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, 2002
                                              ----------------------------------

                                       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 2, 2002,  11,584,749 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
                                                                                        -----------

Part I - Financial Information

<S>                                                                                      <C>
         Consolidated Balance Sheets - June 30, 2002 (unaudited) and
                December 31, 2001                                                             3

         Consolidated Unaudited Statements of Operations - For the three
                 and six months ended June 30, 2002 and 2001                                  4

         Consolidated Unaudited Statement of Stockholders' Equity -
                For the six months ended June 30, 2002                                        5

         Consolidated Unaudited Statements of Cash Flows -
                For the six months ended June 30, 2002 and 2001                               6

         Notes to Unaudited Consolidated Financial Statements                                 7

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

         Quantitative and Qualitative Disclosure About Market Risk                           20

Part II - Other Information                                                                  21

</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,
                                                                                                   2002                2001
                                                                                            -----------------    -----------------
<S>                                                                                            <C>                  <C>
ASSETS                                                                                        (Unaudited)
Investments:
    Fixed maturities:
       Available for sale, at fair value (amortized cost 2002, $176,016; 2001,  $130,976)      $  182,214           $  135,253
       Held to maturity, at amortized cost (fair value 2002, $3,042; 2001, $15,317)                 2,968               15,084
    Equity securities, at fair value (cost 2002, $25,376; 2001, $27,770)                           23,013               25,149
                                                                                            -----------------    -----------------
       Total investments                                                                          208,195              175,486
Cash                                                                                                4,857               13,129
Accrued investment income                                                                           2,712                2,199
Premiums receivable                                                                                13,840               12,285
Reinsurance recoverable                                                                            25,415               25,804
Prepaid reinsurance premiums                                                                        7,206                4,241
Deferred policy acquisition costs                                                                  12,191                9,083
Capital lease, affiliate                                                                            1,622                1,666
Deferred income taxes                                                                               3,565                3,790
Income tax recoverable                                                                                 --                   66
Other assets                                                                                          318                  366
                                                                                            -----------------    -----------------
       Total assets                                                                            $  279,921           $  248,115
                                                                                            =================    =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses                                                   $  127,220           $  119,598
  Unearned premiums                                                                                58,852               41,034
  Accounts payable and accrued expenses                                                             5,640                3,800
  Capitalized lease obligation, affiliate                                                           1,499                1,570
  Income tax payable                                                                                  111                   --
  Other liabilities                                                                                 1,315                1,722
                                                                                            -----------------    -----------------
         Total liabilities                                                                        194,637              167,724
                                                                                            -----------------    -----------------
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 2002 and 2001, 15,334,185 and 15,228,351 shares, respectively;
    outstanding 2002 and 2001, 11,584,185 and 11,478,351 shares, respectively                         153                  152
  Additional paid-in capital                                                                       71,518               70,735
   Accumulated other comprehensive income                                                           2,531                1,092
  Retained earnings                                                                                36,111               33,334
  Treasury stock, 3,750,000 shares at cost                                                        (24,161)             (24,161)
   Officers' stock loans                                                                             (629)                (629)
  Unearned compensation from restricted stock awards                                                 (239)                (132)
                                                                                            -----------------    -----------------
         Total stockholders' equity                                                                85,284               80,391
                                                                                            -----------------    -----------------
         Total liabilities and stockholders' equity                                            $  279,921           $  248,115
                                                                                            =================    =================
</TABLE>


                                     Page 3
<PAGE>



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

            For the three and six months ended June 30, 2002 and 2001
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                             Three months ended                 Six months ended
                                                                  June 30,                          June 30,
                                                      ------------------------------      ------------------------------
                                                          2002               2001             2002              2001
                                                      ------------      ------------      ------------      ------------
<S>                                                   <C>               <C>               <C>               <C>
Revenues
Premiums earned                                       $     27,234      $     22,206      $     50,217      $     45,248
Net investment income                                        2,925             2,815             5,758
                                                                                                                   5,665
Net realized investment loss                                (1,093)             (334)           (1,345)             (232)
                                                      ------------      ------------      ------------      ------------
    Total revenues                                          29,066            24,687            54,630            50,681
                                                      ------------      ------------      ------------      ------------

Losses and expenses
Losses and loss adjustment expenses                         17,364            15,453            32,650            32,187
Amortization of deferred policy acquisition costs            6,739             6,007            12,750            12,231
Other underwriting expenses                                  2,166             1,684             3,823             3,218
Corporate expenses                                             233               189               344               351
Interest expense                                                35                40                70                80
                                                      ------------      ------------      ------------      ------------
    Total losses and expenses                               26,537            23,373            49,637            48,067
                                                      ------------      ------------      ------------      ------------

Income before income tax                                     2,529             1,314             4,993             2,614
Income tax expense                                             647               320             1,325               653
                                                      ------------      ------------      ------------      ------------

Net income                                            $      1,882      $        994      $      3,668      $      1,961
                                                      ============      ============      ============      ============

Net income per share
   Basic                                              $       0.16      $       0.09      $       0.32      $       0.17
   Diluted                                            $       0.16      $       0.09      $       0.31      $       0.17

Weighted average shares outstanding
   Basic                                                11,574,913        11,407,215        11,555,944        11,387,687
   Diluted                                              11,791,719        11,514,498        11,754,854        11,471,070

Cash dividends per share                              $    0.03875      $      0.035      $    0.07708      $      0.070
</TABLE>


                                     Page 4

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity
                                   (Unaudited)

