months ended  September 30, 2000 and
1999,  respectively.  Losses and loss  adjustment  expenses are presented net of
amounts  ceded to  reinsurers  of $0.4  million  and $2.0  million for the three
months ended September 30, 2000 and 1999, respectively.

         Premiums  earned are  presented  net of amounts  ceded to reinsurers of
$8.4 million and $5.9 million for the nine months ended  September  30, 2000 and
1999,  respectively.  Losses and loss  adjustment  expenses are presented net of
amounts ceded to reinsurers of $2.9 million and $6.1 million for the nine months
ended September 30, 2000 and 1999, respectively

Note 3 - Comprehensive Income

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





                                     Page 7
<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,
                                        -------------------------------------------------------
                                          2000            1999            2000           1999
                                        -------         -------         -------         -------
<S>                                     <C>             <C>             <C>              <C>
Basic Earnings Per Share:
Net income (loss)                       $(5,078)        $(3,244)        $(4,157)         $1,161
                                        -------         -------         -------         -------

Weighted average common
      shares outstanding                  7,558           8,457           7,714           8,742
                                        -------         -------         -------         -------

Basic Earnings Per Share                 $(0.67)         $(0.38)         $(0.54)          $0.13
                                        =======         =======         =======         =======

Diluted Earnings Per Share:
Net income (loss)                       $(5,078)        $(3,244)        $(4,157)         $1,161
                                        -------         -------         -------         -------
Weighted average common
      shares outstanding                  7,558           8,457           7,714           8,742

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

Total weighted average common
      shares outstanding                  7,558           8,457           7,714           8,814
                                        =======         =======         =======         =======

Diluted Earnings Per Share               $(0.67)         $(0.38)         $(0.54)          $0.13
                                        =======         =======         =======         =======
<FN>
* The company has issued  options to purchase  369,250 shares of common stock to
employees  and directors at prices  ranging from $5.42 to $19.00.  These options
are not considered in the  computation  of EPS for these periods,  as the impact
would be anti-dilutive.
</FN>
</TABLE>

Note 5- Change in accounting estimate

         During  the third  quarter of 2000,  the  Company  completed  a routine
actuarial  review,  which included a study by the Company's  outside  consulting
actuary.  The third quarter 2000 operating  results include a  strengthening  of
prior year loss  reserves by $7.6  million,  or $4.9  million net of tax benefit
($0.65  per basic and  diluted  share)  relating  principally  to the  Company's
commercial  automobile  liability,  CMP liability and other  liability  lines of
business.



                                     Page 8
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 6- Segment Information

         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  automobile
business,  which was  underwritten  through a single agent in  California.  This
followed a decision  earlier in 1999 to eliminate the remainder 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 do 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 following is a summary of the Company's segment revenues,  expenses
and profit for the nine months ended September 30, 2000 and 1999:

(in thousands)                        Three months ended September 30, 2000
                                      -------------------------------------
                                                         Personal
                                     Commercial         Automobile       Total
                                  ---------------------------------------------
Premiums earned                        $22,749              $617        $23,366
Net investment income from
  insurance operations                     831               100            931
                                  ---------------------------------------------
Total segment revenues                  23,580               717         24,297
                                  ---------------------------------------------

Segment losses and LAE                  24,359               187         24,546
Segment expenses                         5,367               217          5,584
                                  ---------------------------------------------
Total segment expenses                  29,726               404         30,130
                                  ---------------------------------------------

Segment profit (loss)                  $(6,146)             $313        $(5,833)
                                  ---------------------------------------------
Unallocated items:


Net investment income from equity                                           674

Unallocated expenses                                                     (2,750)
Income tax benefit                                                        2,831
                                                                     -----------
Net loss                                                                $(5,078)
                                                                     ===========




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

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 6- Segment Information (Continued)

 (in thousands)                       Three months ended September 30, 1999
                                ----------------------------------------------
                                 Commercial        Personal
                                                   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)
                                ----------------------------------------------
Unallocated items:


Net investment income from equity                                      1,029

Unallocated expenses                                                  (1,017)

Income tax benefit                                                     1,933
                                                                  -----------
Net loss                                                             $(3,244)
                                                                  ===========

The  following  is a summary of the  Company's  segment  revenues,  expenses and
profit for the nine months ended September 30, 2000 and 1999:

