UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(MARK ONE)
/X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

/  /   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 000-22761

PMA Capital Corporation
(Exact name of registrant as specified in its charter)

|Pennsylvania                                                       | 23-2217932         
|------------------------------------------------------------------ | -------------------
|(State or other jurisdiction of                                    | (IRS Employer      
|incorporation or organization)                                     | Identification No.)
|                                                                   |                    
|1735 Market Street, Suite 2800Philadelphia, Pennsylvania           | 19103-7590         
|(Address of principal executive offices)                           | (Zip code)         
|                                                                   |                    
|Registrants telephone number, including area code: (215) 665-5046
|                                                                   |                    
|Securities registered pursuant to Section 12(b): None             
|                                                                   |                    
|Securities registered pursuant to Section 12(g) of the Act:       
|                                                                   |                    
|Class A Common Stock, par value $5.00 per share                   
|(Title of Class)                                                  
|                                                                   |                    
|Rights to Purchase Preferred Stock                                
|(Title of Class)                                                  

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 shorter 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 / /

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /

The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of February 28, 2001, was
$201,142,100.

There were 21,499,027 shares outstanding of the
registrants Class A Common stock, $5 par value per share, as of the close
of business on February 28, 2001.

DOCUMENTS INCORPORATED BY REFERENCE:

|(1) |  | Parts
I, II and IV of this Form 10-K incorporate by reference portions of the Annual Report to
Shareholders for the year ended December 31, 2000, as indicated herein.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Part
III of this Form 10-K incorporates by reference portions of the registrants proxy
statement to be dated March 23, 2001 for the 2001 Annual Meeting of Shareholders.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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INDEX

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|PART I                                                                              | Page
|----------------------------------------------------------------------------------- | ----
|                                                                                    |     
|Item 1    Business                                                                  | 1   
|Company Overview                                                                    | 1   
|PMA Re                                                                              | 3   
|The PMA Insurance Group                                                             | 7   
|Caliber One                                                                         | 12  
|Reinsurance and Retrocessional Protection                                           | 14  
|Loss Reserves                                                                       | 16  
|Investments                                                                         | 20  
|Competition                                                                         | 21  
|Regulatory Matters                                                                  | 22  
|Employees                                                                           | 26  
|Glossary of Selected Insurance Terms                                                | 27  
|Item 2    Properties                                                                | 31  
|Item 3    Legal Proceedings                                                         | 31  
|Item 4    Submission of Matters to a Vote of Security Holders                       | 31  
|Executive Officers of the Registrant                                                | 31  
|                                                                                    |     
|PART II                                                                            
|                                                                                    |     
|Item 5    Market for the Registrant's Common Equity and Related Shareholder Matters | 32  
|Item 6    Selected Financial Data                                                   | 32  
|Item 7    Management's Discussion and Analysis of Financial Condition              
|and Results of Operations                                                           | 32  
|Item 7A Quantitative and Qualitative Disclosure About Market Risk                   | 33  
|Item 8    Financial Statements and Supplementary Data                               | 33  
|Item 9    Changes in and Disagreements with Accountants on                         
|Accounting and Financial Disclosure                                                 | 33  
|                                                                                    |     
|PART III                                                                           
|                                                                                    |     
|Item 10   Directors and Executive Officers of the Registrant                        | 33  
|Item 11   Executive Compensation                                                    | 33  
|Item 12   Security Ownership of Certain Beneficial Owners and Management            | 33  
|Item 13   Certain Relationships and Related Transactions                            | 33  
|                                                                                    |     
|PART IV                                                                            
|                                                                                    |     
|Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K           | 34  
|                                                                                    |     
|Signatures                                                                          | 35  
|Index to Financial Statement Schedules                                              | FS-1
|Index to Exhibits                                                                   | E-1 

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PART I

The Business
Section and other parts of this Form 10-K contain forward-looking statements
that involve inherent risks and uncertainties. The Companys actual results
may differ materially from the projected results discussed in the
forward-looking statements. Factors that could cause such differences include,
but are not limited to, those discussed in the Cautionary Statements
on page 44 of the Companys Managements Discussion and Analysis
(MD&A) section of its 2000 Annual Report to Shareholders
(Annual Report) that has been incorporated by reference into Part
II, Item 7 of this Form 10-K.

Item 1. Business

COMPANY OVERVIEW

PMA Capital
Corporation (the Company or PMA Capital), headquartered
in Philadelphia, Pennsylvania, is an insurance holding company with total assets
of approximately $3.5 billion and shareholders equity of $440.0 million at
December 31, 2000. The Company was organized under the laws of the Commonwealth
of Pennsylvania as Pennsylvania Manufacturers Corporation in 1982, and changed
its name to PMA Capital Corporation in 1998. The Companys operating
subsidiaries conduct business in the property and casualty insurance industry.
The Company has three operating segments:

| |  | PMA
Re, which provides property and casualty reinsurance products and services;
|- |  | -------------------------------------------------------------------------------

| |  | The
PMA Insurance Group, which writes workerscompensation, integrated disability and,
to a lesser extent, other standard lines of commercial property and casualty insurance;
and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Caliber
One, which writes specialty insurance focusing on excess and surplus lines.
|- |  | -----------------------------------------------------------------------------------

In addition, the
Company has a Corporate and Other segment, which includes unallocated investment
income and expenses, including debt service, as well as the results of certain
of the Companys real estate properties.

Effective
September 30, 2000, the Company realigned the ownership structure of its
domestic insurance subsidiaries. All of the Companys domestic insurance
companies are now owned by PMA Capital Insurance Company, a Pennsylvania
domiciled insurance company (formerly known as PMA Reinsurance Corporation). The
realignment does not affect the management of the Companys operating
segments, and therefore, the Companys reportable segments have not
changed.

Financial
information in the tables that follow is presented in conformity with generally
accepted accounting principles (GAAP), unless otherwise indicated.
Certain reclassifications have been made to prior periods financial
information to conform to the 2000 presentation. Revenues, pre-tax operating
income (loss) and assets attributable to each of the Companys operating
segments and its Corporate and Other segment for the last three years are set
forth in Note 16 to the Companys consolidated financial statements for the
year ended December 31, 2000 (Financial Statements) included in its
Annual Report.

The
Companys net premiums written by segment were as follows:

|(dollar amounts in thousands) | 2000 |  | 1999 |         | 1998 |   | 2000 as% of total |  
|----------------------------- | ---- |  | ---- | ------- | ---- | - | ----------------- | -
|                             
|PMA Re                        |      |  | $    | 261,505 |      | $ | 278,998           |  
|                              |      |  |      |         |      |   |                   |  
|The PMA Insurance Group:      |      | 
|Excluding Run-off Operations  |      |  |      | 268,839 |      |   | 233,713           |  
|Run-off Operations            |      |  |      |        |      |   |                  |  
|                              |      |  |      |         |      |   |                   |  
|Total                         |      |  |      | 268,839 |      |   | 233,713           |  
|                              |      |  |      |         |      |   |                   |  
|Caliber One                   |      |  |      | 16,043  |      |   | 51,237            |  
|Corporate and Other           |      |  |      | (832    | )    |   | (438              | )
|                              |      |  |      |         |      |   |                   |  
|Total                         |      |  | $    | 545,555 |      | $ | 563,510           |  
|                              |      |  |      |         |      |   |                   |  
|                             
|                             

1

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Property and
casualty insurance and reinsurance companies provide loss protection to insureds
in exchange for premiums. If earned premiums exceed the sum of losses and loss
adjustment expenses (LAE), acquisition expenses, operating expenses
and policyholders dividends, then underwriting profits are realized. When
earned premiums do not exceed the sum of these items, the result is an
underwriting loss. Because time normally elapses between the receipt of premiums
and the payment of claims and certain related expenses, the Company invests the
available premiums. Underwriting results do not include investment income from
these funds, investment gains and losses, results of non-insurance business or
federal income taxes. These items, when added to underwriting profits or losses,
produce net income or loss. For information concerning investment income, see
pages 41 and 42 of the MD&A in the Annual Report.

The
combined ratio is a frequently used measure of property and casualty
underwriting performance. The combined ratio computed on a GAAP basis is equal
to losses and LAE, plus acquisition expenses, operating expenses and
policyholders dividends, where applicable, all divided by net premiums
earned. Thus, a combined ratio of under 100% reflects an underwriting profit.

The combined
ratios of the Companys operating segments were as follows:

|                             | 2000 |  | 1999 |        | 1998 | 
|---------------------------- | ---- |  | ---- | ------ | ---- | 
|                            
|                            
|PMA Re                       |      |  |      | 123.3% |      | 
|The PMA Insurance Group:     |      | 
|Excluding Run-off Operations |      |  |      | 110.0% |      | 
|Including Run-off Operations |      |  |      | 111.7% |      | 
|Caliber One                  |      |  |      | 139.7% |      | 
|                            
|                            

(1) The results of Caliber One, which started operating in
1997, were not material to the underwriting ratios of the Company for 1998;
accordingly, the ratio for Caliber One is not presented.

A glossary of selected insurance terms used in this Form 10-K is included
on pages 27-30.

2

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PMA RE

Background

PMA Re conducts
business mainly in the broker market offering excess of loss and pro rata
property and casualty reinsurance protection, with an emphasis on risk-exposed,
excess of loss coverages. PMA Re provides reinsurance coverages on either a
traditional treaty or finite risk basis as well as on a facultative basis. PMA
Re competes on the basis of its ability to offer specialized products to its
clients, its long-term relationships with brokers and insurance companies, and
its prompt and responsive service. According to data provided by the Reinsurance
Association of America (the RAA), as of December 31, 2000, PMA
Capital Insurance Company, the statutory insurance entity for PMA Re, was the
8th largest broker market reinsurer in the United States in terms of
statutory capital and surplus and 17th largest in terms of net
premiums written.

In the broker
reinsurance market, the products (reinsurance coverages) are distributed to the
ultimate customer (ceding companies) through reinsurance intermediaries, known
as brokers. In exchange for providing such distribution services, the brokers
are paid commissions, known as brokerage, which are typically based upon a
percentage of the premiums ceded from the ceding companies to the reinsurer
under a particular contract. The broker reinsurance market differs from the
direct reinsurance market in that direct reinsurers maintain their own sales
forces and distribute their products directly to their ceding company clients.

Products

Reinsurance is
an arrangement in which an insurance company, the reinsurer, agrees to indemnify
another insurance company, the ceding company, against all or a portion of the
insurance risks underwritten by the ceding company under one or more insurance
contracts. Reinsurance provides ceding companies with several benefits: reducing
exposure on individual risks, protecting against catastrophic losses,
stabilizing underwriting results and maintaining acceptable capital ratios.

PMA Re provides
reinsurance coverage primarily under two arrangements: treaty and facultative.
Typically, in treaty reinsurance, the primary insurer or ceding company is
obligated to cede and the reinsurer is obligated to accept a specified portion
of all agreed upon types or categories of risks originally written by the
primary insurer or ceding company. Facultative reinsurance is a form of
reinsurance coverage that is placed on a risk-by-risk basis, and the reinsurer
retains the right to accept or reject each individual risk submitted by the
ceding company. Of PMA Res total net premiums written in 2000, 99% were
treaty, and 1% was facultative.

To better serve
its brokers and ceding companies, PMA Re has established four distinct
underwriting units, organized by class of business, which provide more
specialized expertise in each area. The Traditional, Specialty, and Finite Risk
and Financial Products units provide treaty reinsurance coverage. The fourth
unit, Facultative, provides reinsurance on a facultative basis.