                     For the six months ended June 30, 2002
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                                              Unearned
                                                               Accumulated                                   Compensation
                                                                 Other                                          From         Total
                                                    Additional  Compre-                           Officers'   Restricted     Stock-
                                            Common   Paid-In    hensive    Retained    Treasury     Stock       Stock       holders'
                                            Stock    Capital     Income    Earnings      Stock      Loans       Awards      Equity
                                          ---------  --------   --------   --------    --------    --------    --------    ---------
<S>                                       <C>        <C>        <C>        <C>         <C>         <C>         <C>         <C>
Balance at December 31, 2001              $    152   $ 70,735   $  1,092   $ 33,334    $(24,161)   $   (629)   $   (132)   $ 80,391
Net income                                      --         --         --      3,668          --          --          --       3,668
Other comprehensive income:
    net unrealized gain on investments,
    net of  tax and reclassification
    adjustment                                  --         --      1,439         --          --          --          --       1,439
                                                                                                                           --------
Comprehensive income                                                                                                          5,107
                                                                                                                           --------
Issuance of common stock                         1        783         --         --          --          --          --         784
Unearned compensation from
      restricted stock awards issued            --         --         --         --          --          --        (155)       (155)
Amortization of compensation expense from
      restricted stock awards issued            --         --         --         --          --          --          48          48
Cash dividends paid ($0.07708 per share)        --         --         --       (891)         --          --          --        (891)
                                          --------   --------   --------   --------    --------    --------    --------    --------
Balance at June 30, 2002                  $    153   $ 71,518   $  2,531   $ 36,111    $(24,161)   $   (629)   $   (239)   $ 85,284
                                          ========   ========   ========   ========    ========    ========    ========    ========
</TABLE>

                                     Page 5
<PAGE>

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

                 For the six months ended June 30, 2002 and 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                        Six months ended June 30,
                                                                                       ---------------------------
                                                                                         2002               2001
                                                                                       --------           --------
Cash flows from operating activities:
<S>                                                                                    <C>                <C>
    Net income                                                                         $  3,668           $  1,961
    Adjustments to reconcile net income to net cash provided (used) by
      operating activities:
         Amortization and depreciation expense                                             (185)                18
         Net realized investment loss                                                     1,345                232
         Deferred income tax                                                               (516)              (273)
         Net increase (decrease) in premiums receivable, prepaid reinsurance
           premiums and unearned premiums                                                13,298             (5,485)
         Net increase in unpaid losses and loss adjustment expenses
           and reinsurance recoverable                                                    8,011                540
         Accrued investment income                                                         (513)                24
         Deferred policy acquisition costs                                               (3,108)             1,097
         Income tax recoverable/payable                                                     177                926
         Other assets                                                                        11               (109)
         Accounts payable and accrued expenses                                            1,840                 21
         Other liabilities                                                                   82               (365)
                                                                                       --------           --------
         Net cash provided (used) by operating activities                                24,110             (1,413)
                                                                                       --------           --------

Cash flows from investing activities:
    Purchases of equity securities                                                           --             (2,065)
    Purchases of fixed maturities available for sale                                    (54,296)           (17,547)
    Proceeds from sales of equity securities                                              1,000              1,375
    Proceeds from sales and maturities of fixed maturities available for sale             9,451             15,865
    Proceeds from maturities and calls of fixed maturities held to maturity              12,130              2,000
                                                                                       --------           --------
         Net cash used by investing activities                                          (31,715)              (372)
                                                                                       --------           --------

Cash flows from financing activities:
    Issuance of common stock                                                                295                358
    Officers' stock loans                                                                    --               (109)
    Principal payments on capital lease obligations, affiliate                              (71)               (62)
    Dividends paid                                                                         (891)              (797)
                                                                                       --------           --------
         Net cash used by financing activities                                             (667)              (610)
                                                                                       --------           --------

Decrease in cash                                                                         (8,272)            (2,395)
Cash, beginning of period                                                                13,129             11,425
                                                                                       --------           --------
Cash, end of period                                                                    $  4,857           $  9,030
                                                                                       ========           ========
</TABLE>

                                     Page 6

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
Note 1 - Organization and Basis of Presentation

         Penn-America  Group,  Inc.  ("PAGI") is an insurance  holding  company.
Approximately  40% of the  outstanding  common  stock of PAGI was  owned by Penn
Independent  Corporation ("Penn Independent") at June 30, 2002. The accompanying
financial  statements  include  the  accounts  of  PAGI  and  its  wholly  owned
subsidiary, Penn-America Insurance Company ("Penn-America") and its wholly owned
subsidiary,   Penn-Star  Insurance  Company  ("Penn-Star"),   (collectively  the
"Company").

         The  Company  markets and  underwrites  general  liability,  commercial
property and multi-peril  insurance for small  businesses  located  primarily in
small towns and suburban and rural areas.  The Company can write business in all
fifty states and the  District of Columbia on both an admitted and  non-admitted
basis.

         The accompanying  interim 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  interim  condensed
unaudited  consolidated  financial  statements  and  related  notes  be  read in
conjunction  with the  financial  statements  and related notes in the Company's
2001 Annual Report which was  incorporated  by reference into the Company's Form
10-K for the year ended December 31, 2001.  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
$4.1 million and $3.0 million for the three months ended June 30, 2002 and 2001,
respectively.  Losses and loss adjustment  expenses are presented net of amounts
ceded to  reinsurers of $1.1 million and $0.7 million for the three months ended
June 30, 2002 and 2001, respectively.

