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, 1997
                                 ----------------------------------

                                       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 10, 1997, 9,883,384 shares of the registrant's common stock, $.01
par value, were outstanding.


<PAGE>



                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                                      Index

                                                                     Page Number

Part I - Financial Information

         Consolidated Unaudited Balance Sheets - September 30, 1997 and
                December 31, 1996 .............................................3

         Consolidated Unaudited Statements of Earnings - For the three
                and nine month periods ended September 30, 1997 and 1996 ......4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the nine month period ended September 30, 1997 ............5

         Consolidated Unaudited Statements of Cash Flows -
                For the nine month periods ended September 30, 1997 and 
                1996 ..........................................................6

         Notes to Unaudited Consolidated Financial Statements .................7

         Management's Discussion and Analysis of Financial Condition
                and Results of Operations .....................................8

Part II - Other Information ..................................................13


<PAGE>


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

                                                                   September 30,       December 31,
                                                                       1997                1996
                                                                ----------------     --------------
<S>                                                                    <C>            <C>      
ASSETS
Investments:
    Fixed Maturities:
      Available for sale, at fair value
     (amortized cost 1997 $85,214; 1996 $49,244)                       $  85,596      $  48,954
      Held to maturity, at amortized cost
     (fair value 1997 $43,008; 1996 $44,111)                              42,988         44,227
    Equity securities, at fair value
     (cost 1997 $24,240; 1996 $10,597)                                    26,328         12,390
    Short-term investments, at cost, which approximates fair value            --          7,000
                                                                       ---------      ---------
      Total Investments                                                  154,912        112,571
Cash                                                                      16,690          2,979
Receivables:
    Accrued investment income                                              2,007          1,671
    Premiums receivable, net                                              12,138         10,494
    Reinsurance recoverable                                               17,057         15,719
    Note receivable, affiliate                                                --            275
                                                                       ---------      ---------
      Total receivables                                                   31,202         28,159
Prepaid reinsurance premiums                                               2,955          2,668
Deferred policy acquisition costs                                          8,602          7,231
Capital leases                                                             1,886          1,950
Deferred income tax                                                        2,177          2,211
Income tax recoverable                                                       552            249
Other assets                                                                 577            587
                                                                       =========      =========
      Total assets                                                     $ 219,553      $ 158,605
                                                                       =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                           $  81,695      $  70,728
  Unearned premiums                                                       36,037         30,865
  Accounts payable and accrued expenses                                    2,004          1,773
  Capitalized lease obligations                                            1,947          2,030
  Notes payable, bank                                                         --          9,000
  Other liabilities                                                        3,538          1,872
                                                                       ---------      ---------
        Total liabilities                                                125,221        116,268
                                                                       ---------      ---------

Stockholders' equity:
  Preferred stock, $.01 par value; authorized 2,000,000 shares;
    none issued                                                               --             --
  Common stock, $.01 par value, authorized 1997, 20,000,000 shares
    and 1996, 10,000,000 shares; issued and outstanding
    1997, 9,883,384 shares and 1996, 6,676,131 shares                         99             67
  Additional paid-in capital                                              68,221         21,844
  Unrealized investment gains, net of tax                                  1,610            993
  Retained earnings                                                       24,956         19,533
                                                                       ---------      ---------
                                                                          94,886         42,437
  Unearned compensation from restricted stock awards                        (554)          (100)
                                                                       ---------      ---------
        Total stockholders' equity                                        94,332         42,337
                                                                       ---------      ---------

        Total liabilities and stockholders' equity                     $ 219,553      $ 158,605
                                                                       =========      =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.
                                     Page 3

<PAGE>


                               
                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                       Consolidated Statements of Earnings
                                   (Unaudited)

