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              June 30, 2001
                                  ----------------------------------

                                       OR

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

For the transition period from                  to
                               ---------------       ---------------

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

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


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


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


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


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

At August 10, 2001, 7,629,734 shares of the registrant's  common stock, $.01 par
value, were outstanding.



                                     Page 1
<PAGE>



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

                                                                                        Page Number
<S>                                                                                        <C>
Part I - Financial Information

         Consolidated Balance Sheets - June 30, 2001 (unaudited) and
                December 31, 2000                                                            3

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

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

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

         Notes to Unaudited Consolidated Financial Statements                                7

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

Part II - Other Information                                                                 16

</TABLE>





                                     Page 2
<PAGE>


<TABLE>
<CAPTION>

                                           PENN-AMERICA GROUP, INC. AND SUBSIDIARIES
                                                  Consolidated Balance Sheets
                                             (In thousands, except per share data)
                                                                                           June 30,            December 31,
                                                                                              2001                 2000
                                                                                        ----------------     -----------------
ASSETS                                                                                    (Unaudited)
<S>                                                                                           <C>                  <C>
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2001, $125,713; 2000,             $  128,283           $  125,477
       $123,873)
       Held to maturity, at amortized cost (fair value 2001, $15,589; 2000, $17,441)           15,307               17,282
    Equity securities, at fair value (cost 2001, $27,768; 2000, $27,324)                       24,622               24,491
                                                                                        ----------------     -----------------
       Total investments                                                                      168,212              167,250
Cash                                                                                            9,030               11,425
Accrued investment income                                                                       2,157                2,181
Premiums receivable, net                                                                       11,848                9,695
Reinsurance recoverable                                                                        24,102               24,447
Prepaid reinsurance premiums                                                                    4,120                4,635
Deferred policy acquisition costs                                                               9,220               10,317
Capital lease                                                                                   1,709                1,753
Deferred income taxes                                                                           4,323                4,272
Income tax recoverable                                                                          2,056                2,982
Other assets                                                                                      562                  529
                                                                                        ----------------     -----------------
       Total assets                                                                        $  237,339           $  239,486
                                                                                        ================     =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                               $  115,509           $  115,314
  Unearned premiums                                                                            39,392               43,239
  Accounts payable and accrued expenses                                                         2,373                2,353
  Capitalized lease obligation                                                                  1,639                1,701
  Other liabilities                                                                             2,463                2,828
                                                                                        ----------------     -----------------
         Total liabilities                                                                    161,376              165,435
                                                                                        ----------------     -----------------

Stockholders' equity:
  Preferred stock, $.01 par value; authorized 2,000,000 shares;
    None issued                                                                                    --                   --
  Common stock, $.01 par value; authorized 20,000,000 shares;
    issued 2001 and 2000, 10,116,984 and 10,076,025 shares, respectively;
    outstanding 2001 and 2000, 7,616,984 and 7,576,025 shares, respectively                       101                  101
  Additional paid-in capital                                                                   70,522               70,164
   Accumulated other comprehensive loss                                                          (379)                (811)
  Retained earnings                                                                            30,747               29,583
  Treasury stock, 2,500,000 shares in 2001 and 2000 at cost                                   (24,161)             (24,161)
   Officers' stock loans                                                                         (655)                (546)
  Unearned compensation from restricted stock awards                                             (212)                (279)
                                                                                        ----------------     -----------------
         Total stockholders' equity                                                            75,963               74,051
                                                                                        ----------------     -----------------

         Total liabilities and stockholders' equity                                        $  237,339           $  239,486
                                                                                        ================     =================
</TABLE>


                                                            Page 3
<PAGE>


<TABLE>
<CAPTION>

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

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


                                                           Three months ended                  Six months ended
                                                                June 30,                           June 30,
                                                     -------------------------------    -------------------------------
                                                         2001              2000              2001             2000
                                                     --------------    -------------    ---------------   -------------
Revenues
<S>                                                     <C>               <C>               <C>              <C>
Premiums earned                                         $  22,206         $  22,479         $45,248          $44,026
Net investment income                                       2,815             2,460           5,665            4,860
Net realized investment loss                                 (334)              (16)           (232)             (29)
                                                     --------------    -------------    ---------------   -------------
    Total revenues                                         24,687            24,923          50,681           48,857
                                                     --------------    -------------    ---------------   -------------