 Traditional-Treaty: This underwriting unit writes general
property and casualty business and emphasizes risk-exposed programs where PMA Re
can leverage its actuarial and underwriting expertise. Included in the client
base for the Traditional unit are standard lines companies, some excess and
surplus lines companies, and, to a lesser extent, non-traditional sources of
business. The Traditional casualty portfolio includes general liability,
umbrella, commercial automobile and workers compensation. This unit
presently writes more excess of loss business than pro rata business.

 Finite Risk and Financial Products: This underwriting unit is
charged with providing PMA Res clients with creative risk management
solutions that complement their traditional reinsurance program. Many insurance
companies have some form of finite protection as a permanent part of their
reinsurance program. Examples of finite risk and financial risk products are:

| |  | aggregate
stop-loss coverages,
| | - | ------------------------------

| |  | spread-loss
mechanisms,
| | - | -----------------------

| |  | funded
catastrophe coverages,
| | - | -----------------------------

| |  | financial
quota share coverages, and
| | - | ------------------------------------

| |  | loss
portfolio transfers.
| | - | -------------------------

3

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These products,
in various formats, have been used by ceding companies for decades. PMA
Res approach to product design uses these general categories to create
effective risk management solutions for its clients. Although most of the Finite
Risk and Financial Products units business is related to domestic
insurers, approximately $19.0 million of the units gross premiums written
were generated from international insurers and reinsurers.

 Specialty-Treaty: This unit underwrites business that falls
outside the confines of traditional property and casualty risks. These risks
include environmental impairment, directors and officers liability, and medical
malpractice, as well as all other forms of professional liability. Doctors and
lawyers constitute the two largest groups of reinsureds in the Specialty
units portfolio.

 Facultative: This unit writes property and casualty
reinsurance on an individual risk basis and on a program/semi-automatic basis.
In addition to serving the facultative brokerage community, this unit
strengthens PMA Res reputation as a full service reinsurer. In its
Facultative property book, PMA Re emphasizes program/semi-automatic business.
The facultative casualty focus is on general liability, umbrella and commercial
automobile lines. Facultatives emphasis in commercial automobile is on
manufacturing, contracting and service fleets. This unit also underwrites a
broad range of professional liability business, with an emphasis on directors
and officers liability, and medical malpractice/hospital professional liability.

PMA Res
premiums written by business unit and major category of business are as follows:

|(dollar amounts in thousands)      | 2000  |  | 1999 |         | 1998  |  
|---------------------------------- | ----- |  | ---- | ------- | ----- | -
|                                  
|                                   | Gross |  | Net  |         | Gross |  
|                                  
|Traditional - Treaty               |       |  |      |         |       |  
|Casualty                           |       |  | $    | 155,913 |       | $
|Property                           |       |  |      | 67,742  |       |  
|Other                              |       |  |      | 571     |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 224,226 |       |  
|                                   |       |  |      |         |       |  
|                                  
|Finite Risk and Financial Products |       | 
|Casualty                           |       |  |      | 57,825  |       |  
|Property                           |       |  |      | 50,007  |       |  
|Other                              |       |  |      | 1,230   |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 109,062 |       |  
|                                   |       |  |      |         |       |  
|                                  
|Specialty - Treaty                 |       | 
|Casualty                           |       |  |      | 48,689  |       |  
|Property                           |       |  |      | 1,531   |       |  
|Other                              |       |  |      | 751     |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 50,971  |       |  
|                                   |       |  |      |         |       |  
|                                  
|Facultative                        |       | 
|Casualty                           |       |  |      | 6,450   |       |  
|Property                           |       |  |      | 4,113   |       |  
|Other                              |       |  |      | 1       |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 10,564  |       |  
|                                   |       |  |      |         |       |  
|                                  
|Total Casualty                     |       |  |      | 268,877 |       |  
|Total Property                     |       |  |      | 123,393 |       |  
|Total Other                        |       |  |      | 2,553   |       |  
|                                   |       |  |      |         |       |  
|Total Premiums Written             |       |  | $    | 394,823 |       | $
|                                   |       |  |      |         |       |  
|                                  
|                                  

The increase in
gross premiums written in 2000 and 1999 primarily reflects the success of the
Finite Risk and Financial Products unit, which was formed in late 1998, and
price increases in all segments of PMA Res business. In 2000, PMA Re wrote
$122 million of new business, 35% of which was generated from existing ceding

4

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company relationships. In addition, $79 million of new business was
written with 23 new ceding company clients, including $70 million for small-sized
companies (defined as insurers with statutory surplus of up to $250 million), where PMA Res
level of service and experience adds value.

PMA Res
efforts to increase premium writings have more than offset the effects of highly
competitive conditions in the U.S. reinsurance market and the increased tendency
of ceding companies to retain more of their business, and therefore require less
reinsurance. During 2000, 1999 and 1998, PMA Re did not renew $90 million, $51
million and $47 million, respectively, of existing Traditional-Treaty and
Specialty-Treaty business.

PMA Re has
generally de-emphasized property catastrophe excess of loss coverages. As of
December 31, 2000, catastrophe business accounted for 3% of gross property
premiums written. The property programs written by PMA Re generally contain per
occurrence limits or are not considered to be significantly exposed to
catastrophes, either because of the locations of the insured values or the
nature of the underlying properties insured. However, as is common in property
reinsurance, PMA Re is exposed to the possibility of loss from catastrophes due
to the aggregation of losses. PMA Re actively manages this exposure through
zonal management, minimizing writings of catastrophe business, and the purchase
of retrocessional protection. See Reinsurance and Retrocessional
Protection on page 14 for PMA Res catastrophe retrocessional
program.

Distribution

PMA Re operates
primarily through the domestic broker reinsurance market in which it has
developed relationships with the major reinsurance brokers enabling it to gain
access to a wide range of ceding companies with varying reinsurance and related
service needs. Brokers that accounted for more than 10% of PMA Res gross
premiums written in 2000 were as follows:

|(dollar amounts in thousands) | Gross premiums written | % of total
|----------------------------- | ---------------------- | ----------
|                             
|                             
|Guy Carpenter                 | $121,438               | 31%       
|AON Reinsurance               | 87,218                 | 22%       
|Towers Perrin                 | 60,871                 | 16%       
|E.W. Blanch                   | 54,546                 | 14%       
|                             
|                             

As of December
31, 2000, PMA Re had approximately 175 unaffiliated clients, with no individual
client accounting for more than 10% of gross premiums written in 2000.
Approximately 74% of PMA Res gross premiums written in 2000 were from
small to medium-sized insurers (defined as insurers with statutory surplus of up
to $500 million).

Underwriting

In reinsurance,
underwriting involves the selection of risks and determining an adequate price
given expected losses and estimated volatility of such losses. Maintaining
underwriting and pricing discipline is critical to the maintenance of acceptable
operating results.

PMA Res
underwriting process has two principal aspects  underwriting the specific
program/risk submission and underwriting the ceding company. Underwriting the
specific program/risk to be reinsured involves, in addition to pricing, a review
of the type of account, the total risk and the ceding companys coverages.
Underwriting the ceding company involves an evaluation of the expected future
performance of the ceding company through an examination of that companys
management, financial strength, claims handling and underwriting abilities. PMA
Re may conduct underwriting and claim reviews at the offices of prospective
ceding companies before entering into a major treaty, as well as throughout the
life of the reinsurance contract.

PMA Res
underwriters and actuaries generally work together to evaluate reinsurance
programs. Using the information provided by the broker, the actuaries employ
pricing models to estimate the ultimate loss exposure to the treaty. The pricing
models employ various experience-rating and exposure-rating techniques and are
tailored in each case to the risk exposures underlying each treaty. The
underwriters then analyze the results of the pricing models with the terms and
conditions being offered to determine PMA Res selected price.

5

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In underwriting
excess of loss business, PMA Re has typically sought to write treaties that are
risk exposed within the original policy limits of the ceding company. Management
believes these layers generally lend themselves more effectively to actuarial
pricing techniques. In underwriting pro rata business, PMA Re attempts to ensure
proper pricing levels are being achieved by the ceding company by reviewing the
ceding companys data, including actuarial reports, and examining their
underlying rate structure.

Claims Administration

PMA Res
claims department analyzes reported claims, establishes individual claim
reserves, pays claims, provides claims-related services to clients, audits the
claims activities of selected current clients and assists in the underwriting
process by evaluating the claims departments of selected prospective clients.
The claims departments evaluation of claims activity includes reviewing
loss reports received from ceding companies to confirm that claims are covered
under the terms of the relevant reinsurance contract, establishing reserves on
an individual case basis and monitoring the adequacy of those reserves. The
claims department monitors the progress and ultimate outcome of the claims to
determine that subrogation, salvage and other cost recovery opportunities have
been adequately explored. The claims department also performs these functions in
coordination with the actuarial and underwriting departments.

In addition to
evaluating and adjusting claims, the claims department conducts claims audits at
the offices of selected prospective ceding companies. Satisfactory audit results
are required in order for reinsurance coverage to be written or continued by PMA
Re. The claims department also conducts annual claims audits for many current
and former client ceding companies.

In the area of
claims administration, PMA Re uses electronic data interchange (EDI) where
trading partner capabilities exist to maintain the timeliness of claims
remittances and processing efficiency.

6

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THE PMA INSURANCE GROUP

Background

The PMA
Insurance Group provides workers compensation and integrated disability
insurance coverages and related services in its principal marketing territory
concentrated in the Mid-Atlantic and Southern regions of the United States. In
addition, The PMA Insurance Group provides a full range of other commercial
insurance products, including general liability, commercial automobile and
multi-peril coverages, and related services. The domestic insurance subsidiaries
through which The PMA Insurance Group writes its insurance products and who
share results through an intercompany pooling agreement are referred to in this
Form 10-K as the Pooled Companies.

The PMA
Insurance Group emphasizes its traditional core business, workers
compensation insurance. The Company believes that it can attract additional
business based upon its expertise in workers compensation and integrated
disability, and its reputation as a high quality service provider to middle
market and risk management clients. In addition, The PMA Insurance Group has
aligned itself with network health care providers to offer medical cost
containment services to its insureds.

The PMA
Insurance Group is one of the leading providers of integrated disability
products with 132 accounts as of December 31, 2000 that generated $35.2 million
in combined workers compensation and integrated disability premium in
2000. The PMA Insurance Group has also enhanced its ability to handle
multi-state clients based in its operating territory through its initiative to
license several of its insurance companies in 50 states to write workers
compensation, integrated disability and other commercial lines. As of February
28, 2001, The PMA Insurance Group was authorized to do business in 49
jurisdictions (including Puerto Rico and the District of Columbia) for
workers compensation, general liability and commercial automobile. The PMA
Insurance Group intends to continue writing other lines of property and casualty
insurance, but generally only if such writings are supported by its core
workers compensation business.