                      For the three and nine month periods
                          ended September 30, 1997 and 1996
                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                          Three months ended         Nine months ended
                                                             September 30,             September 30,
                                                       -----------------------     -------------------
                                                            1997         1996       1997          1996
                                                          -------       ------     ------        ------
Revenues:
<S>                                                        <C>         <C>         <C>         <C>    
    Premiums earned                                        $23,950     $17,836     $67,883     $49,944
    Net investment income                                    2,521       1,694       6,446       4,942
    Net realized investment gains                              479         227         588         330
                                                           -------     -------     -------     -------
      Total revenues                                        26,950      19,757      74,917      55,216
                                                           -------     -------     -------     -------

Losses and expenses:
    Losses and loss adjustment expenses                     14,876      11,222      42,483      31,326
    Amortization of deferred policy acquisition costs        6,425       4,574      18,396      12,785
    Other underwriting expenses                              1,639       1,017       4,254       3,267
    Interest expense                                            91         227         477         665
                                                           -------     -------     -------     -------
      Total losses and expenses                             23,031      17,040      65,610      48,043
                                                           -------     -------     -------     -------

Earnings before income tax                                   3,919       2,717       9,307       7,173

Income tax                                                   1,331         887       2,951       2,341
                                                           -------     -------     -------     -------

Net earnings                                               $ 2,588     $ 1,830     $ 6,356     $ 4,832
                                                           =======     =======     =======     =======

Net earnings per share (note 1)                                                                       
                                                           $  0.28     $  0.27        0.84     $  0.73
                                                           =======     =======     =======     =======

Weighted average number of shares outstanding (note 1)       9,134       6,669       7,534       6,661

Cash dividends per share (note 1)                          $  0.04     $  0.03     $  0.12     $  0.08

</TABLE>

     See accompanying notes to unaudited consolidated financial statements.
                                     Page 4
<PAGE>


                                                     
                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY
                 Consolidated Statement of Stockholders' Equity
                                   (Unaudited)

                  For the nine months ended September 30, 1997
                             (Dollars in thousands)


<TABLE>
<CAPTION>

                                                                                                           Unearned
                                                                                                         Compensation
                                                                                Unrealized                   From
                                                                  Additional    Investment                Restricted
                                             Common Stock          Paid-In        Gains        Retained      Stock
                                         Shares     Amount         Capital     (Losses), Net   Earnings      Awards     Total
                                        -------   --------       ----------     ------------   --------     -------     -----
<S>                                    <C>           <C>        <C>             <C>         <C>          <C>        <C>  
Balance at December 31, 1996            6,676,131      $67        $21,844           $993      $19,533       $(100)    $42,337
Net earnings                                                                                    6,356                   6,356
Issuance of common stock, net                3,207,253       32         46,377                                              46,409
Unearned compensation from 
     restricted stock awards                                                                                 (512)       (512)
Amortization of unearned
     compensation from
     restricted stock awards                                                                                   58          58
Unrealized investment gains, net                                                     637                                  637
Unrealized loss, net of
      accretion, on fixed
      maturities transferred
      to held to maturity                                                           (20)                                  (20)
Cash dividends paid                                                                              (933)                   (933)
                                       ---------------------------------------------------------------------------------------------
   
Balance at September 30, 1997           9,883,384     $ 99       $ 68,221        $ 1,610     $ 24,956     $ (554)    $ 94,332
                                       =============================================================================================

</TABLE>

     See accompanying notes to unaudited consolidated financial statements.
                                     Page 5
<PAGE>



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

              For the nine months ended September 30, 1997 and 1996
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                  Nine months ended September 30,
                                                                                  ------------------------------- 
                                                                                         1997          1996
Cash flows from operating activities:                                                   ------        ------
<S>                                                                                  <C>           <C>     
    Net earnings                                                                     $  6,356      $  4,832
    Adjustments to reconcile net earnings to net cash provided by
      operating activities:
        Amortization and depreciation expense                                             292           237
        Net realized investment gains                                                    (588)         (330)
        Deferred income tax                                                              (295)         (166)
        Net decrease in premiums and notes receivable,
           prepaid reinsurance premiums and unearned premiums                           3,516         2,384
        Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                  9,629         6,018
        (Increase) decrease in:
           Accrued investment income                                                     (336)         (217)
           Deferred policy acquisition costs                                           (1,371)       (1,088)
           Income tax recoverable                                                        (303)          147
           Other assets                                                                   (79)         (410)
        Increase (decrease) in:
           Accounts payable and accrued expenses                                          231          (468)
           Other liabilities                                                            1,666           276
                                                                                     --------      --------
              Net cash provided by operating activities                                18,718        11,215
                                                                                     --------      --------