         Premiums  earned are net of amounts ceded to reinsurers of $7.2 million
and $6.0 million for the six months ended June 30, 2002 and 2001,  respectively.
Losses and loss  adjustment  expenses are net of amounts  ceded to reinsurers of
$2.8  million and $3.4  million for the six months ended June 30, 2002 and 2001,
respectively.

Note 3 - Comprehensive Income

           Accumulated other comprehensive  income consists solely of unrealized
gains or losses on investment securities net of applicable income tax expense or
benefit and reclassification adjustments.  Comprehensive income was $4.3 million
for the three  months  ended June 30, 2002  compared  with $0.8  million for the
three months ended June 30, 2001. Comprehensive income was $5.1 million and $2.4
million for the six months ended June 30, 2002 and 2001, respectively.

                                     Page 7

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 4 - Income Per Share

         Income per share for the three and six months  ended June 30,  2002 and
2001 is  computed  by  dividing  net  income by the basic and  diluted  weighted
average number of common shares outstanding during the respective  periods.  The
following table is a  reconciliation  of the numerators and  denominators of the
basic and diluted income per share computations:

<TABLE>
<CAPTION>
(in thousands, except per share data)                         Three months ended June 30,            Six months ended June 30,
                                                            ------------------------------        ------------------------------
                                                               2002                2001               2002               2001
                                                            -----------        -----------        -----------        -----------
<S>                                                         <C>                <C>                <C>                    <C>
Basic per share computation:
     Net income                                             $     1,882        $       994        $     3,668            $1 ,961
     Weighted average common shares (1)                      11,574,913         11,407,215         11,555,944         11,387,687
                                                            -----------        -----------        -----------        -----------

Basic net income per share (1)                              $      0.16        $      0.09        $      0.32        $      0.17
                                                            ===========        ===========        ===========        ===========

Diluted per share computation:
     Net income                                             $     1,882        $       994        $     3,668        $     1,961
     Weighted average common shares (1)                      11,574,913         11,407,215         11,555,944         11,387,687
     Additional shares outstanding after the assumed
        assumed exercise of stock options by
        applying the treasury stock method (1)                  216,806            107,283            198,910             83,383
                                                            -----------        -----------        -----------        -----------
     Total shares (1)a                                       11,791,719         11,514,498         11,754,854         11,471,070
                                                            ===========        ===========        ===========        ===========

Diluted net income per share (1)a                           $      0.16        $      0.09        $      0.31        $      0.17
                                                            ===========        ===========        ===========        ===========

<FN>
(1) Adjusted to reflect a three-for-two stock split effected on May 9, 2002.
</FN>
</TABLE>

                                     Page 8

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


Note 5 - Retroactive Adjustment for Stock Split

         The common stock issued and  outstanding and treasury stock at December
31, 2001 have been restated to reflect the  three-for-two  stock split announced
on April 11, 2002 and distributed on May 9, 2002. Accordingly, the balance sheet
values for common stock and  additional  paid-in  capital have been adjusted for
the effect of the stock split. This adjustment resulted in a $51,000 increase in
common stock and a $51,000 decrease in additional paid-in capital. The following
table  illustrates share information on a pre stock split and a post stock split
basis as of December 31, 2001:


                                   Pre Stock Split       Post Stock Split
                                        Basis                  Basis
                                   ---------------       ----------------

Common stock issued                    10,152,234           15,228,351
Common stock outstanding                7,652,234           11,478,351
Treasury stock                          2,500,000            3,750,000



Note 6- Segment Information

         The  Company  had  two  reportable  segments:   non-standard   personal
automobile and commercial lines.  These segments were managed separately because
they had different customers, pricing and expense structures. The Company exited
the  non-standard  personal  automobile  business in 1999 and announced  that it
would  run-off its  remaining  portfolio  of such  business.  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.  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 2001 Annual Report,  which was  incorporated by reference into the
Company's 2001 Form 10-K. The Company  evaluates segment results 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.

                                     Page 9

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)

The  following  is a summary of the  Company's  segment  revenues,  expenses and
profit:

<TABLE>
<CAPTION>
(in thousands)                                                      Three months ended June 30, 2002
                                                                    --------------------------------
                                                                               Personal
                                                             Commercial       Automobile          Total
                                                             -------------------------------------------
<S>                                                           <C>              <C>              <C>
Premiums earned                                               $ 27,234         $     --         $ 27,234
Net investment income and net realized investment
     loss from insurance operations                              1,002               --            1,002
                                                             -------------------------------------------
Total segment revenues                                          28,236               --           28,236
                                                             -------------------------------------------
Segment losses and loss adjustment expenses                     17,364               --           17,364
Segment expenses                                                 7,913               --            7,913
                                                             -------------------------------------------
Total segment expenses                                          25,277               --           25,277
                                                             -------------------------------------------
Segment income                                                $  2,959         $     --         $  2,959
                                                             -------------------------------------------
Plus unallocated items:
     Net investment income from equity                                                               830
     Unallocated expenses                                                                         (1,260)
     Income tax expense                                                                             (647)
                                                                                                --------
Net income                                                                                      $  1,882
                                                                                                ========

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

Premiums earned                                               $ 22,200         $      6         $ 22,206
Net investment income and net realized investment
     loss 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
                                                             -------------------------------------------
Plus unallocated items:
     Net investment income from equity                                                               842
     Unallocated expenses                                                                         (1,357)
     Income tax expense                                                                             (320)
                                                                                                --------
Net income                                                                                      $    994
                                                                                                ========
</TABLE>

Total segment  revenue of  $28,236,000  and  $23,845,000  plus  unallocated  net
investment  income from equity of $830,000  and $842,000  equals  total  Company
revenues of $29,066,000 and $24,687,000 for the three months ended June 30, 2002
and 2001, respectively.