Products

The PMA
Insurance Groups premiums written, excluding Run-off operations, were as
follows:

|(dollar amounts in thousands)                   | 2000 |  | 1999 |         | 1998 |  
|----------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|                                               
|                                               
|                                                |      |  |      |         |      |  
|Gross premiums written:                         |      |  |      |         |      |  
|Workers' Compensation and Integrated Disability |      |  | $    | 250,236 |      | $
|Commercial Multi-Peril                          |      |  |      | 38,325  |      |  
|Commercial Automobile                           |      |  |      | 40,398  |      |  
|Other                                           |      |  |      | 6,507   |      |  
|                                                |      |  |      |         |      |  
|Total                                           |      |  | $    | 335,466 |      | $
|                                                |      |  |      |         |      |  
|                                               
|Net premiums written:                           |      | 
|Workers' Compensation and Integrated Disability |      |  | $    | 210,870 |      | $
|Commercial Multi-Peril                          |      |  |      | 27,317  |      |  
|Commercial Automobile                           |      |  |      | 29,178  |      |  
|Other                                           |      |  |      | 1,474   |      |  
|                                                |      |  |      |         |      |  
|Total                                           |      |  | $    | 268,839 |      | $
|                                                |      |  |      |         |      |  
|                                               
|                                               

7

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Workers Compensation Insurance

All states
require employers to provide workers compensation benefits to their
employees for injuries and occupational diseases arising out of employment,
regardless of whether such injuries result from the employers or the
employees negligence. Employers may insure their workers
compensation obligations or, subject to regulatory approval, self-insure their
liabilities. Workers compensation statutes require that a policy cover
three types of benefits: medical expenses, disability (indemnity) benefits and
death benefits. The amounts of disability and death benefits payable for various
types of claims are set and limited by statute, but no maximum dollar limitation
exists for medical benefits. Workers compensation benefits vary among
states, and insurance rates are subject to differing forms of state regulation.

Statutory direct
workers compensation business written by jurisdiction was as follows:

|(dollar amounts in thousands) | 2000 |  | 1999 |         | 1998 |  
|----------------------------- | ---- |  | ---- | ------- | ---- | -
|                             
|                              |      |  |      |         |      |  
|Pennsylvania                  |      |  | $    | 120,276 |      | $
|New Jersey                    |      |  |      | 30,769  |      |  
|New York                      |      |  |      | 19,113  |      |  
|Virginia                      |      |  |      | 18,319  |      |  
|North Carolina                |      |  |      | 13,925  |      |  
|Maryland                      |      |  |      | 8,253   |      |  
|Delaware                      |      |  |      | 7,643   |      |  
|South Carolina                |      |  |      | 5,275   |      |  
|Georgia                       |      |  |      | 5,078   |      |  
|Other                         |      |  |      | 20,137  |      |  
|                              |      |  |      |         |      |  
|Total                         |      |  | $    | 248,788 |      | $
|                              |      |  |      |         |      |  
|                             
|                             

Based upon
direct written premium information published by the American Insurance Association
for the most recently available year (1999), The PMA Insurance Group is the
second largest writer of workers compensation insurance in Pennsylvania
and ranks among the 10 largest writers of workers compensation insurance
in Delaware, Maryland and Virginia. The PMA Insurance Group has focused on the
jurisdictions in the table above based upon its knowledge of their workers
compensation systems and The PMA Insurance Groups assessment of each
states respective business, economic and regulatory climates. Rate
adequacy, regulatory climate, economic conditions and other factors in each
state are closely monitored and taken into consideration in the underwriting
process. The PMA Insurance Group intends to employ similar analyses in
determining whether and to what extent The PMA Insurance Group will offer its
products in additional jurisdictions.

The PMA
Insurance Group is focused on expanding and retaining more of its premium base
in territories that meet its underwriting and actuarial criteria. In recent
years, The PMA Insurance Group increased its writings of workers
compensation premiums through focused marketing efforts in its principal
marketing territories. In its most recent expansion states, New York and
Georgia, The PMA Insurance Group continued to achieve profitable growth. In
2001, The PMA Insurance Group will explore options for further geographic
expansion, particularly in Tennessee. In addition, The PMA Insurance Group
benefited in 2000 and, to a lesser extent, in 1999, from writing business for
insureds mainly operating in The PMA Insurance Groups principal marketing
territory but with some operations in other states.

The PMA
Insurance Group has continued to balance its workers compensation
portfolio by increasing its percentage of writings in lower hazard classes of
business and reducing its percentage of writings in higher hazard classes of
business. For example, lower hazard classes of business such as health care,
schools/colleges and retail represented 30%, 33% and 26% of total direct
workers compensation premiums written in 2000, 1999 and 1998,
respectively, compared to higher hazard classes of business such as
construction, which represented 13%, 15% and 21% of total direct workers
compensation premiums written in 2000, 1999 and 1998, respectively.

Workers
compensation insurers doing business in certain states are required to provide
insurance for risks that are not otherwise written on a voluntary basis by the
private market (residual market business). This system exists in all
of the jurisdictions in which The PMA Insurance Group does business, except
Pennsylvania and Maryland. In these two states, separate governmental entities
write all of the workers compensation residual market

8

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business. In 2000, The PMA Insurance Group wrote $1.7 million of residual
market business, which constituted less than one percent of its gross workerscompensation
premiums written. Based upon data for policy year 1999 reported by the National Council
on Compensation Insurance, the percentage of residual market business for the industry as
a whole, in all states, was 3.5% of direct workerscompensation premiums written.

The PMA
Insurance Group offers a variety of workers compensation products to its
customers. Certain of these products are based on manual rates filed and
approved by state insurance departments (rate-sensitive products),
while others are priced to a certain extent on the basis of the insureds
own loss experience (loss-sensitive products). The PMA Insurance
Group has also developed and sold alternative market products, such as large
deductible products and other programs and services to customers who agree to
assume even greater exposure to loss than under more traditional loss-sensitive
products. The PMA Insurance Group decides which type of product to offer a
customer based upon the customers needs and an underwriting review.

The PMA
Insurance Groups voluntary workers compensation direct premiums
written by product type were as follows:

|                            | 2000 |  | 1999 |      | 1998 | 
|--------------------------- | ---- |  | ---- | ---- | ---- | 
|                           
|                            |      |  |      |      |      | 
|Rate-sensitive products     |      |  |      | 60%  |      | 
|Loss-sensitive products     |      |  |      | 33%  |      | 
|Alternative market products |      |  |      | 7%   |      | 
|                            |      |  |      |      |      | 
|Total                       |      |  |      | 100% |      | 
|                            |      |  |      |      |      | 
|                           
|                           

 Rate-sensitive products include fixed-cost policies and
dividend paying policies. The premium charged on a fixed-cost policy is based
upon the manual rates filed with and approved by the state insurance department
and does not increase or decrease based upon the losses incurred during the
policy period. Under policies that are subject to dividend plans, the customer
may receive a dividend based upon loss experience during the policy period.

 The PMA Insurance Groups loss-sensitive products adjust
the amount of the insureds premiums after the policy period expires based,
to a certain extent, upon the insureds actual losses incurred during the
policy period. These loss-sensitive products are generally subject to less price
regulation than rate-sensitive products and reduce, but do not eliminate, risk
to the insurer. Under these types of policies, claims professionals and
actuaries periodically evaluate the reserves on losses after the policy period
expires to determine whether additional premium adjustments are required under
the policy. These policies are typically subject to adjustment for an average of
five years after policy expiration. The PMA Insurance Group generally restricts
loss-sensitive products to accounts developing minimum annual premiums in excess
of $100,000.

 The PMA Insurance Group offers a variety of alternative market
products for larger accounts, including large deductible policies and off-shore
captive programs. Typically, The PMA Insurance Group receives a lower up-front
premium for these types of alternative market product plans. However, under this
type of business, the insured retains a greater share of the underwriting risk
than under rate-sensitive or loss-sensitive products, which reduces the
potential for unfavorable claim activity on the accounts and encourages loss
control on the part of the insured. For example, under a large deductible
policy, the customer is contractually obligated to pay its own losses up to the
amount of the deductible for each occurrence. The deductibles under these
policies generally range from $250,000 to $1.0 million. In addition to these
products, The PMA Insurance Group offers its clients certain workers
compensation services such as claims, risk management and other services. See
Other Products and Services below for an additional discussion of
such products.

The PMA
Insurance Group has developed a product for group integrated occupational and
non-occupational disability coverages, named PMA One®, which it
began marketing in 1998. PMA One leverages one of The PMA Insurance Groups
most important core competencies: managing employee disabilities. PMA One offers
employers the benefits of coordinated workers compensation and disability
administration, reduced costs, faster return to work and heightened employee
productivity. In 2000, The PMA Insurance Group wrote 53 new PMA One clients,
bringing the total of PMA One accounts to 132, and generated $35.2 million of
combined workers compensation and integrated disability written premiums.
PMA One clients include health care systems, educational institutions,
manufacturers and financial institutions.

9

---

Through The PMA
Insurance Groups workers compensation product offerings, the Company
offers a comprehensive array of managed care services to control loss costs.
These include:

 Case review and intervention by Disability Management
Coordinators, all of whom are registered nurses. These Disability Management
Coordinators employ an early intervention model to proactively manage medical
treatment and length of disability in concert with the claims professional and
employer. There are also case management nurses who manage more serious claims
via on-site visits with injured workers and medical providers.

 Access to the First Health® Network, a
workers compensation preferred provider network, which includes doctors,
hospitals, physical therapists, outpatient clinics and imaging centers. The PMA
Insurance Groups customers that utilize the network generally recognize
lower costs than those that do not utilize the network.

 Utilization of an automated medical bill review system to
detect duplicate billings, unrelated charges and coding discrepancies. Complex
bills are forwarded to The PMA Insurance Groups cost containment unit,
which is staffed by registered nurses and other medical professionals, to
resolve questions regarding causal relationship and appropriate utilization
levels.

 Use of Paradigm Corporation for the medical management of
certain catastrophic injuries. Paradigm adds a team of catastrophic case
management experts to assist in achieving enhanced clinical and financial
outcomes on these catastrophic injuries.

Commercial Lines

The PMA
Insurance Group writes property and liability coverages for larger and middle
market accounts that satisfy its underwriting standards. See
Underwriting below. These coverages feature commercial multi-peril,
general liability and umbrella, and commercial automobile business. The PMA
Insurance Group offers these products, but generally only if they complement the
core workers compensation business. In the present market, prices for
commercial coverages have stabilized, and in general, are beginning to rise. As
a result, The PMA Insurance Group has been reviewing all accounts for proper
pricing to exposure and has been selectively non-renewing accounts that do not
meet its underwriting standards.

Other Products and Services

The PMA
Insurance Group offers rent-a-captive products for certain insureds
and associations. The purpose of a rent-a-captive program is to offer a customer
an alternative method of managing its loss exposures by obtaining many of the
benefits of a captive insurer without establishing and capitalizing its own
captive; in effect, the insured is renting a captive facility that
the Company has already established.

Under this
arrangement, the client purchases an insurance policy from the Pooled Companies
and chooses a participation level. The Pooled Companies then cede this portion
of the premium and loss exposures to a Bermuda- or Cayman-based subsidiary of
the Company. The client participates in the loss and investment experience of
the portion ceded to the Bermuda- or Cayman-based subsidiary through a dividend
mechanism. The client is responsible for any loss that may arise within its
participation level, and this potential obligation is typically secured through
a letter of credit or similar arrangement. The Companys principal sources
of income from its rent-a-captive program are the premium income on the risk
retained by the Pooled Companies and captive management fees earned.

Through PMA
Management Corp., The PMA Insurance Group offers claims, risk management and
related services primarily to self-insureds on an unbundled basis.

10

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Distribution

The PMA
Insurance Group distributes its products through multiple channels, including
national, regional and local brokers and agents, employee benefits brokers and
direct sales representatives.

The PMA
Insurance Group employs 12 direct sales representatives and uses approximately
275 independent brokers and agents. The direct sales representatives are
generally responsible for certain business located in Pennsylvania and Delaware.
For the year ended December 31, 2000, these employees produced approximately $40
million in direct premiums written, constituting 12% of The PMA Insurance
Groups direct written premiums.