Cash flows from investing activities:
    Purchases of equity securities                                                    (16,484)       (5,732)
    Purchases of fixed maturities available for sale                                  (53,426)      (15,050)
    Purchases of fixed maturities held to maturity                                     (2,027)      (17,070)
    Proceeds from sales of equity securities                                            3,412         4,840
    Proceeds from sales and maturities of fixed maturities available for sale           9,046        11,181
    Proceeds from maturities and calls of fixed maturities held to maturity            11,591         8,008
    Change in short-term investments                                                    7,000         6,000
                                                                                     --------      --------
        Net cash used by investing activities                                         (40,888)       (7,823)
                                                                                     --------      --------

Cash flows from financing activities:
    Issuance of common stock                                                           45,897           214
    Principal payment on note payable, bank                                            (9,000)           --
    Principal payments on capital lease obligations                                       (83)          (72)
    Dividends paid                                                                       (933)         (533)
    Principal payment on note payable, affiliate                                           --          (150)
                                                                                     --------      --------
        Net cash provided (used) by financing activities                               35,881          (541)
                                                                                     --------      --------

Increase in cash                                                                       13,711         2,851
Cash, beginning of period                                                               2,979         5,204
                                                                                     ========      ========
Cash, end of period                                                                  $ 16,690      $  8,055
                                                                                     ========      ========

Supplemental  disclosure of cash flow  information: 
Cash paid during the period for:
      Income tax                                                                     $  3,196      $  2,360
      Interest                                                                            531           640

Supplemental non-cash disclosure:
     Cost of securities transferred from available for sale to held to maturity      $  8,002            --
</TABLE>

           See accompanying notes to unaudited financial statements.
                                     Page 6
<PAGE>

                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

              Notes to Unaudited Consolidated Financial Statements

Note 1 - Organization and Basis of Presentation

         Penn-America Group, Inc. ("PAGI") is an insurance holding company whose
principal  asset  is  the  common  stock  of  Penn-America   Insurance   Company
("Penn-America"). Except where otherwise indicated, the "Company" refers to PAGI
and  Penn-America,  as  well  as  to  Penn-America's  wholly-owned  subsidiary,
Penn-Star Insurance  Company. Penn Independent Corporation  ("Penn Independent")
currently owns approximately 31.2% of the outstanding common stock of PAGI.

         The accompanying  unaudited consolidated financial statements should be
read in conjunction  with the financial  statements and notes for the year ended
December 31,  1996.  In the opinion of  management,  the  financial  information
reflects all adjustments (consisting only of normal recurring adjustments) which
are  necessary for a fair  presentation  of the  Company's  financial  position,
results of  operations,  and cash flows for the interim  periods.  The Company's
results of operations for interim periods are not necessarily  indicative of the
results to be expected for the entire year.

         On March 7, 1997,  PAGI  effected a  three-for-two  split of its common
stock.  All share amounts and per share  information  disclosed herein have been
adjusted to reflect this split.

         On  July  22,  1997,   PAGI  completed  a  secondary   offering  ("the
Offering") of 4,025,000  shares of its  common stock  of which 1,000,000 shares
were sold by Penn Independent

Note 2 - Reinsurance

         Premiums  earned are net of amounts ceded to reinsurers of $2.0 million
and $1.7 million for the three months ended September 30, 1997 and September 30,
1996, respectively. Losses and loss adjustment expenses are net of amounts ceded
to  reinsurers  of $1.5  million and $930  thousand  for the three  months ended
September 30, 1997 and September 30, 1996, respectively.