                                    Page 10

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)


The  following  is a summary of the  Company's  segment  revenues,  expenses and
profit:

<TABLE>
<CAPTION>
(in thousands)                                                     Six months ended June 30, 2002
                                                                   ------------------------------
                                                                               Personal
                                                             Commercial       Automobile          Total
                                                             -------------------------------------------

<S>                                                           <C>              <C>              <C>
Premiums earned                                               $ 50,217         $     --         $ 50,217
Net investment income and net realized investment
     loss from insurance operations                              2,439               --            2,439
                                                             -------------------------------------------
Total segment revenues                                          52,656               --           52,656
                                                             -------------------------------------------
Segment losses and loss adjustment expenses                     32,650               --           32,650
Segment expenses                                                14,234               --           14,234
                                                             -------------------------------------------
Total segment expenses                                          46,884               --           46,884
                                                             -------------------------------------------
Segment income                                                $  5,772         $     --         $  5,772
                                                             -------------------------------------------
Plus unallocated items:
     Net investment income from equity                                                             1,974
     Unallocated expenses                                                                         (2,753)
     Income tax expense                                                                           (1,325)
                                                                                                --------
Net income                                                                                      $  3,668
                                                                                                ========

 (in thousands)                                                    Six months ended June 30, 2001
                                                                   ------------------------------
                                                                               Personal
                                                             Commercial       Automobile          Total
                                                             -------------------------------------------
Premiums earned                                               $ 45,226         $     22         $ 45,248
Net investment income and net realized investment
     loss 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
                                                             -------------------------------------------
Plus unallocated items:
     Net investment income from equity                                                             1,844
     Unallocated expenses                                                                         (2,721)
     Income tax expense                                                                             (653)
                                                                                                --------
Net income                                                                                      $  1,961
                                                                                                ========
</TABLE>

Total segment  revenue of  $52,656,000  and  $48,837,000  plus  unallocated  net
investment  income from equity of $1,974,000 and $1,844,000 equals total Company
revenues of $54,630,000  and  $50,681,000 for the six months ended June 30, 2002
and 2001, respectively.

                                    Page 11

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements
                                   (continued)



Note 7- Equity Offering

On June 27, 2002,  PAGI filed a  registration  statement with the Securities and
Exchange  Commission  relating to a proposed offering of 4,000,000 shares of its
common stock.  Until the registration  statement is effective,  these securities
may not be sold nor may offers to buy be  accepted.  The intended use of the net
proceeds of this  offering are to support the  Company's  operations,  including
contributing  capital  to  the  insurance   subsidiaries  and  capitalizing  new
insurance  subsidiaries  to support  the  growth in  business,  and for  working
capital and other general corporate purposes.



                                    Page 12

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES



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

Results of Operations

Three Months Ended June 30, 2002 and 2001

         Premiums  earned were $27.2 million for the three months ended June 30,
2002  compared to $22.2  million for the three months  ended June 30, 2001.  The
Company previously announced that it was exiting both commercial  automobile and
non-standard  personal  automobile lines of business.  Premiums earned for these
exited lines of business decreased $1.5 million,  or 99.5%, for the three months
ended June 30,  2002  compared  to the three  months  ended June 30,  2001.  The
Company's core  commercial  lines  premiums  earned  (excluding  exited lines of
business) increased $6.5 million, or 31.3%,  attributable to the increase in net
written  premiums  for the three  months  ended June 30, 2002 as compared to the
same period of 2001.

         Gross written premiums  increased 91.8% for the three months ended June
30, 2002 to $45.2  million  compared to $23.6 million for the three months ended
June 30, 2001. This increase was  attributable to rate increases,  strong growth
in new business and higher average exposures per policy.

         Net written  premiums  increased  85.5% for the three months ended June
30, 2002 to $38.7  million  compared to $20.9 million for the three months ended
June 30,  2001.  The  increase in net written  premiums is  consistent  with the
increase  in  gross  written  premiums,  but  was  partially  offset  by  higher
reinsurance costs.

         Net investment  income was $2.9 million for the three months ended June
30,  2002  compared  to $2.8  million  for the same  period of last year.  While
average  invested  assets  increased 13.9% for the second quarter of 2002 due to
improved  operating cash flows,  the average  investment  yield on  fixed-income
securities was lower in the second quarter of 2002 than in the second quarter of
2001.  Also,  interest  rates on overnight  cash  balances were lower during the
second quarter of 2002 compared to the second quarter of 2001.

         Net  realized  investment  loss was $1.1  million for the three  months
ended June 30, 2002 compared to $0.3 million for the three months ended June 30,
2001. The net realized  investment loss for the three months ended June 30, 2002
included an  other-than-temporary  impairment  write-down of $1.1 million on the
Company's equity investment in exchange-traded funds.

         Losses and loss  adjustment  expenses  increased 12.4% to $17.4 million
for the three months ended June 30, 2002 from $15.5 million for the three months
ended June 30, 2001. The loss ratio for the three months ended June 30, 2002 was
63.8  compared to 69.6 for the three months ended June 30, 2001.  The loss ratio
is  calculated  by  dividing  losses and loss  adjustment  expenses  by premiums
earned.  The  improvement  in the loss ratio is primarily  attributable  to rate
increases  implemented in 2001 and 2002 and exiting of the commercial automobile
line of business.