Losses and expenses
Losses and loss adjustment expenses                        15,453            17,994          32,187           31,899
Amortization of deferred policy acquisition costs           6,007             6,473          12,231           12,712
Other underwriting expenses                                 1,684             1,487           3,218            2,917
Corporate expenses                                            189               235             351              455
Interest expense                                               40                36              80               73
                                                     --------------    -------------    ---------------   -------------
    Total losses and expenses                              23,373            26,225          48,067           48,056
                                                     --------------    -------------    ---------------   -------------


Income (loss) before income tax                             1,314            (1,302)          2,614              801
Income tax expense (benefit)                                  320              (640)            653             (120)
                                                     --------------    --------------------------------   -------------
Net income (loss)                                        $    994          $   (662)        $ 1,961              921
                                                     ==============    =============    ===============   =============

Net income (loss) per share, basic and diluted           $   0.13          $  (0.09)        $  0.26         $   0.12


Cash dividends per share                                 $ 0.0525          $ 0.0525         $ 0.105         $  0.105
</TABLE>





                                                         Page 4
<PAGE>

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

                                         Consolidated Statement of Stockholders' Equity
                                                           (Unaudited)

                                              For the six months ended June 30, 2001
                                              (In thousands, except per share data)


                                                                                                       Unearned
                                                                                                     Compensation
                                                    Accumulated                                          From
                                       Additional      Other                             Officers'    Restricted     Total
                              Common     Paid-In   Comprehensive   Retained   Treasury     Stock        Stock     Stockholders'
                               Stock    Capital    Income (Loss)   Earnings    Stock       Loans        Awards       Equity
                             --------------------------------------------------------------------------------------------------
<S>                          <C>     <C>            <C>           <C>        <C>         <C>         <C>         <C>
Balance at December 31, 2000   $ 101   $ 70,164      $ ( 811)      $ 29,583   $ (24,161)  $  (546)    $ (279)     $ 74,051
Net income                        --         --           --          1,961          --        --         --         1,961
Other comprehensive income:
  unrealized gains on
  investments, net of tax
  and reclassification
  adjustment                      --         --          432           --            --        --         --           432
                                                                                                                  ----------
Comprehensive income                                                                                                 2,393
                                                                                                                  ----------
Issuance of common stock          --        358           --           --            --        --         --           358
Officers' stock loans             --         --           --           --            --      (109)        --          (109)
Amortization of compensation
 expense from restricted
 stock awards issued              --         --           --           --            --        --         67            67
Cash dividends paid
 ($0.0525 per share)              --         --           --           (797)         --        --         --          (797)
                             ----------------------------------------------------------------------------------------------
Balance at June 30, 2001       $ 101   $ 70,522      $  (379)      $ 30,747   $ (24,161)  $  (655)    $ (212)     $ 75,963
                             ==============================================================================================
</TABLE>





                                                         Page 5
<PAGE>

<TABLE>
<CAPTION>

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

                                     For the six months ended June 30, 2001 and 2000
                                                       (In thousands)
                                                                                           Six months ended June 30,
                                                                                      -------------------------------------
                                                                                           2001                   2000
                                                                                      ---------------        ---------------
Cash flows from operating activities:
<S>                                                                                   <C>                      <C>
    Net income                                                                        $       1,961            $       921
    Adjustments to reconcile net income to net cash provided (used) by Operating
      activities:
         Amortization and depreciation expense                                                   18                    324
         Net realized investment loss                                                           232                     29
         Deferred income tax (benefit) expense                                                 (273)                    14
         Net increase (decrease) in premiums receivable, prepaid reinsurance
         premiums
           and unearned premiums                                                             (5,485)                 1,904
         Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                          540                  2,659
         Accrued investment income                                                               24                    (85)
         Deferred policy acquisition costs                                                    1,097                 (1,208)
         Income tax recoverable                                                                 926                    816
         Other assets                                                                          (109)                    38
         Accounts payable and accrued expenses                                                   21                    684
         Other liabilities                                                                     (365)                  (482)
                                                                                      ---------------        ---------------
         Net cash provided (used) by operating activities                                    (1,413)                 5,614
                                                                                      ---------------        ---------------