(in thousands)                        Nine months ended September 30, 2000
                                ----------------------------------------------
                                 Commercial        Personal
                                                   Automobile        Total
                                ----------------------------------------------
Premiums earned                    $63,616           $3,776         $67,392
Net investment income from
  insurance operations               3,332              402           3,734
                                ----------------------------------------------

Total segment revenues              66,948            4,178          71,126
                                ----------------------------------------------

Segment losses and LAE              54,047            2,398          56,445
Segment expenses                    17,904            1,358          19,262
                                ----------------------------------------------

Total segment expenses              71,951            3,756          75,707
                                ----------------------------------------------

Segment profit (loss)              $(5,003)            $422         $(4,581)
                                ----------------------------------------------

Unallocated items:

Net investment income from equity                                      2,702

Unallocated expenses                                                  (5,229)

Income tax benefit                                                     2,951
                                                                  -----------
Net loss                                                             $(4,157)
                                                                  ===========



                                     Page 10
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 6- Segment Information (Continued)

 (in thousands)                       Nine months ended September 30, 1999
                                ----------------------------------------------
                                                   Personal
                                  Commercial      Automobile          Total
                                ----------------------------------------------
Premiums earned                    $52,666         $11,709          $64,375
Net investment income from
  insurance operations               3,761             698            4,459
                                ----------------------------------------------

Total segment revenues              56,427          12,407           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 benefit
                                                                         263
                                                                  -----------
Net income                                                           $ 1,161
                                                                  ===========












                                    Page 11
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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


Results of Operations

Three Months Ended September 30, 2000 and 1999

                  Premiums earned  increased 8.4% to $23.4 million for the three
months ended  September  30, 2000 from $21.6  million for the three months ended
September 30, 1999,  due to a 22.1% increase in commercial  premiums,  partially
offset by a 78.9% decline in non-standard  personal lines  automobile  caused by
the run off of personal lines. The company  announced in 1999 that it is running
off its non-standard personal automobile business.

         Gross  written  premiums  increased  9.0% for the  three  months  ended
September 30, 2000 to $28.5 million  compared to $26.2 million in 1999, due to a
18.5% increase in commercial gross written premiums  partially offset by a 87.0%
decline in non-standard personal lines automobile.

         Net  written  premiums  increased  12.7%  for the  three  months  ended
September 30, 2000 to $25.3 million  compared to $22.4 million in 1999, due to a
24.1% increase in commercial net written  premiums,  partially offset by a 86.3%
decline in non-standard personal lines.

         Net  investment  income  increased  14.6% to $2.8 million for the three
months ended  September  30, 2000,  from $2.4 million for the three months ended
September 30, 1999. This increase  resulted  principally from an increase in the
tax equivalent  investment yield of the fixed income security  portfolio and the
growth in invested assets.  In the quarter ended September 30, 2000, the Company
sold approximately $50 million of primarily  fixed-income  securities to utilize
tax benefits  available  from capital gain carry  forwards and  re-invested  the
proceeds principally in higher-yielding taxable securities.  As a result of this
transaction, the Company realized net investment losses at $1.1 million.

         Losses and loss  adjustment  expenses  increased 15.1% to $24.5 million
for the three months ended  September 30, 2000, from $21.3 million for the three
months ended  September  30,  1999.  The Company  strengthened  reserves by $4.9
million,  after tax benefit,  following a reserve review, which included a study
by the Company's outside consulting actuary. The Company  strengthened  reserves
and recorded additional property losses in the third quarter of 1999,  resulting
in a charge of $4.9 million, net of tax benefit.

         Amortization  of deferred  policy  acquisition  costs increased 8.3% to
$6.6  million for the three  months ended  September  30, 2000  compared to $6.1
million in 1999, due primarily to the 8.4% increase in net premiums earned.

         Other  underwriting  expenses  remained  at $1.7  million  for both the
three-month periods ended September 30, 2000 and 1999.

         The overall statutory combined ratio for the Company increased to 139.5
for the three months ended  September 30, 2000,  from 133.2 for the three months
ended  September  30, 1999,  primarily  due to the increase in the loss ratio to
105.1 in 2000,  compared  to 99.0 in 1999.  The  increase  in the loss  ratio is
primarily due to the third quarter 2000 reserve strengthening. The expense ratio
increased  slightly  to 34.4 for the three  months  ended  September  30,  2000,
compared to 34.2 for the three months ended September 30, 1999.