         Amortization  of deferred  policy  acquisition  costs (ADAC)  increased
12.2% to $6.7 million for the three months ended June 30, 2002 from $6.0 million
for the three months ended June 30, 2001 primarily due to the growth in premiums
earned.  This increase was partially offset by a decline in the ratio of ADAC to
premiums  earned of 24.7 for the three  months  ended June 30, 2002  compared to
27.1 for the three months ended June 30, 2001. The improvement in this ratio was
attributable  to the  Company  writing a larger  portion  of its  business  on a
non-admitted  basis, which is not subject to premium tax expense and has a lower
overall commission rate.

                                    Page 13

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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

         Other  underwriting  expenses  increased  28.6% to $2.2 million for the
three  months  ended June 30, 2002 from $1.7  million for the three months ended
June 30, 2001.  This increase is mainly  attributable to increases in salary and
benefit  expenses  associated  with the hiring of  additional  underwriting  and
marketing personnel.

         The  overall  GAAP  combined  ratio,  which  is the sum of the loss and
expense ratios,  decreased to 96.5 for the three months ended June 30, 2002 from
104.2 for the three months ended June 30, 2001.  This  improvement was primarily
due to the decrease in the loss ratio to 63.8 in 2002  compared to 69.6 in 2001.
The expense  ratio  decreased  to 32.7 for the three  months ended June 30, 2002
from 34.6 for the  three  months  ended  June 30,  2001.  The  expense  ratio is
calculated  by  dividing  the sum of ADAC and  other  underwriting  expenses  by
premiums  earned.  The GAAP combined ratio is a standard measure of underwriting
profitability  used throughout the property and casualty insurance  industry.  A
ratio below 100.0 generally indicates profitable underwriting results.

         The factors described above resulted in net income for the three months
ended  June 30,  2002 of $1.9  million or $0.16 per share  (basic  and  diluted)
compared to net income of $1.0  million or $0.09 per share  (basic and  diluted)
for the three months ended June 30, 2001.


Six Months Ended June 30, 2002 and 2001

         Premiums  earned were $50.2  million for the six months  ended June 30,
2002  compared to $45.2  million  for the six months  ended June 30,  2001.  The
Company previously announced that it was exiting both commercial  automobile and
non-standard  personal  automobile lines of business.  Premiums earned for these
exited lines of business  decreased $3.6 million,  or 99.6%,  for the six months
ended  June 30,  2002  compared  to the six  months  ended  June 30,  2001.  The
Company's core  commercial  lines  premiums  earned  (excluding  exited lines of
business) increased $8.6 million, or 20.6%,  attributable to the increase in net
written  premiums for the six months ended June 30, 2002 as compared to the same
period of 2001.

         Gross written  premiums  increased  58.8% for the six months ended June
30, 2002 to $75.3  million  compared to $47.4  million for the six months  ended
June 30, 2001. This increase was  attributable to rate increases,  strong growth
in new business and higher average exposures per policy.

         Net written premiums  increased 55.2% for the six months ended June 30,
2002 to $65.1  million  compared to $41.9  million for the six months ended June
30, 2001. The increase in net written  premiums is consistent  with the increase
in gross written premiums, but was partially offset by higher reinsurance costs.

         Net  investment  income was $5.8  million for the six months ended June
30,  2002  compared  to $5.7  million  for the same  period of last year.  While
average  invested assets  increased 10.7% for the six months ended June 30, 2002
due  to  improved   operating  cash  flows,  the  average  investment  yield  on
fixed-income securities was lower in 2002 than for the six months ended June 30,
2001. Also,  interest rates on overnight cash balances were lower during the six
months ended June 30, 2002 compared to the same period of 2001.

         Net realized  investment loss was $1.3 million for the six months ended
June 30, 2002  compared to $0.2  million for the six months ended June 30, 2001.
The current period  included an  other-than-temporary  impairment  write-down of
$1.3 million on the Company's equity investments in exchange-traded funds.

                                    Page 14

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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


           Losses and loss adjustment  expenses  increased 1.4% to $32.7 million
for the six months  ended June 30,  2002 from $32.2  million  for the six months
ended June 30,  2001.  The loss ratio for the six months ended June 30, 2002 was
65.0 compared to 71.1 for the six months ended June 30, 2001.  This  improvement
is  attributable  to rate increases  implemented in 2001 and 2002 and exiting of
the commercial automobile line of business.

         Amortization of deferred policy acquisition costs (ADAC) increased 4.2%
to $12.8  million for the six months ended June 30, 2002 from $12.2  million for
the six  months  ended June 30,  2001  primarily  due to the growth in  premiums
earned.  This increase was partially offset by a decline in the ratio of ADAC to
premiums  earned of 25.4 for the six months ended June 30, 2002 compared to 27.0
for the six  months  ended  June 30,  2001.  The  improvement  in this ratio was
attributable  to the  Company  writing a larger  portion  of its  business  on a
non-admitted  basis, which is not subject to premium tax expense and has a lower
overall commission rate.

         Other underwriting expenses increased 18.8% to $3.8 million for the six
months  ended June 30, 2002 from $3.2  million for the six months ended June 30,
2001.  This increase is mainly  attributable  to increases in salary and benefit
expenses  associated  with the hiring of additional  underwriting  and marketing
personnel.