Cash flows from investing activities:
    Purchases of equity securities                                                           (2,065)                (2,945)
    Purchases of fixed maturities available for sale                                        (17,547)               (11,268)
    Purchases of fixed maturities held to maturity                                               --                 (9,899)
    Proceeds from sales of equity securities                                                  1,375                  3,674
    Proceeds from sales and maturities of fixed maturities available for sale                15,865                 10,812
    Proceeds from maturities and calls of fixed maturities held to maturity                   2,000                  4,000
    Change in short-term investments                                                             --                    449
                                                                                      ---------------        ---------------
         Net cash used by investing activities                                                 (372)                (5,177)
                                                                                      ---------------        ---------------

Cash flows from financing activities:
    Issuance of common stock                                                                    358                    456
    Purchase of treasury stock                                                                   --                 (4,687)
    Officers' stock loans                                                                      (109)                  (491)
    Principal payments on capital lease obligations                                             (62)                   (60)
    Dividends paid                                                                             (797)                  (817)
                                                                                      ---------------        ---------------
         Net cash used by financing activities                                                 (610)                (5,599)
                                                                                      ---------------        ---------------

Decrease in cash                                                                             (2,395)                (5,162)
Cash, beginning of period                                                                    11,425                 12,045
                                                                                      ---------------        ---------------
Cash, end of period                                                                   $       9,030            $     6,883
                                                                                      ===============        ===============

Supplemental disclosure of cash flow information:
      Interest paid                                                                   $          80            $        73
      Taxes recovered                                                                            --                   (950)

</TABLE>

<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

Note 1 - Organization and Basis of Presentation

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

         Penn-America and Penn-Star  underwrite  commercial property and general
liability  insurance  and  multi-peril  insurance for small  businesses  located
primarily  in small  towns  and  suburban  and  rural  areas.  Penn-America  and
Penn-Star can write business in all 50 states and the District of Columbia.  The
companies  write business on both an admitted and excess and surplus lines basis
in 35 states, on an admitted basis only in 3 states and on an excess and surplus
lines basis only in 12 states and the District of Columbia.

         The accompanying  condensed unaudited consolidated financial statements
and notes have been prepared in accordance with accounting  principles generally
accepted in the United States  ("GAAP") for interim  financial  information  and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the  information  and notes required by
GAAP for  complete  financial  statements.  In the  opinion of  management,  all
adjustments   (consisting  of  normal  and  recurring  adjustments)   considered
necessary for a fair  presentation  of results for the interim periods have been
included.  All  significant  intercompany  accounts and  transactions  have been
eliminated in  consolidation.  It is suggested  that these  condensed  unaudited
consolidated  financial  statements  and notes be read in  conjunction  with the
financial  statements  and notes in the  Company's  2000 Annual Report which was
incorporated  by  reference  into the  Company's  Form  10-K for the year  ended
December 31, 2000. The Company's  results of operations for interim  periods are
not necessarily indicative of the results to be expected for the entire year.

Note 2 - Reinsurance

         Premiums  earned are  presented  net of amounts  ceded to reinsurers of
$3.0 million and $2.9 million for the three months ended June 30, 2001 and 2000,
respectively.  Losses and loss adjustment  expenses are presented net of amounts
ceded to reinsurers of $700,000 and $637,000 for the three months ended June 30,
2001 and 2000, respectively.

         Premiums  earned are net of amounts ceded to reinsurers of $6.0 million
and $5.5 million for the six months ended June 30, 2001 and 2000,  respectively.
Losses and loss  adjustment  expenses are net of amounts  ceded to reinsurers of
$3.4  million and $2.5  million for the six months ended June 30, 2001 and 2000,
respectively.

Note 3 - Comprehensive Income

           Accumulated other comprehensive income (loss) of the Company consists
solely of unrealized gains or losses on investment  securities net of applicable
income tax expense or benefit and  reclassification  adjustments.  Comprehensive
income was $759,000 for the three  months ended June 30, 2001,  compared  with a
comprehensive  loss of $1.1  million for the three  months  ended June 30, 2000.
Comprehensive  income was $2.4 million and $1.2 million for the six months ended
June 30, 2001 and 2000, respectively.