         Premiums earned are net of amounts ceded to reinsurers of $ 5.7 million
and $5.0 million for the nine months ended  September 30, 1997 and September 30,
1996, respectively. Losses and loss adjustment expenses are net of amounts ceded
to  reinsurers  of $5.2  million  and $5.6  million  for the nine  months  ended
September 30, 1997 and September 30, 1996, respectively.






                                     Page 7
<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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


Results of Operations

Three Months Ended September 30, 1997 and 1996

         Gross written  premiums  increased 29.5% to $27.2 million for the three
months ended  September  30, 1997 from $21.0  million for the three months ended
September  30,  1996.  The  increase  resulted  from  66.7%  growth in  personal
automobile  lines gross  written  premiums to $9.5  million and 15.5%  growth in
commercial  lines gross written  premiums to $17.7 million.  These  increases in
gross written premiums were primarily attributable to increased volume.

         Net written  premiums  increased  30.9% to $25.2  million for the three
months ended  September  30, 1997 from $19.2  million for the three months ended
September 30, 1996. During the same periods, net premiums earned increased 34.3%
to $24.0 million from $17.8 million.  Net premiums  earned  increased due to the
increase in gross written premiums,  partially offset by an increase in premiums
ceded to reinsurers.

         Net  investment  income  increased  48.8% to $2.5 million for the three
months  ended  September  30, 1997 from $1.7  million for the three months ended
September 30, 1996. This increase  resulted  principally from growth in invested
assets funded primarily from the  proceeds of the  Offering and  cash flows from
operating activities.  The investment yield of the fixed  maturity portfolio for
the three months ended  September 30, 1997 was 6.76%, compared  to 6.87% for the
three  months ended  September 30, 1996.  Net realized  investment gains  before
taxes were  $479,000 for the three months ended September 30, 1997, as compared
to $227,000 for the three months ended September 30, 1996.

         Losses and loss  adjustment  expenses  increased 32.6% to $14.9 million
for the three months ended  September  30, 1997 from $11.2 million for the three
months ended  September  30, 1996,  primarily due to an increase in net premiums
earned.

         Amortization  of deferred policy  acquisition  costs increased 40.5% to
$6.4 million for the three months ended September 30, 1997 from $4.6 million for
the three months ended  September 30, 1996. The increase was attributable to the
increase in net  premiums  earned and to the higher  percentage  of net premiums
earned in personal  automobile  lines relative to commercial lines for the three
months ended  September 30, 1997 as compared to the same period ended  September
30, 1996.  Commission  rates for personal  automobile lines are generally higher
than commission rates for commercial lines.

         Other  underwriting  expenses  increased  61.2% to $1.6 million for the
three  months  ended  September  30, 1997 from $1.0 million for the three months
ended  September  30,  1996,  primarily  due to the  increase  in gross  written
premiums. The increase in other underwriting expenses for the three months ended
September 30, 1997 was disproportional to the comparative period in 1996 because
of various expense recoveries recognized in 1996.


                                     Page 8
<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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



         The loss and loss  adjustment  expense  ratio  (loss  ratio)  decreased
slightly to 62.1% for the three months ended  September  30, 1997 from 62.9% for
the three months ended September 30, 1996. The statutory expense ratio increased
slightly to 32.1% for the three months ended  September  30, 1997 from 31.6% for
the three  months  ended  September  30,  1996.  The  statutory  combined  ratio
decreased  slightly to 94.2% for the three months ended  September 30, 1997 from
94.5% for the three months ended September 30, 1996.

         As a result of the factors  described  above,  the Company's net income
for the three months ended September 30, 1997 increased 41.4% to $2.6 million or
$0.28 per share, compared to $1.8 million or $0.27 per share for the three
months ended September 30, 1996. The disproportionate increase in net earnings
per share compared to net earnings for the three months ended September 30,1997
is due to the increase in the number of shares outstanding after the Offering.