         The overall GAAP combined  ratio for the Company  decreased to 98.0 for
the six months ended June 30, 2002, from 105.2 for the six months ended June 30,
2001,  primarily  due to the decrease in the loss ratio to 65.0 in 2002 compared
to 71.1 in 2001.  The expense  ratio was 33.0 for the six months  ended June 30,
2002 and 34.1 for the six months ended June 30, 2001.

         The factors  described  above resulted in net income for the six months
ended  June 30,  2002 of $3.7  million  or $0.32 per  basic  share and $0.31 per
diluted  share  compared to net income of $2.0 million or $0.17 per share (basic
and diluted) for the six months ended June 30, 2001.

Critical Accounting Estimates

         The Company is liable for losses and loss adjustment expenses under the
terms of the  insurance  policies it writes.  In many cases,  several  years may
lapse between the  occurrence of an insured loss,  the reporting of the loss and
the payment of that loss.  The Company  reflects its  liability for the ultimate
payment of all incurred losses and loss adjustment expenses by establishing loss
and loss  adjustment  expense  reserves as balance  sheet  liabilities  for both
reported and unreported claims.

         When a claim  involving  a  probable  loss  is  reported,  the  Company
establishes a case reserve for the estimated  amount of its ultimate  loss.  The
estimate of the amount of the ultimate loss is based upon factors such as:

      o     the type of loss,
      o     the jurisdiction of the occurrence,
      o     our knowledge of the circumstances surrounding the claim,
      o     the severity of injury or damage,
      o     the potential for ultimate exposure, and
      o     policy provisions relating to the claim.

                                    Page 15

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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


         The Company  determines loss  adjustment  expenses via a formula method
that estimates loss  adjustment  expenses as a percentage of expected  indemnity
losses based on historical patterns adjusted to current experience.

         In addition to case reserves,  the Company  establishes  reserves on an
aggregate  basis to  provide  for  incurred  but not  reported  losses  and loss
adjustment  expenses,  commonly referred to as "IBNR". To establish reserves for
INBR, the Company must estimate the ultimate  liability  based primarily on past
experience. The Company applies a variety of traditional actuarial techniques to
estimate its ultimate liability. The techniques recognize, among other factors:

      o     the Company's and the industry's experience,
      o     historical trends in reserving patterns and loss payments,
      o     the impact of claim inflation,
      o     the pending level of unpaid claims,
      o     the cost of claim settlements,
      o     the line of business mix, and
      o     the economic  environment in which  property and casualty  insurance
            companies operate.

         The Company  continually  reviews  these  estimates  and,  based on new
developments and information,  the Company includes  adjustments of the probable
ultimate  liability  in the  operating  results  for the  periods  in which  the
adjustments are made. In general,  initial reserves are based upon the actuarial
and  underwriting  data  utilized  to set  pricing  levels and are  reviewed  as
additional  information,  including claims experience,  becomes  available.  The
establishment  of loss and loss adjustment  expense  reserves makes no provision
for the broadening of coverage by legislative action or judicial  interpretation
or  for  the  extraordinary   future  emergence  of  new  types  of  losses  not
sufficiently  represented in our historical  experience,  or which cannot yet be
quantified.  The Company regularly analyzes its reserves and reviews pricing and
reserving methodologies so that future adjustments to prior year reserves can be
minimized.  However, given the complexity of this process, reserves will require
continual  updates  and the  ultimate  liability  may be  higher  or lower  than
previously indicated. The Company does not discount its loss reserves.

During the first six months of 2002, there were no material adjustments to prior
year reserves.

Liquidity and Capital Resources

         Penn-America  Group,  Inc. (PAGI) is a holding  company,  the principal
asset of which  is the  common  stock of  Penn-America  Insurance  Company.  The
principal source of cash for the payment of dividends to PAGI's stockholders and
PAGI  operating  expenses is  dividends  from  Penn-America  Insurance  Company.
Penn-America  Insurance  Company's  principal  sources of funds are underwriting
operations,  investment  income  and  proceeds  from  sales and  redemptions  of
investments.  Funds are used by  Penn-America  Insurance  Company and  Penn-Star
Insurance Company principally to pay claims and operating expenses,  to purchase
investments and to make dividend  payments to PAGI.  PAGI's future  liquidity is
dependant on the ability of Penn-America Insurance Company to pay dividends.

                                    Page 16

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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


         Penn-America  Insurance  Company and  Penn-Star  Insurance  Company are
restricted  by statute as to the amount of  dividends  that they may pay without
the prior  approval from the  Pennsylvania  Insurance  Department.  Penn-America
Insurance Company 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
policyholders'  surplus, or statutory net income for the prior year. Using these
criteria,  the available  ordinary  dividend  payable by Penn-America  Insurance
Company to PAGI for 2002 is $6,473,325.  No ordinary dividends have been paid to
PAGI  during the six months  ended June 30,  2002.  Ordinary  dividends  paid by
Penn-America Insurance Company to PAGI in 2001 were $1.6 million.

         Penn-America  Insurance  Company  provides  strong  incentives  to  its
general  agents to  produce  profitable  business  through a  contingent  profit
commission  structure  that  is tied  directly  to  underwriting  profitability.
Payment of these contingent profit  commissions has been through the issuance of
PAGI common stock and cash.  In 2002,  PAGI issued  62,836  shares of its common
stock at an average  value of $7.79 per share as part of the payment of the 2001
contingent profit commission due to the general agents of Penn-America Insurance
Company.