The brokers and
agents solicit business throughout the marketing territory. The current
distribution network generally consists of large regional agents and brokers,
local agents and national brokers that specialize in larger to middle market
accounts that require the variety of workers compensation, commercial
lines and alternative market products offered by The PMA Insurance Group. In
2000, brokers and agents accounted for 88% of The PMA Insurance Groups
direct written premiums. The top ten brokers and agents accounted for 24% of The
PMA Insurance Groups direct written premiums, the largest of which
accounted for approximately 8.5% of its direct written premiums.

The PMA
Insurance Groups underwriters review all business from brokers and agents
before it is accepted. The PMA Insurance Group monitors several statistics with
respect to its brokers and agents, including a complete profile of the
broker/agent, the number of years the broker/agent has been associated with The
PMA Insurance Group, the percentage of the broker/agents business that is
underwritten by The PMA Insurance Group, the ranking of The PMA Insurance Group
within the broker/agents business and the profitability of the
broker/agents business.

The field
organization currently consists of 16 offices throughout
The PMA Insurance Groups principal marketing territory. Branch offices
deliver a full range of services directly to customers located in their service
territory, while satellite offices primarily offer underwriting and claim
adjustment services.

Underwriting

The PMA
Insurance Groups underwriters, in consultation with actuaries, determine
the general type of business to be written using a number of criteria, including
past performance, relative exposure to hazard, premium size, type of business
and other indicators of potential loss. Specific types of business are referred
to underwriting specialists and actuaries for individual pricing. The
underwriting team also establishes classes of business that The PMA Insurance
Group generally will not write, such as certain property exposures, certain
hazardous products and activities, and certain environmental coverages.
Underwriters and risk-control professionals in the field report functionally to
the Chief Underwriting Officer and locally to branch vice presidents who are
accountable for territorial operating results. Underwriters also work with the
field marketing force to identify business that meets prescribed underwriting
standards and to develop specific strategies to write the desired business. In
performing this assessment, the field office professionals also consult with
actuaries who have been assigned to the specific field office regarding loss
trends and pricing and utilize actuarial loss rating models to assess the
projected underwriting results of accounts.

The PMA
Insurance Group also employs credit analysts. These employees review the
financial strength and stability of customers whose business is written on
loss-sensitive and alternative market products and specify the type and amount
of collateral that customers must provide under these arrangements.

Claims Administration

Claims services
are delivered to customers primarily through employees in the field offices. The
PMA Insurance Group maintains a centralized call center for loss reporting and
has automated and centralized the processing of claims payments, which allows
the claims adjusters to substantially reduce the time that they spend with
clerical and repetitive functions. The PMA Insurance Group also employs in-house
attorneys who represent customers in workers compensation cases and other
insurance matters. The PMA Insurance Group has a separate,

11

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anti-fraud unit that investigates suspected false claims and other
irregularities. Certain specialized matters, such as asbestos and environmental claims,
are referred to a special claims unit in the home office.

Run-off Operations

As a part of The
PMA Insurance Groups 1996 restructuring plan, Run-off operations were
established principally to manage the capital supporting workers
compensation loss reserves for accident years 1991 and prior. The reserves
primarily related to the period of time from 1987 to 1991 when The PMA Insurance
Group wrote a much higher volume of business and experienced poor underwriting
results. Effective December 31, 2000, all of the remaining loss reserves of the
Run-off Operations were ceded to a third party under an assumption reinsurance
agreement. As a result of this transaction, The PMA Insurance Group will no
longer report separate results for Run-off Operations. See page 36 of the
MD&A and Notes 16 and 18 to the Financial Statements in the Annual Report
for additional information.

CALIBER ONE

Background

In January 1998,
the Companys specialty insurance unit, Caliber One, commenced writing
business. Caliber Ones gross and net premiums written for 2000 were $93.4
million and $16.0 million, respectively. Caliber One writes business through
surplus lines brokers and managing general agents on a national basis. Caliber
One Indemnity Company, Caliber Ones statutory insurance affiliate, is a
licensed carrier in Delaware, its state of domicile, and is presently eligible
as an excess and surplus lines carrier in 42 states, the District of Columbia,
U.S. Virgin Islands and Puerto Rico, with applications pending in two other
states.

Products, Distribution and Underwriting

Caliber One
currently focuses on excess and surplus lines of insurance for difficult risks
that are typically declined by the standard market. Caliber One offers liability
coverages for low frequency/high severity classes, including pharmaceuticals,
chemicals, auto parts, machinery manufacturers, toy makers, medical product
manufacturers, commercial contractors and other difficult-to-insure product
liability risks, as well as property coverages for risks declined by admitted
insurers. In addition, Caliber One has written environmental impairment
liability coverages and clinical trials coverage for emerging biotechnology
products. Caliber One de-emphasized certain classes of the commercial automobile
and professional liability lines in 2000, including the nursing homes class of
business, as a result of the emergence of higher than expected losses and LAE in
these classes. Caliber Ones policy forms contain various endorsements and
exclusions, and in some cases, include defense costs within the policy limits
rather than offering such coverage on an unlimited basis. Caliber One also
evaluates the diversity of its product offerings in an effort to obtain a
balance in coverages being offered.

Caliber
Ones premiums written by major line of business are as follows:

|(dollar amounts in thousands) |  | 2000 |   | 1999   | 
|----------------------------- |  | ---- | - | ------ | 
|                             
|Gross premiums written:       |  |      |   |        | 
|Casualty                      |  |      | $ | 51,769 | 
|Property                      |  |      |   | 41,636 | 
|                              |  |      |   |       
|Total                         |  |      | $ | 93,405 | 
|                              |  |      |   |       
|Net premiums written:         |  |     
|Casualty                      |  |      | $ | 8,596  | 
|Property                      |  |      |   | 7,447  | 
|                              |  |      |   |       
|Total                         |  |      | $ | 16,043 | 
|                              |  |      |   |       
|                             
|                             

12

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Caliber One
currently operates through three internal underwriting units based on classes of
business and distribution channels: casualty brokerage, property brokerage and
ocean marine brokerage. Premiums written by underwriting unit are as follows:

|(dollar amounts in thousands) |  | 2000 |   | 1999   | 
|----------------------------- |  | ---- | - | ------ | 
|                             
|Gross premiums written:       |  |      |   |        | 
|Casualty brokerage            |  |      | $ | 43,354 | 
|Property brokerage            |  |      |   | 21,277 | 
|Programs                      |  |      |   | 28,329 | 
|Ocean marine                  |  |      |   | 445    | 
|                              |  |      |   |       
|Total                         |  |      | $ | 93,405 | 
|                              |  |      |   |       
|Net premiums written:         |  |     
|Casualty brokerage            |  |      | $ | 8,927  | 
|Property brokerage            |  |      |   | 4,229  | 
|Programs                      |  |      |   | 2,609  | 
|Ocean marine                  |  |      |   | 278    | 
|                              |  |      |   |       
|Total                         |  |      | $ | 16,043 | 
|                              |  |      |   |       
|                             
|                             

The underwriting
of excess and surplus lines involves a significant amount of judgment. The
underwriting process involves reviewing the claims experience of an account, if
any, and the claims experience of the particular class or similar classes of
risk. The underwriters respond to any special risks of an account through the
use of policy features that can be changed in light of the circumstances, such
as different levels of retentions, exclusions and endorsements.

Caliber One
distributes its excess and surplus lines products on a nationwide basis through
approximately 65 appointed surplus lines brokers. Caliber One underwrites its
casualty coverages from its home office in Yardley, Pennsylvania and through a
branch office in Seattle, Washington, which was opened in 2000. Property
coverages are underwritten centrally in the home office. Caliber One generally
does not grant underwriting or binding authority to its brokers.

Caliber One
previously operated a Programs unit, which focused on casualty coverages
produced through managing general agents. As of December 31, 2000, Caliber One
no longer operates a separate unit for programs, and will de-emphasize casualty
programs on a prospective basis. Examples of program business previously written
by Caliber One through managing general agents include mobile homeowners,
hazardous materials haulers, medical malpractice, excess habitational, crane
rental liability and loggers equipment.

13

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REINSURANCE AND RETROCESSIONAL PROTECTION

The Company
follows the customary insurance practice of reinsuring with other insurance
companies a portion of the risks under the policies written by its insurance
subsidiaries. This reinsurance is maintained to protect the insurance
subsidiaries against the severity of losses on individual claims and unusually
serious occurrences in which a number of claims produce an aggregate
extraordinary loss. Although reinsurance does not discharge the insurance
subsidiaries from their primary liabilities to their policyholders for losses
insured under the insurance policies, it does make the assuming reinsurer liable
to the insurance subsidiaries for the reinsured portion of the risk.

The ceded
reinsurance agreements of the Companys insurance subsidiaries generally
may be terminated at their annual anniversary by either party upon 30 to 90 days
notice. In general, the reinsurance agreements are of the treaty variety, which
cover all underwritten risks of the types specified in the treaties.

At December 31,
2000, the Companys reinsurance and retrocessional protections were as
follows:

|                             |  | Retention |   | Limits(1)    |    
|---------------------------- |  | --------- | - | ------------ | ---
|                            
|                            
|PMA Re                       |  |           |   |              |    
|Per Occurrence:              |  |          
|Casualty lines               |  |           | $ | 2.8 million  |    
|Workers' compensation        |  |           | $ | 2.0 million  |    
|Property lines               |  |           | $ | 10.0 million |    
|Per Risk:                    |  |          
|Property lines               |  |           | $ | 750,000      |    
|Casualty lines               |  |           | $ | 1.5 million  |    
|                            
|The PMA Insurance Group      |  |          
|Per Occurrence:              |  |          
|Workers' compensation        |  |           | $ | 150,000      |    
|Per Risk:                    |  |          
|Property lines(2)            |  |           | $ | 500,000      |    
|Auto physical damage         |  |           | $ | 500,000      |    
|Other casualty lines(3)      |  |           | $ | 250,000      |    
|                            
|Caliber One                  |  |          
|Per Occurrence and Per Risk: |  |          
|Property lines               |  |           | $ | 500,000      |    
|Casualty lines(4)            |  |           | $ | 500,000      | (5)
|                            
|                            

|(1) |  | Represents
the amount of loss protection above the Company's level of loss retention.
|--- |  | -------------------------------------------------------------------------------------

|(2) |  | This
coverage also provides protection of $48.5 million per occurrence over the combined net
retention of $500,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(3) |  | This
coverage also provides protection of $49.8 million per occurrence over the combined net
retention of $250,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(4) |  | Caliber
One has additional reinsurance with aggregate limits of approximately $50 million on the
professional liabilityand commercial automobile lines of business.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Effective
January 1, 2001, Caliber One's net retention on casualty lines has been reduced to
$100,000.
|--- |  | ------------------------------------------------------------------------------------------------------

14

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As of December
31, 2000, the maximum gross limits that PMA Re will write are $7.5 million for
casualty covers, $5.0 million for property covers and $1.0 million for
property-catastrophe covers.

The Company
actively manages its exposure to catastrophes through its underwriting process,
where the Company generally monitors the accumulation of insurable values in
catastrophe prone regions. Also, in writing property reinsurance coverages, PMA
Re typically requires per occurrence loss limitations for contracts that could
have catastrophe exposure. Through per risk reinsurance, the Company manages its
net retention in each exposure. PMA Res property per occurrence
reinsurance provides catastrophe protection of $50.0 million in excess of $10.0
million on its traditional property book. Under certain conditions, PMA Re may
recover $6.0 million of the $10.0 million retention for multiple net catastrophe
losses. PMA Re also maintains catastrophe protection of $12.5 million in excess
of $5.0 million for property exposures underwritten by its Finite Risk and
Financial Products unit. PMA Re can also recover an additional $40.0 million of
Finite Risk and Financial Products occurrence losses under certain industry loss
scenarios. The PMA Insurance Group maintains catastrophe reinsurance protection
of $27.7 million excess of $850,000 and Caliber One maintains catastrophe
reinsurance protection of $17.5 million excess of $2.5 million. The
Companys loss and LAE ratios have not been significantly impacted by
catastrophes in 2000, 1999 or 1998. Although the Company believes that it has
adequate reinsurance to protect against the estimated probable maximum gross
loss from a catastrophe, an especially severe catastrophe or series of
catastrophes could exceed the Companys reinsurance and/or retrocessional
protection and may have a material adverse impact on the Companys
financial condition, results of operations and liquidity.