Nine Months Ended September 30, 1997 and 1996

         Gross written  premiums  increased  35.2% to $78.7 million for the nine
months  ended  September  30, 1997 from $58.2  million for the nine months ended
September  30,  1996.  The  increase  resulted  from  81.4%  growth in  personal
automobile  lines gross  written  premiums to $28.3  million and 18.3% growth in
commercial  lines gross written  premiums to $50.4 million.  These  increases in
gross written premiums were primarily attributable to increased volume.

         Net  written  premiums  increased  37.1% to $72.8  million for the nine
months  ended  September  30, 1997 from $53.1  million for the nine months ended
September 30, 1996. During the same periods, net premiums earned increased 35.9%
to $67.9 million from $49.9 million.  Net premiums  earned  increased due to the
increase in gross written premiums,  partially offset by an increase in premiums
ceded to reinsurers.

         Net  investment  income  increased  30.4% to $6.4  million for the nine
months  ended  September  30, 1997 from $4.9  million for the nine months  ended
September 30, 1996. This increase  resulted  principally from growth in invested
assets funded primarily by net proceeds of approximately $44.4 million from the
Offering and cash flows from operating activities. The average investment yield
of the fixed maturity portfolio for the nine months ended September 30 ,1997 was
6.81%,  compared  to 6.85% for the nine months ended September 30 ,1996.   Net
realized investment gains before taxes were $588,000  for the nine months ended
September 30, 1997, as compared to $330,000 for the nine months ended
September 30, 1996.

         Losses and loss  adjustment  expenses  increased 35.6% to $42.5 million
for the nine months  ended  September  30, 1997 from $31.3  million for the nine
months ended  September  30, 1996,  primarily due to an increase in net premiums
earned.



                                     Page 9
<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY


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



         Amortization  of deferred policy  acquisition  costs increased 43.9% to
$18.4  million for the nine months ended  September  30, 1997 from $12.8 million
for the nine months ended  September 30, 1996. The increase was  attributable to
the increase in net premiums earned and to the higher percentage of net premiums
earned in personal  automobile  lines relative to commercial  lines for the nine
months ended  September 30, 1997 as compared to the same period ended  September
30, 1996.  Commission  rates for personal  automobile lines are generally higher
than commission rates for commercial lines.

         Other  underwriting  expenses  increased  30.2% to $4.3 million for the
nine months ended September 30, 1997 from $3.3 million for the nine months ended
September 30, 1996, primarily due to the increase in gross written premiums.

         The loss ratio  decreased  slightly to 62.6% for the nine months  ended
September 30, 1997 from 62.7% for the nine months ended  September 30, 1996. The
statutory  expense ratio  increased to 32.1% for the nine months ended September
30, 1997 from 31.6% for the nine months ended  September 30, 1996.  The increase
in the  statutory  expense  ratio  was  primarily  due to  the  increase  in the
percentage  of net premiums  written in personal  automobile  lines  relative to
commercial  lines. The statutory  combined ratio increased to 94.7% for the nine
months ended  September 30, 1997 from 94.3% for the nine months ended  September
30, 1996.

         As a result of the factors  described  above,  the Company's net income
for the nine months ended  September 30, 1997 increased 31.6% to $6.4 million or
$0.84 per share,  from $4.8 million or $0.73 per share for the nine months ended
September 30, 1996.  The disproportionate  increase in  net earnings  per share 
compared to net earnings for the nine months ended September 30, 1997 is due to 
the increase in the number of shares outstanding after the Offering.

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. 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 consist primarily of premiums, investment income
and  proceeds  from  sales and  redemptions  of  investments.  Funds are used by
Penn-America  principally  to pay claims and  operating  expenses,  to  purchase
investments and to make dividend and other payments to PAGI.


        
                                     Page 10
<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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

        Net cash  provided by  operating  activities  increased  66.9% to $18.7
million  for  the nine  months ended  September 30, 1997  as compared to  $11.2 
million for the nine months ended September 30, 1996.  The increase in net cash
provided  by operations resulted  principally from  the increase in net written
premiums and investment income during the period.
        