         Penn-America  Insurance  Company and  Penn-Star  Insurance  Company are
required by law to maintain a certain minimum level of policyholders' surplus on
a  statutory   accounting  basis.   Policyholders'   surplus  is  calculated  by
subtracting  total  liabilities from total assets.  The National  Association of
Insurance   Commissioners  adopted  risk-based  capital  standards  designed  to
identify  property and casualty  insurers that may be  inadequately  capitalized
based on inherent risks of each insurer's  assets and liabilities and its mix of
net written  premiums.  Insurers  falling  below a calculated  threshold  may be
subject to varying  degrees of regulatory  action.  As of December 31, 2001, the
policyholders' surplus of Penn-America Insurance Company and Penn-Star Insurance
Company  was  in  excess  of the  prescribed  risk-based  capital  requirements.
Penn-America Insurance Company's policyholders' surplus at December 31, 2001 was
$64,733,251 and its regulatory action level was $17,124,648. Penn-Star Insurance
Company's  policyholders'  surplus at December 31, 2001 was  $33,389,965 and its
regulatory action level was $5,675,459.

           Net cash provided by operating  activities  was $24.1 million for the
six months ended June 30, 2002 compared to net cash used by operating activities
of $1.4  million for the six months  ended June 30, 2001.  This  improvement  is
mostly  attributable  to the increase in net written  premiums  combined  with a
decrease in paid losses.

         Net cash used by  investing  activities  was $31.7  million for the six
months  ended June 30,  2002,  compared to $0.4 million for the six months ended
June 30, 2001. This increase is mostly  attributable  to the improved  operating
cash flows noted above that were used to purchase fixed maturities available for
sale.

         Net cash used by  financing  activities  was $0.7  million  for the six
months  ended June 30,  2002,  compared to $0.6 million for the six months ended
June 30, 2001.  This increase is mostly  attributable to an increase in dividend
payments  made in the first six months of 2002  compared  to the same  period of
2001.

         On  June  27,  2002,  PAGI  filed a  registration  statement  with  the
Securities and Exchange  Commission relating to a proposed offering of 4,000,000
shares of its common stock. Until the registration statement is effective, these
securities  may not be sold nor may offers to buy be accepted.  The intended use
of the net proceeds of this  offering are to support the  Company's  operations,
including contributing capital to the

                                    Page 17

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES

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

insurance  subsidiaries and  capitalizing new insurance  subsidiaries to support
the growth in  business,  and for working  capital and other  general  corporate
purposes.

Investment Portfolio

         The Company seeks to maintain  sufficient  liquidity  from  operations,
investing and financing activities 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.  At June 30, 2002, the Company held a total of
$213.1 million in cash and  investments.  Of this amount,  cash represented $4.9
million,   equity  securities   represented  $23.0  million,   and  fixed-income
securities represented $185.2 million.

         The Company's  cash and  investments  portfolio mix as of June 30, 2002
was as follows:

<TABLE>
<S>                                                                               <C>
Fixed income:
       U.S. Treasury securities and obligations of U.S. government agencies          8%
       Corporate securities                                                         34%
       Mortgage-backed securities                                                    6%
       Other structured securities                                                  22%
       Municipal securities                                                         17%
                                                                                  -----
Total fixed income                                                                  87%
Cash and short-term                                                                  2%
Preferred stock                                                                      8%
Common stock                                                                         3%
                                                                                  -----
                                                                                   100%
                                                                                  =====
</TABLE>

         The Company's  fixed-income  portfolio of $185.2 million was 87% of the
total  cash and  investments  as of June 30,  2002.  Approximately  90% of these
securities  were  rated "A" or better by  Standard & Poor's or  Moody's.  Equity
securities,  which  consist of  preferred  stocks and common  stocks  (comprised
exclusively of exchange  traded funds),  were $23.0 million or 11% of total cash
and investments as of June 30, 2002.

         As of June 30,  2002,  our  investment  portfolio  contained  corporate
fixed-income  and  preferred  stock  securities  with a  market  value  of $88.2
million. A summary of these securities by industry segment is as follows:

     Financial institutions         40%
     Technology                     13%
     Communications                 12%
     Industrial                      9%
     Consumer, non-cyclical          9%
     Consumer, cyclical              5%
     Basic materials                 5%
     All other                       7%
                                  -----
                                   100%
                                  =====

                                    Page 18

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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


         As of June 30, 2002, the investment  portfolio  contained $61.0 million
of mortgage-backed, asset-backed and collateralized mortgage obligations. All of
these securities were rated "AA-" or better and 80% were rated "AAA" by Standard
& Poor's or Moody's.  These  securities  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, 2002.  The quality of the
fixed-income portfolio as of June 30, 2002 was as follows:


     "AAA"               47%
     "AA"                21%
     "A"                 23%
     "BBB"                8%
     Below "BBB"          1%
                       -----
                        100%
                       =====

         The Company  regularly  evaluates its investment  portfolio to identify
other-than-temporary impairments of individual securities. The Company considers
many  factors  in  determining  if an  other-than-temporary  impairment  exists,
including  the  length  of time and  extent  to which  the  market  value of the
security  has been  less  than  cost,  the  financial  condition  and  near-term
prospects  of  the  issuer  of  the  security  and  the  Company's  ability  and
willingness to hold the security until the market value is expected to recover.

         The table below summarizes individual securities held by the Company as
of June 30, 2002 with  unrealized  losses that: (1) were in excess of 15% of the
security's June 30, 2002 book value and greater than $150,000; and (2) have been
in an  unrealized  loss position  continuously  for at least six months prior to
June 30,  2002.  The table  illustrates  the  hypothetical  effect on future net
income per share,  utilizing diluted weighted average shares outstanding for the
six months ended June 30, 2002, if management  subsequently  determines that the
unrealized  losses  are  other-than-temporary.  There  would  be  no  effect  on
stockholders' equity.