                                    Page 12
<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 recorded a net
loss for the three months ended  September 30, 2000 of $5.1 million or $0.67 per
share (basic and  diluted),  compared to a net loss of $3.2 million or $0.38 per
share (basic and diluted) for the three  months ended  September  30, 1999.  Per
share  amounts  for the  three  months  ended  September  30,  2000 are based on
weighted average shares outstanding of 7,558,000 (basic and diluted).  Per share
amounts  for the three  months  ended  September  30, 1999 are based on weighted
average shares outstanding of 8,457,000 (basic and diluted).

Nine Months Ended September 30, 2000 and 1999

         Premiums  earned  increased  4.7% to $67.4  million for the nine months
ended  September 30, 2000 from $64.4 million for the nine months ended September
30, 1999.  This  increase  was due to a 20.8%  increase in  commercial  premiums
earned,  partially  offset by a 67.7%  decline in  non-standard  personal  lines
automobile  premiums earned caused by the run off of personal lines as announced
in 1999.

         Gross  written  premiums  increased  14.3%  for the nine  months  ended
September 30, 2000 to $83.1 million  compared to $72.7 million in 1999, due to a
27.5% increase in commercial gross written premiums offset by a 71.4% decline in
non-standard personal lines automobile.

         Net  written  premiums  increased  12.3%  for  the  nine  months  ended
September 30, 2000 to $73.7 million  compared to $65.6 million in 1999, due to a
26.8% increase in commercial net written  premiums,  partially offset by a 71.4%
decline in non-standard personal lines automobile.

         Net  investment  income  increased  6.3% to $7.6  million  for the nine
months ended  September  30,  2000,  from $7.2 million for the nine months ended
September 30, 1999. This increase  resulted  principally from an increase in the
tax equivalent  investment yield of the fixed income portfolio and the growth in
invested  assets.  In the quarter  ended  September  30, 2000,  the Company sold
approximately  $50 million of primarily  fixed-income  securities to utilize tax
benefits available from capital gain carry forwards and re-invested the proceeds
principally in higher-yielding taxable securities. Primarily as a result of this
transaction,  the Ccompany realized net investment losses of $1.1 million in the
nine months  ended  September  30,  2000,  compared  to a realized  gain of $1.2
million in the nine months ended September 30, 1999.

         Losses and loss  adjustment  expenses  increased 15.5% to $56.4 million
for the nine months ended  September  30, 2000,  from $48.9 million for the nine
months ended  September  30,  1999.  The Company  strengthened  reserves by $6.2
million,  after tax benefit,  following a reserve review, which included a study
by the Company's outside consulting actuary. The Company  strengthened  reserves
and recorded additional property losses in the third quarter of 1999,  resulting
in a charge of $4.9 million, net of tax benefit.

         Amortization  of deferred  policy  acquisition  costs increased 5.3% to
$19.3 million for the nine months ended  September  30, 2000,  compared to $18.3
million  for the nine months  ended  September  30,  1999,  primarily  due to an
increase in net premiums earned.

         The overall statutory combined ratio for the Company increased to 118.6
for the nine months ended  September  30,  2000,  from 110.3 for the nine months
ended  September  30, 1999,  primarily  due to the increase in the loss ratio to
83.8 in  2000,  compared  to 75.9 in 1999.  The  increase  in the loss  ratio is
primarily due to the


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

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


reserve strengthening. The expense ratio increased slightly to 34.8 for the nine
months  ended  September  30,  2000,  compared to 34.4 for the nine months ended
September 30, 1999.

         As a result of the factors  described above, the Company's net loss for
the nine months  ended  September  30, 2000 was $4.2  million or $0.54 per share
(basic and  diluted),  compared to net income of $1.2 million or $0.13 per share
(basic and  diluted)  for the nine months ended  September  30, 1999.  Per share
amounts  for the nine  months  ended  September  30,  2000 are based on weighted
average shares  outstanding of 7,714,000 (basic and diluted).  Per share amounts
for the nine months  ended  September  30,  1999 are based on  weighted  average
shares outstanding of 8,742,000 (basic) and 8,814,000 (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 sources of funds are operations,
investment income and proceeds from sales and redemptions of investments.  Funds
are used by Penn-America  and Penn-Star  principally to pay claims and operating
expenses,  to purchase  investments  and to make dividend and other  payments to
PAGI.