        Net cash used by investing activities increased 422.7% to $40.9 million
for the nine months  ended  September  30,  1997 from $7.8  million for the nine
months ended September 30, 1996. This increase was primarily due to the net cash
provided by the Offering and increased  cash provided from  operating activities
for the nine months ended September 30, 1997.

         Net cash provided by financing activities was $35.9 for the nine months
ended September 30, 1997, as compared to $541,000 used for financing  activities
for the same period in 1996.  The cash provided by financing  activities in 1997
resulted primarily from $45.9 million in proceeds from the Offering and exercise
of stock  options, partially offset  by the repayment of the $9.0 million  term
loan and $933,000 of cash dividends paid to stockholders.

         The  Company  believes  that it has  sufficient  liquidity  to meet its
anticipated  insurance  obligations and operating and capital expenditure needs.
The   Company's   investment   strategy   emphasizes   quality,   liquidity  and
diversification, as well as total return. With respect to liquidity, the Company
considers  liability  durations,  specifically  related to loss  reserves,  when
determining  desired investment  maturities.  In addition,  maturities have been
staggered   to  produce   cash  flows  for  loss   payments   and   reinvestment
opportunities.  The  average  duration  of the fixed  maturity  portfolio  as of
September 30, 1997 was approximately 3.1 years.

         The Company's fixed maturity  portfolio  represented  $128.6 million or
83% of the total  investment  portfolio as of September 30, 1997.  Approximately
99.1% of these  securities  were  rated  "A-" or better by  Standard & Poor's or
Moody's.   Equities,   the  majority  of  which  consist  of  preferred  stocks,
represented  $26.3  million or 17.0% of total  investments  as of September  30,
1997.

         As of September  30,  1997,  the  investment  portfolio  contained  $17
million or 10.9% of  mortgage-backed  obligations.  All of these  securities are
"AAA" rated securities issued by government or government-related  agencies, are
publicly  traded,  and have market values  obtained from an independent  pricing
service.   Changes  in  estimated  cash  flows  due  to  changes  in  prepayment
assumptions from the original purchase  assumptions are revised based on current
interest rates and the economic environment. The Company had no other derivative
financial  instruments,  real estate or mortgages in the investment portfolio as
of September 30, 1997.



                                    Page 11
<PAGE>


                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

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

        On July 25, 1997, the Company paid off the entire outstanding principle
balance of $9 million  plus  interest  on its Term Loan. In November 1997, the  
Company signed a commitment  letter to increase the Revolving Credit Facility to
$20.0 million.   The structure of the new  credit facility will provide for the 
repayment  of the  borrowed  amount  under the Revolving  Credit Facility to be 
extended over six years with  interest on the loan at LIBOR plus a factor which 
can vary from 100 to 225 basis points. Borrowing under this  new credit facility
will be secured by the common stock of Penn-America.

         The  principal  source of cash to use for the payment of  dividends  to
PAGI's stockholders is dividends from Penn-America.  Penn-America is required by
law to maintain a certain minimum surplus on a statutory basis and is subject to
risk-based capital requirements and regulations under which payment of dividends
from statutory surplus may require prior approval of the Pennsylvania regulatory
authorities.  The maximum  dividend that may be paid in 1997 by  Penn-America to
PAGI  without  prior   approval  of  regulatory   authorities   is   $6,262,000.
Penn-America's  statutory  surplus  increased  94.5%  to  $81.0 million. This is
due primarily to the  capital contribution  of $35.0 million  from the Offering
and statutory net income of $5.3 million.




                                    Page 12
<PAGE>



                     PENN-AMERICA GROUP, INC. AND SUBSIDIARY

                           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 13

<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 10, 1997                   By: /s/ Jon S. Saltzman
       ---------------------------------            -------------------
              Jon S. Saltzman
               President and
           Chief Executive Officer



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