                                     Page 7
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 4 - Income (Loss) Per Share

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

<TABLE>
<CAPTION>
                                                             Three months ended                  Six Month Ended
(in thousands, except per share data)                             June 30,                          June 30,
                                                         ------------------------------------------------------------
                                                           2001             2000              2001             2000
                                                         -------          -------           -------          -------
<S>                                                      <C>              <C>               <C>              <C>

Basic per share computation:
Net income (loss)                                        $   994          $  (662)          $ 1,961          $   921

Weighted average common shares outstanding                 7,605            7,616             7,592            7,794
                                                         -------          -------           -------          -------

Basic net income (loss) per share                        $  0.13          $ (0.09)          $  0.26          $  0.12
                                                         =======          =======           =======          =======

Diluted per share computation:
Net income (loss)                                        $   994          $  (662)            1,961              921

Weighted average common shares outstanding                 7,605            7,616             7,592            7,794

Additional shares outstanding after the assumed
      exercise of stock options by applying the
      treasury stock method                                   71                *                55               46
                                                         -------          -------           -------          -------

Total shares                                               7,676            7,616             7,647            7,840
                                                         =======          =======           =======          =======

Diluted net income (loss)  per share                     $  0.13          $ (0.09)          $  0.26          $  0.12
                                                         =======          =======           =======          =======
</TABLE>



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






                                     Page 8

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 5- Segment Information

         The  Company  has  two  reportable  segments:   non-standard   personal
automobile and  commercial  lines.  The Company  announced in April 1999 that it
would  run-off its  remaining  personal  lines  automobile  business,  which was
underwritten  through a single  agent in  California.  This  followed a decision
earlier in 1999 to eliminate  the  Company's  non-standard  personal  automobile
business  in nine other  states.  The  Company  will  continue to report on this
segment  separately  until the  amounts  relating to the  non-standard  personal
automobile  business become  immaterial to the financial  statements  presented.
These segments are managed  separately  because they have  different  customers,
pricing and expense  structures.  The Company does not allocate  assets  between
segments because assets are reviewed in total by management for  decision-making
purposes.

         The  accounting  policies  of the  segments  are the same as those more
fully described in the summary of significant  accounting  policies in Note 1 of
the Company's 2000 Annual Report,  which was  incorporated by reference into the
Company's 2000 Form 10-K. The Company  evaluates  segment profit based on profit
or loss from operating activities. Segment profits or losses from operations are
pre-tax and do not include unallocated expenses but do include investment income
attributable  to  insurance  transactions.  Segment  profit  or  loss  therefore
excludes  federal  income  taxes,  unallocated  expenses and  investment  income
attributable to equity as opposed to investment income attributable to insurance
transactions.

         The following is a summary of the Company's segment revenues,  expenses
and profit:
<TABLE>
<CAPTION>
(in thousands)                                         Three months ended June 30, 2001
                                                       --------------------------------
                                                                    Personal
                                                  Commercial       Automobile         Total
                                                 ----------------------------------------------

<S>                                                 <C>                 <C>           <C>
Premiums earned                                     $  22,200           $    6        $ 22,206


Net investment income from insurance operations         1,568               71           1,639
                                                 ----------------------------------------------
Total segment revenues                                 23,768               77          23,845
                                                 ----------------------------------------------

Segment losses and loss adjustment expenses            15,750             (297)         15,453
Segment expenses                                        6,558                5           6,563
                                                 ----------------------------------------------
Total segment expenses                                 22,308             (292)         22,016
                                                 ----------------------------------------------

Segment income                                         $1,460             $369           $1,829
                                                 ----------------------------------------------
Unallocated items:
Net investment income from equity                                                          842

Unallocated expenses                                                                    (1,357)

Income tax expense                                                                        (320)
                                                                                    -----------
Net income                                                                              $  994
                                                                                    ===========
</TABLE>

                                     Page 9
<PAGE>


                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 5- Segment Information (Continued)

<TABLE>
<CAPTION>
 (in thousands)                                                   Three months ended June 30, 2000
                                                                  --------------------------------
                                                              Commercial       Personal
                                                                              Automobile         Total
                                                            ----------------------------------------------
<S>                                                           <C>                <C>            <C>
Premiums earned                                               $ 21,090           $  1,389       $ 22,479

Net investment income from insurance operations                  1,304                146          1,450

                                                            ----------------------------------------------
Total segment revenues                                          22,394              1,535         23,929
                                                            ----------------------------------------------

Segment losses and loss adjustment expenses                     16,935              1,059         17,994
Segment expenses                                                 6,481                497          6,977
                                                            ----------------------------------------------
Total segment expenses                                          23,416              1,556         24,971
                                                            ----------------------------------------------