         Net cash  provided by  operating  activities  increased  90.0% to $10.8
million for the nine months ended  September 30, 2000, from $5.7 million for the
nine months ended  September  30, 1999,  due  primarily to the increase in gross
commercial  premiums  written,  along with the  decrease in paid losses and loss
adjustment expenses.

         Net cash used by investing  activities  decreased 49.6% to $2.5 million
for the nine-month  periods ended  September 30, 2000, from $5.0 million for the
nine months ended September 30, 1999.

         Net cash used by financing activities decreased to $6.0 million for the
nine months ended  September  30, 2000,  compared to $12.3  million for the same
period in 1999.  This decrease is due to the repurchase of the Company's  common
stock of $4.7  million for the  nine-month  period  ended  September  30,  2000,
compared to $11.3  million for the nine months ended  September  30,  1999.  The
Company  announced  a  corporate  stock  buy-back  program in July  1998.  As of
September  30, 2000,  the Company has  acquired 2.5 million  shares (the maximum
that  can be  acquired  under  current  authority  from the  Company's  Board of
Directors)  at an average cost of $9.66 per share.  The funding for the treasury
stock  program  has been  provided by  dividends  from the  Company's  insurance
subsidiary, Penn-America.

         As a result of the dividends paid to PAGI, and the strengthening of its
loss  reserves,  statutory  surplus of  Penn-America  as of  September  30, 2000
decreased to $55.8 million from $69.4 million as of September 30, 1999.

         In the third quarter,  the Company terminated its $25 million revolving
credit  facility.  The Company had not  borrowed  from this  facility  since its
inception in 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


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

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

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,  2000  was
approximately 3.39 years.

         The Company's  fixed maturity  portfolio of $133.8 million was 84.3% of
the total investment  portfolio as of September 30, 2000.  Approximately  99% of
these  securities  were  rated "A" or better by  Standard  & Poor's or  Moody's.
Equity  securities,  the  majority  of which  consist  of  preferred  stocks and
exchange  traded funds,  were $24.9 million or 15.7% of total  investments as of
September 30, 2000.

         As of September  30, 2000,  the  investment  portfolio  contained  $5.2
million of mortgage/asset-backed obligations, which represents 3.3% of the total
investments  as of September 30, 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
derivative  financial  instruments,  real estate or mortgages in the  investment
portfolio as of September 30, 2000.

         The  principal  source of cash for the payment of  dividends  to PAGI's
stockholders,  PAGI operating expenses and repurchase of PAGI stock is dividends
from Penn-America and its subsidiary, Penn-Star. Penn-America is required by law
to maintain a certain  minimum  surplus on a  statutory  basis and is subject to
risk-based capital requirements and regulations under which payment of dividends
from  statutory  surplus  may  require  prior  approval  from  the  Pennsylvania
Insurance  Department.  Penn-America  may pay dividends to PAGI without  advance
regulatory approval only from unassigned surplus and only to the extent that all
dividends  in the past  twelve  months do not exceed the greater of 10% of total
statutory  surplus  or  statutory  net  income  for the prior  year.  Using this
criteria,  the available ordinary dividend for 2000 was $.6 million,  however no
ordinary dividends were paid to PAGI in 2000.  Rather,  Penn-America paid a $6.4
million  return of capital in 2000 to PAGI,  after  receiving  approval from the
Pennsylvania   Insurance  Department.   Given  that  Penn-America  has  negative
unassigned surplus as of September 30, 2000, it is expected that no dividend may
be paid in 2001 without prior regulatory approval. However, the Company believes
that it will  receive  regulatory  approval  for  requests for return of capital
dividends in 2001.




                                    Page 15
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



Item 1.       Legal Proceedings - None

Item 2.       Changes in Securities - None

Item 3.       Default Upon Senior Securities - None

Item 4.       Submission of Matters to a Vote by Security Holders - None

Item 5.       Other Information - None

Item 6.       Exhibits and Reports on Form 8-K - 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: November 14, 2000                By:  /s/ Jon S. Saltzman
      ----------------------               -----------------------------
                                              Jon S. Saltzman
                                              President and
                                              Chief Executive Officer



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















                                    Page 17