The
collectibility of reinsurance is largely a function of the solvency of
reinsurers. At December 31, 2000, the Company had reinsurance receivables due
from the following unaffiliated reinsurers in excess of 5% of shareholders
equity:

|(dollar amounts in thousands)               | Reinsurance Receivables | A.M. BestRating (1)
|------------------------------------------- | ----------------------- | -------------------
|                                           
|                                           
|The London Reinsurance Group                | $334,297                | A                  
|United States Fidelity and Guaranty Company | 116,216                 | A+                 
|Houston Casualty Company                    | 65,058                  | A+                 
|Underwriters Reinsurance Company            | 52,832                  | A+                 
|Mountain Ridge Insurance Company            | 35,036                  | A+                 
|American Reinsurance Corporation            | 31,034                  | A++                
|GE Reinsurance Corporation                  | 24,286                  | A                  
|SCOR Reinsurance Company                    | 23,253                  | A+                 
|                                           
|                                           

(1) Ratings are as of February 28, 2001. A.M. Best ratings are as
follows: A++, Superior, 1st of 15; A+, Superior, 2nd of 15; and A, Excellent, 3rd of 15.

The Company
performs credit reviews on its reinsurers, focusing on, among other things,
financial capacity, stability, trends and commitment to the reinsurance
business. Prospective and existing reinsurers failing to meet the Companys
standards are excluded from the Companys reinsurance programs. In
addition, the Company requires collateral, typically assets in trust, letters of
credit or funds withheld, to support balances due from certain reinsurers,
consisting generally of those not authorized to transact business in the
applicable jurisdictions. As of December 31, 2000, approximately 98% of the
Companys reinsurance receivables related to unpaid reported claims and
incurred but not reported claims, and the remaining 2% related to paid losses.
See pages 37-39 of the MD&A and Note 5 to the Financial Statements included
in the Annual Report for additional information on reinsurance.

15

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LOSS RESERVES

Insurers
establish reserves representing estimates of future amounts needed to pay claims
with respect to insured events that have occurred, including events that have
not been reported to the insurer. Reserves are also established for LAE
representing the estimated expenses of settling claims, including legal and
other fees, and general expenses of administering the claims adjustment process.

After a claim is
reported, claims personnel establish a case reserve for the
estimated amount of the ultimate payment. The estimate reflects the informed
judgment of management based on reserving practices and managements
experience and knowledge regarding the nature and value of the specific type of
claim. Claims personnel review and update their estimates as additional
information becomes available and claims proceed towards resolution. In
addition, bulk reserves are also established on an aggregate basis:

| |  | to
provide for losses incurred but not yet reported to the insurer;
|- |  | -------------------------------------------------------------------

| |  | to
provide for the estimated expenses of settling claims, including legal and other fees and
general expenses of administering the claims adjustment process; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | to
adjust for the fact that, in the aggregate, case reserves may not accurately estimate the
ultimate liability for reported claims.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------

Reserves are
estimated using various generally accepted actuarial techniques. As part of the
reserving process, historical and industry data is reviewed and consideration is
given to the anticipated impact of various factors such as legal developments,
changes in social attitudes and economic conditions, including the effects of
inflation. This process relies on the basic assumption that past experience,
adjusted for the effect of current developments and probable trends, provides a
reasonable basis for predicting future events. The reserving process provides
implicit recognition of the impact of inflation and other factors affecting
claims payments by taking into account changes in historic payment patterns and
perceived probable trends. There is generally no precise method, however, for
subsequently evaluating the adequacy of the consideration given to inflation or
to any other specific factor, since the eventual deficiency or redundancy of
reserves is affected by many factors, some of which are interdependent.

In many cases,
significant periods of time, ranging up to several years or more, may elapse
between the occurrence of an insured loss, the reporting of the loss to the
insurer and the insurers payment of that loss. Liabilities for reinsurers
generally become known more slowly than for primary insurers and are generally
subject to more unforeseen development. Estimating the Companys ultimate
claims liability is necessarily a complex and judgmental process inasmuch as the
amounts are based on managements informed estimates and judgments using
data currently available. As additional experience and data become available
regarding claims payment and reporting patterns, legislative developments,
regulatory trends on benefit levels for both medical and indemnity payments, and
economic conditions, the estimates are revised accordingly. If the
Companys ultimate losses, net of reinsurance, prove to differ
substantially from the amounts recorded at December 31, 2000, the related
adjustments could have a material adverse effect on the Companys financial
condition, results of operations and liquidity.

The table on the
next page presents the subsequent development of the estimated year-end property
and casualty reserves, net of reinsurance (net reserves), for the
ten years prior to 2000. The first section of the table shows the estimated net
reserves that were recorded at the end of each respective year for all current
and prior year unpaid losses and LAE. The second section shows the cumulative
amounts of such previously recorded net reserves paid in succeeding years. The
third section shows the re-estimates of the net reserves made in each succeeding
year.

The cumulative
deficiency (redundancy) as shown in the table represents the aggregate change in
the reserve estimates from the original balance sheet dates through December 31,
2000; an increase in a loss estimate that related to a prior year occurrence
generates a deficiency in each intervening year. For example, a deficiency first
recognized in 1997 relating to losses incurred in 1990 would be included in the
cumulative deficiency amount for each of the years 1990 through 1996. However,
the deficiency would be reflected in operating results in 1997 only.

Conditions and
trends that have affected the reserve development reflected in the table may
change, and care should be exercised in extrapolating future reserve
redundancies or deficiencies from such development.

16

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Consolidated Loss and Loss Adjustment Expense Development

December 31,(dollar amounts in millions)

|                                      |  | 1990 |   | 1991    |  | 1992 |         | 1993 |   | 1994    |  | 1995 |         | 1996 |   | 1997    |   | 1998 |         | 1999 |   | 2000    |  
|------------------------------------- |  | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | -
|                                     
|Initial estimated liability           |  |      |   |         |  |      |         |      |   |         |  |      |         |      |   |         |   |      |         |      |   |         |  
|for unpaid losses and                 |  |     
|LAE, net of reinsurance               |  |      | $ | 1,734.6 |  | $    | 1,824.3 |      | $ | 1,941.0 |  | $    | 1,932.0 |      | $ | 1,855.9 |   | $    | 1,808.5 |      | $ | 1,834.5 |  
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |      |   |         |   |      |         |      |   |        
|                                     
|Amount of reserve                     |  |     
|paid, net of reinsurance,             |  |     
|through:                              |  |     
|- one year later                      |  |      | $ | 470.8   |  | $    | 490.5   |      | $ | 442.4   |  | $    | 407.8   |      | $ | 398.9   |   | $    | 437.6   |      | $ | 398.8   |  
|- two years later                     |  |      |   | 842.0   |  |      | 848.8   |      |   | 779.1   |  |      | 746.1   |      |   | 763.7   |   |      | 780.0   |      |   | 669.6   |  
|- three years later                   |  |      |   | 1,133.8 |  |      | 1,127.0 |      |   | 1,066.8 |  |      | 1,055.9 |      |   | 1,072.9 |   |      | 999.0   |      |   | 894.8   |  
|- four years later                    |  |      |   | 1,353.1 |  |      | 1,364.9 |      |   | 1,329.2 |  |      | 1,330.6 |      |   | 1,252.2 |   |      | 1,183.5 |      |   | 1,118.2 |  
|- five years later                    |  |      |   | 1,539.4 |  |      | 1,585.4 |      |   | 1,573.8 |  |      | 1,472.7 |      |   | 1,405.9 |   |      | 1,369.7 |     
|- six years later                     |  |      |   | 1,715.1 |  |      | 1,788.9 |      |   | 1,688.7 |  |      | 1,605.4 |      |   | 1,573.2 |  
|- seven years later                   |  |      |   | 1,882.1 |  |      | 1,882.2 |      |   | 1,805.4 |  |      | 1,761.7 |     
|- eight years later                   |  |      |   | 1,962.6 |  |      | 1,986.5 |      |   | 1,953.8 | 
|- nine years later                    |  |      |   | 2,048.9 |  |      | 2,125.1 |     
|- ten years later                     |  |      |   | 2,174.2 | 
|                                     
|Re-estimated liability,               |  |     
|net of reinsurance, as of:            |  |     
|- one year later                      |  |      | $ | 1,795.3 |  | $    | 1,966.8 |      | $ | 1,998.1 |  | $    | 1,932.3 |      | $ | 1,907.4 |   | $    | 1,964.6 |      | $ | 1,748.5 |  
|- two years later                     |  |      |   | 1,949.9 |  |      | 2,067.5 |      |   | 2,006.5 |  |      | 1,982.5 |      |   | 2,073.4 |   |      | 1,866.8 |      |   | 1,700.5 |  
|- three years later                   |  |      |   | 2,034.1 |  |      | 2,081.5 |      |   | 2,060.6 |  |      | 2,163.9 |      |   | 1,986.7 |   |      | 1,819.2 |      |   | 1,611.1 |  
|- four years later                    |  |      |   | 2,040.8 |  |      | 2,134.8 |      |   | 2,258.2 |  |      | 2,078.3 |      |   | 1,942.0 |   |      | 1,742.1 |      |   | 1,542.3 |  
|- five years later                    |  |      |   | 2,123.0 |  |      | 2,302.0 |      |   | 2,170.3 |  |      | 2,030.5 |      |   | 1,880.3 |   |      | 1,672.6 |     
|- six years later                     |  |      |   | 2,273.3 |  |      | 2,209.3 |      |   | 2,126.6 |  |      | 1,973.2 |      |   | 1,822.1 |  
|- seven years later                   |  |      |   | 2,205.4 |  |      | 2,169.5 |      |   | 2,079.9 |  |      | 1,922.1 |     
|- eight years later                   |  |      |   | 2,168.4 |  |      | 2,133.7 |      |   | 2,036.5 | 
|- nine years later                    |  |      |   | 2,138.6 |  |      | 2,096.8 |     
|- ten years later                     |  |      |   | 2,107.1 | 
|                                     
|Cumulative deficiency                 |  |     
|(redundancy)                          |  |      | $ | 372.5   |  | $    | 272.5   |      | $ | 95.5    |  | $    | (9.9    | )    | $ | (33.8   | ) | $    | (135.9  | )    | $ | (292.2  | )
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |      |   |         |   |      |         |     
|                                     
|Net liability                         |  |      |   |         |  |      |         |      |   |         |  | $    | 1,932.0 |      | $ | 1,855.9 |   | $    | 1,808.5 |      | $ | 1,834.5 |  
|Reinsurance recoverables              |  |      |   |         |  |      |         |      |   |         |  |      | 218.7   |      |   | 247.9   |   |      | 261.5   |      |   | 256.6   |  
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |      |   |        
|Gross liability                       |  |      |   |         |  |      |         |      |   |         |  | $    | 2,150.7 |      | $ | 2,103.8 |   | $    | 2,070.0 |      | $ | 2,091.1 |  
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |      |   |        
|                                     
|Re-estimated net liability            |  |      |   |         |  |      |         |      |   |         |  | $    | 1,922.1 |      | $ | 1,822.1 |   | $    | 1,672.6 |      | $ | 1,542.3 |  
|Re-estimated reinsurance recoverables |  |      |   |         |  |      |         |      |   |         |  | $    | 208.8   |      | $ | 25.41   |   | $    | 285.6   |      | $ | 272.8   |  
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |     
|Re-estimated gross liability          |  |      |   |         |  |      |         |      |   |         |  | $    | 2,130.9 |      | $ | 2,073.5 |   | $    | 1,958.2 |      | $ | 1,815.1 |  
|                                      |  |      |   |         |  |      |         |      |   |         |  |      |         |     

17

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Unpaid losses
and LAE on a GAAP basis were $2,053.1 million and $1,932.6 million at December
31, 2000 and 1999, respectively. Unpaid losses and LAE on a statutory basis were
$1,073.6 million and $1,196.6 million at December 31, 2000 and 1999,
respectively. The difference between GAAP and statutory loss reserves reflects:
1) reinsurance receivables on unpaid losses and LAE, which are recorded as
assets for GAAP but netted against statutory loss reserves, and 2) non-U.S.
domiciled insurance companies, whose unpaid losses and LAE are included for GAAP
purposes, but not statutory.