Segment income                                                $ (1,022)          $    (20)      $ (1,042)
                                                            ----------------------------------------------
Unallocated items:
Net investment income from equity                                                                    994

Unallocated expenses
                                                                                                  (1,254)
Income tax benefit                                                                                   640
                                                                                               -----------
Net income                                                                                      $   (662)
                                                                                               ===========



(in thousands)                                                     Six months ended June 30, 2001
                                                                   ------------------------------
                                                              Commercial       Personal
                                                                              Automobile         Total
                                                            ----------------------------------------------

Premiums earned                                               $ 45,226           $     22       $ 45,248
Net investment income from insurance operations                  3,434                155          3,589
                                                            ----------------------------------------------
Total segment revenues                                          48,660                177          48,837
                                                            ----------------------------------------------

Segment losses and loss adjustment expenses                     33,680             (1,493)        32,187
Segment expenses                                                13,149                 10         13,159
                                                            ----------------------------------------------
Total segment expenses                                          46,829             (1,483)        45,346
                                                            ----------------------------------------------

Segment income                                                $  1,831           $  1,660        $ 3,491
                                                            ----------------------------------------------
Unallocated items:
Net investment income from equity                                                                  1,844

Unallocated expenses
                                                                                                  (2,721)
Income tax expense                                                                                  (653)
                                                                                               -----------
Net income                                                                                      $  1,961
                                                                                               ===========
</TABLE>



                                    Page 10
<PAGE>


<TABLE>
<CAPTION>

(in thousands)                                                     Six months ended June 30, 2000
                                                                   ------------------------------
                                                              Commercial       Personal
                                                                              Automobile         Total
                                                            ----------------------------------------------
<S>                                                           <C>                <C>             <C>
Premiums earned                                               $ 40,867           $  3,159        $44,026
Net investment income from insurance operations                  2,501                302          2,803
                                                            ----------------------------------------------
Total segment revenues                                          43,368              3,461         46,829
                                                            ----------------------------------------------

Segment losses and loss adjustment expenses                     29,688              2,211         31,899
Segment expenses                                                12,535              1,142         13,677
                                                            ----------------------------------------------
Total segment expenses                                          42,223              3,353         45,576
                                                            ----------------------------------------------

Segment income                                                $  1,145           $    108        $ 1,253
                                                            ----------------------------------------------
Unallocated items:
Net investment income from equity                                                                  2,028

Unallocated expenses
                                                                                                  (2,480)
Income tax benefit                                                                                   120
                                                                                               -----------
Net income                                                                                         $ 921
                                                                                               ===========
</TABLE>




                                    Page 11
<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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


Results of Operations

Three Months Ended June 30, 2001 and 2000

         Premiums  earned  decreased  1.2% to $22.2 million for the three months
ended June 30, 2001 from $22.5 million for the three months ended June 30, 2000,
due to a decline  in  non-standard  personal  automobile  earned  premiums.  The
Company  announced  in 1999 that it is  running  off its  non-standard  personal
automobile business.

         Gross written premiums  decreased 16.7% for the three months ended June
30, 2001 to $23.6  million  compared to $28.3 million for the three months ended
June 30, 2000, due to a 13.7% decrease in commercial  gross written premiums and
a 100% decline in  non-standard  personal  automobile  premiums.  The commercial
gross written  premium decline  resulted  primarily from our decision in October
2000 to exit the commercial automobile line of business.

         Net written  premiums  decreased  16.6% for the three months ended June
30, 2001 to $20.9  million  compared to $25.0 million for the three months ended
June 30, 2000, due to a 13.2% decrease in commercial net written  premiums and a
100% decline in non-standard personal automobile business.

         Net  investment  income  increased  14.4% to $2.8 million for the three
months  ended June 30,  2001,  from $2.5 million for the three months ended June
30, 2000. This increase resulted  principally from an increase in the investment
yield of the fixed  income  investment  portfolio  and the  growth  in  invested
assets.

         Losses and loss  adjustment  expenses  decreased 14.1% to $15.5 million
for the three  months  ended June 30,  2001,  from $18.0  million  for the three
months ended June 30, 2000.

         Amortization of deferred  policy  acquisition  costs ("DAC")  decreased
7.2% to $6.0 million for the three months ended June 30, 2001, from $6.5 million
for the three months ended June 30, 2000 due to a reduction in commission  rates
and decreased earned premium.