<TABLE>
<CAPTION>
                                                                      June 30, 2002
                                                      ---------------------------------------------     Hypothetical Effect
                                                                                           Gross           on Future Net
                                                                                         Unrealized          Income Per
      Security                 Description            Book Value       Market Value         Loss              Share (1)
      --------                 -----------            ----------       ------------         ----              ---------

<S>                       <C>                         <C>               <C>               <C>                <C>
AMEX Technology           Exchange-traded fund        $  506,400        $  333,802        $ (172,598)        $  (0.01)

Anadarko Petroleum
Corporation               Preferred stock              1,942,500         1,611,600          (330,900)           (0.02)

HSBC USA Inc.             Preferred stock              1,030,000           851,000          (179,000)           (0.01)

<FN>
(1) Using the diluted  weighted  average shares  outstanding  for the six months
ended June 30, 2002 and an effective tax rate of 34%.
</FN>
</TABLE>

         The Company  believes that the recent  decline in the value of the AMEX
Technology  exchange-traded-fund  was a result of the  volatility  in the equity
markets in the second quarter of 2002 that is attributable in part,

                                    Page 19

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


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

to the disclosures of recent accounting  scandals.  Management believes that the
prospects for recovery in this sector are good,  and  therefore,  the decline is
temporary.

         The  Anadarko  Petroleum  Corp.  and  HSBC  USA  Inc.  preferred  stock
securities  are rated BBB- and A+,  respectively,  by  Standard  & Poor's  (both
investment  grade  ratings) and have  consistently  paid  dividends  since their
respective  purchase dates by the Company.  Management  believes that the demand
for these high-yielding,  tax-advantaged  securities will increase as profits in
the financial services sector increase, and therefore, the decline is temporary.

Three-for-Two Stock Split

         On April 11, 2002, the Company announced a three-for-two stock split to
be  effected  in the form of a 50% stock  dividend  payable to  stockholders  of
record as of April 25, 2002. The distribution date was May 9, 2002.

Quantitative and Qualitative Disclosures About Market Risk

         The Company's  market risk is the potential  economic loss  principally
arising from adverse changes in the market value of financial  instruments.  The
major components of market risk affecting the Company are interest rate risk and
equity price risk.

         The Company had  fixed-income  and preferred stock  investments  with a
market value of $201.3  million at June 30, 2002 subject to interest  rate risk.
The Company  manages its exposure to interest  rate risk  through a  disciplined
asset/liability  matching and capital management  process.  In the management of
this risk, the characteristics of duration, credit and variability of cash flows
are critical  elements.  These risks constantly are assessed and balanced within
the context of the liability and capital position of the Company.

         The Company had common equity  investments  with a market value of $6.9
million at June 30, 2002 subject to equity price risk.  The Company  attempts to
mitigate   equity  price  risk  to  its  common  stock  portfolio  by  investing
exclusively in exchange-traded  funds (ETFs). ETFs are securities that represent
an  interest  in a trust  that owns and holds a basket  of  common  stocks  that
replicate a major market index (such as the S&P 500 or the Dow Jones  Industrial
Average) or a portion of a major  market  index (such as the Value  Component of
the S&P).  Since these  securities  represent an interest in the equity  capital
markets as a whole, or a sub-sector thereof, they are a diversified, index-based
exposure to common  stocks.  As such, the value of these ETFs will be determined
by the  performance of the equity capital  markets in general or of a particular
sub-sector and reduces equity price risk to a single issuer of stock.

         The Company's  market risk at June 30, 2002 has not materially  changed
from that identified at December 31, 2001.

                                    Page 20

<PAGE>

                    PENN-AMERICA GROUP, INC. AND SUBSIDIARIES


                           PART II. OTHER INFORMATION



Item 1.       Legal Proceedings - None

Item 2.       Changes in Securities and Use of Proceeds - None

Item 3.       Default Upon Senior Securities - None

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

Item 5.       Other Information

              On June 27, 2002,  PAGI filed a  registration  statement  with the
              Securities and Exchange Commission relating to a proposed offering
              of 4,000,000  shares of its common stock.  Until the  registration
              statement is effective,  these  securities may not be sold nor may
              offers to buy be accepted. The intended use of the net proceeds of
              this offering are to support the Company's  operations,  including
              contributing   capital   to   the   insurance   subsidiaries   and
              capitalizing  new insurance  subsidiaries to support the growth in
              business,  and for  working  capital and other  general  corporate
              purposes.

Item 6.       Exhibits and Reports on Form 8-K

              On May 15, 2002,  the Company  filed a current  report on Form 8-K
              announcing the availability of the 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.

              On April 11, 2002,  the Company filed a current report on Form 8-K
              announcing that the Board of Directors of the Company  unanimously
              approved a  three-for-two  stock split of the common  stock of the
              Company.  The  three-for-two  stock  split is in the form of a 50%
              stock dividend,  effective for stockholders of record on April 25,
              2002 and was distributed on May 9, 2002.

              On April 1, 2002,  the Company filed a current  report on Form 8-K
              announcing the  availability of the Combined  Annual  Statement 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.

                                    Page 21

<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 7, 2002             By:    /s/ Jon S. Saltzman
          ----------------------------          --------------------------------
                                                Jon S. Saltzman
                                                President and
                                                Chief Executive Officer



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

                                    Page 22