The components
of the Companys (favorable) unfavorable development of reserves for losses
and LAE for prior accident years, excluding accretion of discount, are as
follows:

|(dollar amounts in thousands) | 2000 |  | 1999 |      | 1998 |  
|----------------------------- | ---- |  | ---- | ---- | ---- | -
|                             
|                              |      |  |      |      |      |  
|PMA Re                        |      |  | $    | 9.7  |      | $
|                              |      |  |      |      |      |  
|The PMA Insurance Group:      |      | 
|Workers' compensation         |      |  |      | (6.1 | )    |  
|Other                         |      |  |      |     |      |  
|                              |      |  |      |      |      |  
|Total PMA Insurance Group     |      |  |      | (6.1 | )    |  
|                              |      |  |      |      |      |  
|Caliber One                   |      |  |      | 2.9  |      |  
|                              |      |  |      |      |      |  
|Total                         |      |  | $    | 6.5  |      | $
|                              |      |  |      |      |      |  
|                             
|                             

During 2000, PMA
Re recorded unfavorable development on prior accident years (prior year
development) of $9.7 million. PMA Res loss and LAE ratio increased
significantly in 2000, reflecting the recognition in the third quarter of 2000
of the effects of higher than expected losses and LAE in certain lines of
business, primarily coverages for 1998 and 1999 written on a pro rata basis,
partially offset by lower than expected losses and LAE for treaties covering
losses occurring in accident years 1996 and prior. In the third quarter of 2000,
PMA Res actuarial department conducted its routine semi-annual reserve
study to determine the impact of any emerging data on anticipated loss
development trends and recorded unpaid losses and LAE reserves. Based on the
actuarial work performed, which included analyzing recent trends in the levels
of the reported and paid claims, an updated selection of actuarially determined
loss reserve estimates was developed by accident year for each major line of
business written by PMA Re. Managements selection of the ultimate losses
indicated that gross loss reserves at September 30, 2000 needed to be increased
by $83.2 million. Under existing retrocessional contracts, $60.0 million of
gross losses were ceded to PMA Res retrocessionaires, resulting in an
impact on net incurred losses and LAE of $23.2 million. The increase in incurred
losses and LAE, combined with $35.0 million of ceded premiums and interest on
funds held due under existing retrocessional contracts covering the ceded
losses, resulted in a pre-tax charge of approximately $60 million to PMA
Res operating results in 2000.

During 1999 and
1998, PMA Re recorded favorable prior year development of $23.5 million and
$31.5 million, respectively. The favorable reserve development reflects
development on prior accident years due to re-estimated loss trends for such
years that were lower than previous expectations.

During 2000,
1999 and 1998, The PMA Insurance Group recorded favorable prior year development
of $6.1 million, $9.0 million and $15.0 million. The favorable reserve
development in 2000 and 1999 reflects better than expected loss experience from
loss-sensitive and rent-a-captive workers compensation business. Premium
adjustments for loss-sensitive business and policyholders dividends for
rent-a-captive business have substantially offset this favorable development.
Rent-a-captives are used by customers as an alternative method to manage their
loss exposure without establishing and capitalizing their own captive insurance
company. The favorable prior year development during 1998 primarily relates to
formal commutation programs, which resulted in early liability settlements made
during 1998 to reduce future claim payments.

During 2000,
Caliber One recorded unfavorable prior year development of $2.9 million,
primarily related to the emergence of higher than expected losses and LAE in
certain segments of the professional liability, commercial automobile, general
liability and property lines of business for coverage of 1999 exposures. During
2000, Caliber One discontinued writing or cancelled policies in the professional
liability (nursing homes) and commercial automobile classes of business that
produced the emergence of higher than expected losses. In addition, Caliber One
reinsured substantially all of the premium on these classes in 2000.

18

---

At December 31,
2000 and 1999, the Companys GAAP loss reserves were stated net of discount
of $104.0 million and $180.4 million, respectively, primarily related to
workers compensation business. Pre-tax income is negatively impacted by
accretion of discount on prior year reserves and favorably impacted by setting
up discount for current year reserves. The net of these amounts is referred to
as net discount accretion. Net discount accretion decreased pre-tax income by
$4.9 million and $2.7 million in 2000 and 1999, respectively.

At December 31,
2000, the Companys loss reserves were stated net of $41.8 million of
salvage and subrogation. The Companys policy with respect to estimating
the amounts and realizability of salvage and subrogation is to develop accident
year schedules of historic paid salvage and subrogation by line of business,
which are then projected to an ultimate basis using actuarial projection
techniques. The anticipated salvage and subrogation is the estimated ultimate
salvage and subrogation less any amounts received by the Company. The
realizability of anticipated salvage and subrogation is reflected in the
historical data that is used to complete the projection, as historical paid data
implicitly considers realization and collectibility.

Asbestos and Environmental Reserves

The
Companys asbestos-related liabilities included in unpaid losses and LAE were as follows:

|(dollar amounts in thousands) | 2000 |  | 1999 |         | 1998 |  
|----------------------------- | ---- |  | ---- | ------- | ---- | -
|                             
|                              |      |  |      |         |      |  
|Gross of reinsurance:         |      |  |      |         |      |  
|Beginning reserves            |      |  | $    | 61,277  |      | $
|Incurred losses and LAE       |      |  |      | 1,640   |      |  
|Paid losses and LAE           |      |  |      | (13,724 | )    |  
|                              |      |  |      |         |      |  
|Ending reserves               |      |  | $    | 49,193  |      | $
|                              |      |  |      |         |      |  
|                             
|Net of reinsurance:           |      | 
|Beginning reserves            |      |  | $    | 38,851  |      | $
|Incurred losses and LAE       |      |  |      | (341    | )    |  
|Paid losses and LAE           |      |  |      | (6,467  | )    |  
|                              |      |  |      |         |      |  
|Ending reserves               |      |  | $    | 32,043  |      | $
|                              |      |  |      |         |      |  
|                             
|                             

The Companys
environmental-related liabilities included in unpaid losses and LAE were as follows:

|(dollar amounts in thousands) | 2000 |  | 1999 |        | 1998 |  
|----------------------------- | ---- |  | ---- | ------ | ---- | -
|                             
|                              |      |  |      |        |      |  
|Gross of reinsurance:         |      |  |      |        |      |  
|Beginning reserves            |      |  | $    | 41,359 |      | $
|Incurred losses and LAE       |      |  |      | (7,848 | )    |  
|Paid losses and LAE           |      |  |      | (4,028 | )    |  
|                              |      |  |      |        |      |  
|Ending reserves               |      |  | $    | 29,483 |      | $
|                              |      |  |      |        |      |  
|                             
|Net of reinsurance:           |      | 
|Beginning reserves            |      |  | $    | 24,522 |      | $
|Incurred losses and LAE       |      |  |      | (3,212 | )    |  
|Paid losses and LAE           |      |  |      | (3,290 | )    |  
|                              |      |  |      |        |      |  
|Ending reserves               |      |  | $    | 18,020 |      | $
|                              |      |  |      |        |      |  
|                             
|                             

Of the total net
asbestos reserves, approximately $27.2 million, $32.0 million and $34.2 million
related to IBNR losses at December 31, 2000, 1999 and 1998, respectively. Of the
total net environmental reserves, approximately $9.2 million, $18.0 million and
$20.3 million related to IBNR losses at December 31, 2000, 1999 and 1998,
respectively. All incurred asbestos and environmental losses were for accident
years 1986 and prior.

19

---

Estimating
reserves for asbestos and environmental exposures continues to be difficult
because of several factors, including: (i) evolving methodologies for the
estimation of the liabilities; (ii) lack of reliable historical claim data;
(iii) uncertainties with respect to insurance and reinsurance coverage related
to these obligations; (iv) changing judicial interpretations; and (v) changing
government standards. Management believes that its reserves for asbestos and
environmental claims are appropriately established based upon known facts,
existing case law and generally accepted actuarial methodologies. However, due
to changing interpretations by courts involving coverage issues, the potential
for changes in federal and state standards for clean-up and liability, as well
as issues involving policy provisions, allocation of liability among
participating insurers, and proof of coverage, the Companys ultimate
exposure for these claims may vary significantly from the amounts currently
recorded, resulting in a potential future adjustment that could be material to
the Companys financial condition and results of operations.

INVESTMENTS

An important
component of the financial results of the Company is the return on invested
assets. The Companys investment objectives are to (i) seek competitive
after-tax income and total return as appropriate, (ii) maintain medium to high
investment grade asset quality and high marketability, (iii) maintain maturity
distribution commensurate with the Companys business objectives, (iv)
provide portfolio flexibility for changing business and investment climates and
(v) provide liquidity to meet operating objectives. The Companys
investment strategy includes guidelines for asset quality standards, asset
allocations among investment types and issuers, and other relevant criteria for
its portfolio. In addition, invested asset cash flows, both current income and
investment maturities, are structured after considering projected liability cash
flows of loss reserve payouts using actuarial models. Property and casualty
claim demands are somewhat unpredictable in nature and require liquidity from
the underlying invested assets, which are structured to emphasize current
investment income to the extent consistent with maintaining appropriate
portfolio quality and diversity. The liquidity requirements are met primarily
through publicly traded fixed maturities as well as operating cash flows and
short-term investments.

The Executive
Committee of the Companys Board of Directors is responsible for the
Companys investment objectives. The Company retains outside investment
advisers to provide investment advice and guidance, supervise the Companys
portfolio and arrange securities transactions through brokers and dealers. The
Executive Committee of the Companys Board of Directors meets periodically
with the investment advisers to review the performance of the investment
portfolio and to determine what actions should be taken with respect to the
Companys investments. Investments by the Pooled Companies and PMA Capital
Insurance Company must comply with the insurance laws and regulations of the
Commonwealth of Pennsylvania and investments for Caliber One Indemnity Company
must comply with the insurance laws and regulations of the State of Delaware.

The Company
currently has no derivative financial instruments outstanding. The Company does
not use derivatives for speculative purposes. The Companys portfolio does
not contain any significant concentrations in single issuers (other than U.S.
Treasury and agency obligations), industry segments or geographic regions.

For additional
information on the Companys investments, including carrying values by
category, quality ratings and net investment income, see pages 41 and 42 of the
MD&A as well as Notes 2-B and 3 to the Financial Statements in the Annual
Report.