         Other  underwriting  expenses  increased  13.2% to $1.7 million for the
three months  ended June 30, 2001,  from $1.5 million for the three months ended
June 30, 2000.

         The overall statutory combined ratio for the Company decreased to 104.3
for the three months ended June 30, 2001,  from 114.7 for the three months ended
June 30, 2000,  primarily due to the decrease in the loss ratio to 69.6 in 2001,
compared to 80.0 in 2000.  The expense ratio was 34.7 for the three months ended
June 30, 2001 and the three months ended June 30, 2000.

         As a result of the factors  described  above,  net income for the three
months  ended  June 30,  2001 was $1.0  million  or $0.13 per share  (basic  and
diluted),  compared  to net loss of $.7  million  or $0.09 per share  (basic and
diluted) for the three months ended June 30, 2000.




                                    Page 12
<PAGE>



                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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


Six  Months Ended June 30, 2001 and 2000

         Premiums  earned  increased  2.8% to $45.2  million  for the six months
ended June 30, 2001 from $44.0  million for the six months  ended June 30, 2000,
due to a 10.7% increase in commercial  earned  premiums,  partially  offset by a
99.3% decline in non-standard  personal automobile earned premiums.  The Company
announced in 1999 that it is running off its  non-standard  personal  automobile
business.

         Gross written  premiums  decreased  13.2% for the six months ended June
30, 2001 to $47.4  million  compared to $54.6  million for the six months  ended
June 30, 2000, due to a 9.1% decrease in commercial gross written premiums and a
100% decline in non-standard personal automobile premiums.  The commercial gross
written premium decline resulted  primarily from our decision in October 2000 to
exit the commercial automobile line of business.

         Net written premiums  decreased 13.4% for the six months ended June 30,
2001 to $41.9  million  compared to $48.4  million for the six months ended June
30, 2000, due to a 8.8% decrease in commercial net written  premiums and a 99.9%
decline in non-standard personal automobile business.

         Net  investment  income  increased  16.6% to $5.7  million  for the six
months ended June 30, 2001,  from $4.9 million for the six months ended June 30,
2000.  This increase  resulted  principally  from an increase in the  investment
yield of the fixed  income  investment  portfolio  and the  growth  in  invested
assets.

         Losses and loss adjustment expenses increased 0.9% to $32.2 million for
the six months ended June 30, 2001,  from $31.9 million for the six months ended
June 30, 2000.

         Amortization of deferred  policy  acquisition  costs ("DAC")  decreased
3.8% to $12.2  million for the six months ended June 30, 2001  compared to $12.7
million in 2000 due to a reduction in commission rates.

         Other underwriting expenses increased 10.3% to $3.2 million for the six
months ended June 30, 2001,  from $2.9 million for the six months ended June 30,
2000.

         The overall statutory combined ratio for the Company decreased to 105.6
for the six months ended June 30, 2001, from 107.5 for the six months ended June
30,  2000,  primarily  due to the  decrease  in the loss  ratio to 71.1 in 2001,
compared to 72.5 in 2000. The expense ratio decreased to 34.5 for the six months
ended June 30,  2001,  compared to 35.0 for the six months  ended June 30, 2000,
due in part to the aforementioned commission reduction.

         As a result of the  factors  described  above,  net  income for the six
months  ended  June 30,  2001 was $2.0  million  or $0.26 per share  (basic  and
diluted),  compared to net income of $0.9  million or $0.12 per share (basic and
diluted) for the six months ended June 30, 2000.




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

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

Liquidity and Capital Resources


         PAGI is a holding  company,  the principal asset of which is the common
stock of Penn-America. The principal source of cash for the payment of dividends
to PAGI's stockholders,  PAGI operating expenses and repurchase of PAGI stock is
dividends from Penn-America and Penn-Star.  Penn-America's  principal sources of
funds are operations,  investment income and proceeds from sales and redemptions
of investments.  Funds are used by Penn-America and Penn-Star principally to pay
claims and operating expenses,  to purchase investments and to make dividend and
other payments to PAGI.