20

---

COMPETITION

General

The domestic
property and casualty insurance and reinsurance industries are very competitive
and consist of many companies, with no one company dominating the market. In
addition, the degree and nature of competition varies from state to state for a
variety of reasons, including the regulatory climate and other market
participants in each state. PMA Re competes with other reinsurers in the broker
market as well as reinsurers that underwrite reinsurance business on a direct
basis. In addition to competition from other insurance companies, The PMA
Insurance Group and Caliber One compete with certain alternative market
arrangements, such as captive insurers, risk-sharing pools and associations,
risk retention groups, and self-insurance programs. Many of the Companys
competitors are larger and have greater financial resources than the Company.

The Company
believes that conditions in the overall property and casualty marketplace began
to improve in the latter part of 2000. While there still is an oversupply of
capital in the marketplace, industry operating results have deteriorated to the
point where prices in general have started to increase. However, pricing needs
to continue to increase to offset the effect of pricing declines of the last
several years.

The main factors
upon which entities in the Companys markets compete are price, service,
product capabilities and financial security. PMA Re, The PMA Insurance Group and
Caliber One attempt to price their products in such a way that the prices
charged to their clients are commensurate with the overall marketplace while
still meeting the Companys rate of return targets. The soft pricing
environment which existed until recently has made competing solely on the basis
of price increasingly difficult. PMA Re, The PMA Insurance Group and Caliber One
have rejected and/or non-renewed certain accounts in recent years, as the market
rates, terms and conditions for such risks did not provide the opportunity to
achieve an acceptable rate of return.

In terms of
service, the Company maintains service standards concerning turn-around time for
underwriting submissions, information flow, claims handling and the quality of
other services. These standards help ensure that clients are satisfied with the
Companys products and services. The Company periodically participates in
surveys of intermediaries and clients to gain an understanding of the
perceptions of its service as compared to its competitors.

The Company
attempts to design products that meet the needs of clients in its markets. PMA
Re has expanded its product line in recent years to satisfy the needs of its
client base. Products introduced by PMA Re in the last four years include finite
risk and financial products reinsurance and facultative reinsurance. See
PMA ReProducts for additional discussion. In recent years, The
PMA Insurance Group has developed products that reflect the evolving nature of
the workers compensation market. Specifically, it has developed PMA One, a
product that provides for group integrated occupational and non-occupational
disability coverages. The PMA Insurance Group has also increased its focus on
rehabilitation and managed care to control workers compensation costs for
the employers. In addition, it also benefited in 2000 and, to a lesser extent,
in 1999, from writing business for insureds mainly operating in The PMA
Insurance Groups principal marketing territory but with some operations in
other states. See The PMA Insurance GroupProducts for
additional discussion. Caliber One designs products that meet the needs of new
classes of business and that cover emerging risks. The Company continually
evaluates new product opportunities for PMA Re, The PMA Insurance Group and
Caliber One.

21

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Ratings

For many
intermediaries and clients, financial security is measured by the ratings
assigned by independent rating agencies. Certain of the Companys insurance
subsidiaries are rated by independent rating agencies. The ratings represent the
opinions of the rating agencies on the insurance companys financial
strength and its ability to pay obligations to its policyholders and are not
directed toward the protection of investors. Management believes that the
ratings assigned by nationally recognized, independent rating agencies,
particularly A.M. Best, are material to the Companys operations.

The rating
scales of the principal agencies that rate the Companys insurance
subsidiaries are characterized as follows:

| |  | A.M.
Best Company, Inc. ("A.M. Best"), A++ to F ("Superior" to "In Liquidation")
|- |  | --------------------------------------------------------------------------------

| |  | Standard
& Poor's ("S&P"),AAA to R ("Extremely Strong" to "Regulatory Supervision")
|- |  | -----------------------------------------------------------------------------------

| |  | Moody's
Investors Service ("Moody's"), Aaa to C ("Exceptional" to "Lowest")
|- |  | ---------------------------------------------------------------------------

As of February 28, 2001, the Companys principal insurance
subsidiaries had the following ratings:

|                              |  | A. M. Best                   |  | S&P                      |  | Moody's                       | 
|----------------------------- |  | ---------------------------- |  | ------------------------ |  | ----------------------------- | 
|                             
|PMA Capital Insurance Company |  | A ("Excellent" - 3rd of 15)  |  | A ("Strong" - 6th of 21) |  | A3 ("Good" - 7th of 21)       | 
|                             
|Pooled Companies              |  | A- ("Excellent" - 4th of 15) |  | A ("Strong" - 6th of 21) |  | Baa1 ("Adequate" - 8th of 21) | 
|                             
|Caliber One Indemnity Company |  | A ("Excellent" - 3rd of 15)  |  | Not rated                |  | Not rated                     | 
|                             

These ratings
are subject to revision or withdrawal at any time by the rating agencies, and
therefore, no assurance can be given that PMA Capital Insurance Company, the
Pooled Companies and/or Caliber One Indemnity Company can maintain these
ratings. Each rating should be evaluated independently of any other rating.

REGULATORY MATTERS

General

PMA Capital
Insurance Company is licensed or accredited to transact business in, and is
subject to regulation and supervision by, 50 states and the District of
Columbia. The Pooled Companies are licensed to transact insurance business in,
and are subject to regulation and supervision by, 49 jurisdictions (including
Puerto Rico and the District of Columbia). Caliber One Indemnity Company is
licensed in Delaware, its domiciliary state, and is an eligible excess and
surplus lines carrier in 42 states, the District of Columbia, U.S. Virgin
Islands and Puerto Rico. The Companys insurance subsidiaries are
authorized and regulated in all jurisdictions where they conduct insurance
business.

In supervising
and regulating insurance and reinsurance companies, state insurance departments,
charged primarily with protecting policyholders and the public rather than
investors, enjoy broad authority and discretion in applying applicable insurance
laws and regulations for that purpose. PMA Capital Insurance Company and the
Pooled Companies are domiciled in Pennsylvania, and the Pennsylvania Insurance
Department exercises principal regulatory jurisdiction over them. Caliber One
Indemnity Company is domiciled in Delaware, and the Delaware Insurance
Department exercises principal jurisdiction over Caliber One Indemnity Company.
The extent of regulation by the states varies, but in general, most
jurisdictions have laws and regulations governing standards of solvency,
adequacy of reserves, reinsurance, capital adequacy and standards of business
conduct.

22

---

In addition,
statutes and regulations usually require the licensing of insurers and their
agents, the approval of policy forms and related material and, for certain lines
of insurance, including rate-sensitive workers compensation, the approval
of rates. Property and casualty reinsurers, and excess and surplus lines
carriers are generally not subject to filing or other regulatory requirements
applicable to primary standard lines insurers with respect to rates,
underwriting rules and policy forms. The form and content of statutory financial
statements are regulated.

The U.S. federal
government does not directly regulate the insurance industry; however, federal
initiatives from time to time can impact the insurance industry. In 1999,
Gramm-Leach-Bliley Financial Modernization Act was signed into law. This Act
removes many of the restrictions on affiliations among firms in different
financial services businesses, notably banking, securities and insurance. The
Act also contains provisions to protect the privacy of certain information on
individuals held by insurance companies and financial institutions. Several
governmental agencies have proposed standards to implement these privacy
provisions. Although it is too early to assess the effects of this legislation
on the Company, the Act could result in additional costs to the Company and
additional competition in one or more of the markets in which the Company sells
its products and services.

Further,
although the Company does not write health insurance, federal and state rules
and regulations affecting health care services can affect the workers
compensation and integrated disability services the Company provides. Pending
initiatives to increase health care regulation at the federal and state level
include managed care reform and a patients bill of rights. The Company
cannot predict what health care reform legislation will be adopted by Congress
or by state legislatures where the Company does business or the effect, if any,
that the adoption of health care legislation or regulations at the federal or
state level will have on the Companys results of operations.

State insurance
departments in jurisdictions in which the Companys insurance subsidiaries
do business also conduct periodic examinations of their respective operations
and accounts and require the filing of annual and other reports relating to
their financial condition. The Pennsylvania Department of Insurance last
conducted examinations of PMA Capital Insurance Company and the Pooled Companies
as of December 31, 1997. No material adjustments to previously filed statutory
financial statements were required as a result of such examinations. In
addition, there were no material qualitative matters indicated in the
examination reports that had a material adverse effect on the operations of PMA
Capital Insurance Company and the Pooled Companies. Caliber One Indemnity
Company has not been subjected to an Insurance Department examination in the
three years that the company has been writing business as Caliber One Indemnity
Company.

Insurance Holding Company Regulation

The Company and
its insurance subsidiaries are subject to regulation pursuant to the insurance
holding company laws of Pennsylvania and Delaware. These state insurance holding
company laws generally require an insurance holding company and insurers and
reinsurers that are members of such insurance holding companys system to
register with the state regulatory authorities, to file with those authorities
certain reports disclosing information including their capital structure,
ownership, management, financial condition, certain intercompany transactions,
including material transfers of assets and intercompany business agreements, and
to report material changes in that information. These laws also require that
intercompany transactions be fair and reasonable and, under certain
circumstances, prior approval of a states insurance department must be
received before entering into an intercompany transaction. Further, these laws
require that an insurers policyholders surplus following any
dividends or distributions to shareholder affiliates be reasonable in relation
to the insurers outstanding liabilities and adequate for its financial
needs.

Under
Pennsylvania and Delaware law, no person may acquire, directly or indirectly, a
controlling interest in the capital stock of the Company unless such person,
corporation or other entity has obtained prior approval from the respective
Commissioner for such acquisition of control. Pursuant to the Pennsylvania and
Delaware law, any person acquiring, controlling or holding the power to vote,
directly or indirectly, ten percent or more of the voting securities of an
insurance company, is presumed to have control of such company. This
presumption may be rebutted by a showing that control does not exist in fact.
The respective Commissioner, however, may find that control exists
in circumstances in which a person owns or controls a smaller amount of voting
securities. To obtain approval from the Commissioner of any acquisition of
control of an insurance company, the proposed acquirer must file with the
Commissioner an application containing information regarding: the identity and

23

---

background of the acquirer and its affiliates; the nature, source and
amount of funds to be used to carry out the acquisition; the financial statements of the
acquirer and its affiliates; any potential plans for disposition of the securities or
business of the insurer; the number and type of securities to be acquired; any contracts
with respect to the securities to be acquired; any agreements with broker-dealers; and
other matters.

Other
jurisdictions in which the Companys insurance subsidiaries are licensed to
transact business may have requirements for prior approval of any acquisition of
control of an insurance or reinsurance company licensed or authorized to
transact business in those jurisdictions. Additional requirements in those
jurisdictions may include re-licensing or subsequent approval for renewal of
existing licenses upon an acquisition of control. As further described below,
laws that govern the holding company structure also govern payment of dividends
by the Companys insurance subsidiaries to the Company.

Restrictions on SubsidiariesDividends and Other Payments

PMA Capital is
an insurance holding company whose assets consist principally of all of the
outstanding common stock of its insurance subsidiaries. PMA Capitals
ongoing ability to pay dividends to its shareholders and meet its other
obligations, including operating expenses and any principal and interest on
debt, is primarily dependent on the receipt of sufficient funds from its
insurance subsidiaries in the form of dividends, net payments under a
tax-sharing agreement between PMA Capital and its subsidiaries, and borrowings.
The Companys domestic insurance subsidiaries ability to pay
dividends to PMA Capital is regulated under the insurance laws and regulations
of Pennsylvania and Delaware (the laws of which are substantially similar with
respect to dividends). In addition, to the extent tax-sharing payments and loans
exceed certain threshold amounts, notice to and non-disapproval by the
Pennsylvania Insurance Commissioner would be required.