         Penn-America  is required by law to maintain a certain  minimum surplus
on a  statutory  basis and is subject to  risk-based  capital  requirements  and
regulations  under which payment of dividends from statutory surplus may require
prior approval from the Pennsylvania Insurance Department.  Penn-America may pay
dividends to PAGI  without  advance  regulatory  approval  only from  unassigned
surplus and only to the extent that all  dividends in the past twelve  months do
not exceed the  greater of 10% of total  statutory  surplus,  or  statutory  net
income for the prior year. Using this criteria,  the available ordinary dividend
for 2001 is $5.5 million.  No ordinary  dividends  were paid to PAGI in 2000. In
2000,  Penn-America  paid a $6.4  million  return  of  capital  to  PAGI,  after
receiving approval from the Pennsylvania  Insurance Department,  which PAGI used
to  repurchase  stock  and  to  pay  dividends  and  PAGI  operating   expenses.
Penn-America paid a $0.6 million dividend to PAGI on May 9, 2001.

         Net cash used by  operating  activities  was $1.4  million  for the six
months  ended June 30,  2001,  compared to $5.6  million  provided by  operating
activities for the six months ended June 30, 2000.

         Net cash  used by  investing  activities  was $.4  million  for the six
months  ended June 30,  2001,  compared to $5.2 million for the six months ended
June 30, 2000.

         Net cash used by  financing  activities  was $0.6  million  for the six
months  ended June 30,  2001,  compared to $5.6 million for the six months ended
June 30, 2000. In 2000, $4.7 million was used to purchase treasury stock, and no
such purchases were made in 2001.

         Statutory  surplus as of June 30, 2001  increased to $60.0 million from
$55.5  million as of December  31,  2000,  due  primarily  to a $2.7 million net
positive impact of adopting the standard set of statutory accounting  principles
known as "codification" and statutory net income of $3.0 million.

         The  Company   believes  it  has  sufficient   liquidity  to  meet  its
anticipated  insurance  obligations and operating and capital expenditure needs.
The   Company's   investment   strategy   emphasizes   quality,   liquidity  and
diversification, as well as total return. With respect to liquidity, the Company
considers  liability  durations,  specifically  related to loss  reserves,  when
determining  desired investment  maturities.  In addition,  maturities have been
staggered   to  produce   cash  flows  for  loss   payments   and   reinvestment
opportunities.



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

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




         The Company's  fixed maturity  portfolio of $143.6 million was 85.4% of
the total investment  portfolio as of June 30, 2001.  Approximately 97% of these
securities were rated "A" or better by Standard & Poor's or Moody's. The average
duration of the fixed maturity  portfolio as of June 30, 2001 was  approximately
3.58 years. Equity securities, the majority of which consist of preferred stocks
and exchange traded funds,  were $24.6 million or 14.6% of total  investments as
of June 30, 2001.

         As of June 30, 2001, the investment  portfolio  contained $44.5 million
of  mortgage/asset-backed  obligations,  which  represents  26.4%  of the  total
investments  as of June 30, 2001.  All of these  securities  were  "AA"-rated or
better  and 72.8%  were  "AAA"-rated  by  Standard  & Poor's or  Moody's.  These
securities,  which were  issued by  government,  government-related  agencies or
publicly held corporations, are publicly traded, and have market values obtained
from an  independent  pricing  service.  Changes in estimated  cash flows due to
changes in prepayment  assumptions  from the original  purchase  assumptions are
revised  based on  current  interest  rates and the  economic  environment.  The
Company had no derivative financial instruments, real estate or mortgages in the
investment portfolio as of June 30, 2001.







                                     Page 15
<PAGE>



                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



Item 1.       Legal Proceedings - None

Item 2.       Changes in Securities - None

Item 3.       Default Upon Senior Securities - None

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

Item 5.       Other Information - None

Item 6.       Exhibits and Reports on Form 8-K

              On April 3, 2001,  the Company filed a current  report on Form 8-K
              announcing the availability of annual  statements of its insurance
              subsidiaries,   Penn-America   Insurance   Company  and  Penn-Star
              Insurance Company, on the Company's website, in hard copy from the
              Company,  or from  the  Pennsylvania  Insurance  Department.  This
              filing was made relative to Regulation FD requirements only.

               On May 16, 2001,  the Company filed a current  report on Form 8-K
               announcing the  availability  of first quarter  statements of its
               insurance   subsidiaries,   Penn-America  Insurance  Company  and
               Penn-Star  Insurance Company,  on the Company's website,  in hard
               copy  from  the  Company,  or  from  the  Pennsylvania  Insurance
               Department.  This  filing  was made  relative  to  Regulation  FD
               requirements only.




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



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








                                    Page 17