Under
Pennsylvania laws and regulations, PMA Capitals Pennsylvania-domiciled
insurance subsidiaries (PMA Capital Insurance Company and the Pooled Companies)
may pay dividends only from unassigned surplus and future earnings arising from
their businesses and must receive prior approval of the Pennsylvania Insurance
Commissioner to pay a dividend if such dividend would exceed the statutory
limitation. The current statutory limitation is the greater of (i) 10% of the
insurers policyholders surplus, as shown on its last annual
statement on file with the Pennsylvania Insurance Commissioner or (ii) the
insurers statutory net income for the previous calendar year, but in no
event to exceed statutory unassigned surplus. Pennsylvania law gives the
Pennsylvania Insurance Commissioner broad discretion to disapprove requests for
dividends in excess of these limits. Pennsylvania law also provides that
following the payment of any dividend, the insurers policyholders
surplus must be reasonable in relation to its outstanding liabilities and
adequate for its financial needs, and permits the Pennsylvania Insurance
Commissioner to bring an action to rescind a dividend which violates these
standards.

As described
above, PMA Capital realigned the ownership structure of its domestic statutory
insurance companies, with the result that all of PMA Capitals domestic
insurance entities are now owned by PMA Capital Insurance Company. As a result
of this statutory realignment, dividends from the Pooled Companies and Caliber
One Indemnity Company may not be paid directly to PMA Capital. Instead, only PMA
Capital Insurance Company, a Pennsylvania domiciled company, may pay dividends
directly to PMA Capital. As of December 31, 2000, approximately $53 million of
dividends are available to be paid to PMA Capital without prior approval of the
Pennsylvania Insurance Commissioner during 2001. As of December 31, 2000, The
PMA Insurance Group can pay up to $20.1 million in dividends to PMA Capital
Insurance Company during 2001. During 2000, PMA Capital Insurance Company and
the Pooled Companies, directly or indirectly, paid $28.3 million in dividends to
PMA Capital Corporation.

Caliber One
Indemnity Company is a Delaware-domiciled insurance subsidiary of PMA Capital
Insurance Company. As a subsidiary of PMA Capital Insurance Company, Caliber One
Indemnity Companys dividends are not directly available to PMA Capital. As
noted above, the Delaware insurance law provisions restricting dividends by
insurers are substantially similar to such provisions under Pennsylvania
insurance laws. As of December 31, 2000, Caliber One Indemnity Company may pay
up to $5.5 million of dividends to PMA Capital Insurance Company without the
prior approval of the Delaware Insurance Commissioner during 2001. During 2000,
no dividends were declared or paid by Caliber One Indemnity Company.

In the event
that the ability of PMA Capital Insurance Company to pay dividends or make other
payments to PMA Capital in the future is reduced or eliminated, PMA
Capitals ability to pay dividends to its shareholders and

24

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meet its other obligations, including operating expenses and any
principal and interest on debt, could be materially and adversely affected, depending
upon the extent of such reduction. The Pennsylvania Insurance Commissioner could use his
or her broad discretionary authority to seek to require PMA Capital to apply payments
received from one insurance subsidiary for the benefit of another insurance subsidiary of
PMA Capital.

In addition to
regulatory restrictions on dividends, the Companys Revolving Credit
Facility and Letter of Credit Facility also impose restrictions on the ability
of the Companys insurance subsidiaries to pay dividends. Under these
restrictions, the statutory surplus of PMA Capitals insurance subsidiaries
(as measured each calendar quarter) must not be less than $450 million and such
subsidiaries must annually maintain certain minimum ratios of adjusted surplus
to risk-based capital (300% for PMA Capital Insurance Company and 240% for the
Pooled Companies in 2000). As of December 31, 2000, the Companys insurance
subsidiaries reported combined statutory surplus of $529.6 million, and, as of
December 31, 2000, PMA Capital Insurance Companys risk-based capital ratio
was 344% and the Pooled Companies ratios ranged from 364% to 669%. Under
the most restrictive debt covenant of the Facilities, PMA Capital would be able
to pay approximately $9.5 million in dividends in 2001.

Risk-Based Capital

The National
Association of Insurance Commissioners (the NAIC) has adopted
risk-based capital (RBC) requirements for property/casualty
insurance companies to evaluate the adequacy of statutory capital and surplus in
relation to investment and insurance risks such as asset quality, asset and
liability matching, loss reserve adequacy and other business factors. Under RBC
requirements, regulatory compliance is determined by the ratio of a
companys total adjusted capital, as defined by the NAIC, to its authorized
control level of RBC (RBC ratio), also as defined by the NAIC.

Four levels of regulatory attention may be triggered if the RBC
ratio is insufficient:

   Company action level  If the RBC ratio is
between 150% and 200%, then the company must submit a plan to the regulator
detailing corrective action it proposes to undertake.

   Regulatory action level  If the RBC ratio is
between 100% and 150%, then the company must also submit a plan, but a regulator
may also issue a corrective order requiring the insurer to comply within a
specified period.

   Authorized control level  If the RBC ratio
is between 70% and 100%, then the regulatory response is the same as at the
Regulatory action level, but in addition, the regulator may take
action to rehabilitate or liquidate the insurer.

   Mandatory control level  If the RBC ratio is
less than 70%, then the regulator must rehabilitate or liquidate the insurer.

At December 31,
2000, the RBC ratios of the Pooled Companies ranged from 364% to 669%. PMA
Capital Insurance Companys RBC ratio was 344% and Caliber One Indemnity
Companys RBC ratio was 567%.

The Company
believes that it will be able to maintain the RBC ratios of its insurance
subsidiaries in excess of the Company action level through prudent
underwriting, claims handling, investing and capital management. However, no
assurances can be given that developments affecting the insurance subsidiaries,
many of which could be outside of managements control, including but not
limited to changes in the regulatory environment, economic conditions and
competitive conditions in the jurisdictions in which the insurance subsidiaries
write business, will not cause the RBC ratios to fall below required levels
resulting in a corresponding regulatory response.

The NAIC has
also developed a series of twelve ratios (the IRIS ratios) designed
to further assist regulators in assessing the financial condition of insurers.
These ratio results are computed annually and reported to the NAIC and the
insurers state of domicile. In 2000, PMA Capital Insurance Company
reported an unusual value in one ratio, relating to the increase in surplus,
which was caused by the contribution from PMA Capital Corporation of 100% of the
common stock of the Pooled Companies to PMA Capital Insurance Company. In 2000,
each of the Pooled Companies reported an unusual value in one ratio, relating to
reserve development due to the paydown of loss reserves. In 2000, Caliber One
Indemnity Company reported two unusual values, relating to the change in net
premiums written and surplus aid (i.e., reinsurance) to surplus. The unusual
value relating to the change in net

25

---

premiums written was attributable to managements decision to
discontinue and substantially reinsure certain segments of the professional liability
(nursing homes) and commercial automobile lines of business. The other unusual value for
Caliber One, relating to surplus aid to surplus, is primarily the result of the purchase
of reinsurance on the discontinued lines of business referred to above.

EMPLOYEES

As of February
28, 2001, the Company had approximately 1,200 full-time employees. None of the
employees of the Company is represented by a labor union and the Company is not
a party to any collective bargaining agreements. The Company considers its
employee relations to be good.

26

---

GLOSSARY OF SELECTED INSURANCE TERMS

|Acquisition expense                                 | The cost of acquiring both new and renewal insurance business, including
commissions to agents or brokers and premium taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                   
|Aggregate stop loss                                 | A form of excess of loss treaty
reinsurance whereby the reinsurer responds when a ceding insurer incurs losses during a
specific period in excess of a stated loss ratio or dollar amount.                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                   
|Broker                                              | One who
negotiates contracts of insurance or reinsurance between parties. An insurance
broker negotiates on behalf of an insured and a primary insurer. A reinsurance
broker negotiates on behalf of a primary insurer or other reinsured and a
reinsurer. The broker receives a commission for placement and other services
rendered.                                                                                                                                                                                                                                                                        
|                                                   
|Case reserves                                       | Loss reserves established with respect to
individual reported claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                   
|Casualty insurance and/or reinsurance               | Insurance and/or reinsurance that is concerned primarily with the losses
caused by injuries to third persons (in other words, persons other than the policyholder)
and the legal liability imposed on the insured resulting therefrom.                                                                                                                                                                                                                                                                                                                                                                        
|                                                   
|Catastrophe reinsurance                             | A form of excess of loss property reinsurance that, subject to a
specified limit, indemnifies the ceding company for the amount of loss in excess of a
specified retention with respect to an accumulation of losses resulting from a
catastrophic event. The actual reinsurance document is called a "catastrophe cover."                                                                                                                                                                                                                                                                                    
|                                                   
|Cede; ceding company; cedent                        | When a company reinsures its risk with another, it "cedes" business and
is referred to as the "ceding company" or the "cedent."                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                   
|Combined ratio                                      | The sum of losses and LAE, acquisition expenses, operating expenses and
policyholders' dividends, where applicable, all divided by net premiums earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                   
|Direct reinsurer, direct underwriter, direct writer | A reinsurer that markets and sells reinsurance directly to
its reinsureds without the assistance of brokers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                   
|Excess and surplus lines                            | Surplus lines risks are those risks not fitting
normal underwriting patterns, involving a degree of risk that is not commensurate with
standard rates and/or policy forms, or that will not be written by standard carriers
because of general market conditions. Excess insurance refers to coverage that attaches
for an insured over the limits of a primary policy or a stipulated self-insured
retention. Policies are bound or accepted by carriers not licensed in the jurisdiction
where the risk is located, and generally are not subject to regulations governing premium
rates or policy language.
|                                                   
|Excess of loss reinsurance                          | The generic term describing reinsurance that
indemnifies the reinsured against all or a specified portion of losses on underlying
insurance policies in excess of a specified dollar amount, called a layer or
retention. Also known as nonproportional reinsurance or stop loss coverage.                                                                                                                                                                                                                                                                                                                
|                                                   
|Facultative reinsurance                             | The reinsurance of all or a portion of the insurance provided by a single
policy. Each policy reinsured is separately negotiated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

27

---

|Financial quota share reinsurance           | A form of finite risk reinsurance wherein the cedent transfers some of
its premiums to a finite risk provider and achieves, by virtue of an individual
arrangement for reinsurance commission, the required financial effects, such as a
stabilization of net claims costs.                                                           
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                           
|Finite risk reinsurance                     | A form of reinsurance combining common features of traditional
reinsurance with additional features that recognize the reinsured's needs regarding cash
flows, investment yields and capital management. This type of reinsurance usually
includes caps on the maximum gain or loss to the reinsurer.                                 
|                                           
|Funded catastrophe coverages                | Reinsurance contracts under which the ceding company pays a higher than
normal premium intended to build a fund from which to pay expected losses. All of the
premium less the reinsurance charge will be returned to the ceding company at some time
in the future as loss payments, returned premiums, or contingent commissions.   
|                                           
|Funds held                                  | The holding by a ceding company of funds representing the unearned
premium reserve or the outstanding loss reserve applied to the business it cedes to a
reinsurer.                                                                                                                                                                   
|                                           
|Gross premiums written                      | Total premiums for direct insurance and reinsurance assumed during a
given period.                                                                                                                                                                                                                                                    
|                                           
|Incurred but not reported ("IBNR") reserves | Loss reserves for estimated losses that have been incurred but not yet
reported to the insurer or reinsurer.                                                                                                                                                                                                                          
|                                           
|Incurred losses                             | The total losses sustained by an insurance company under a policy or
policies, whether paid or unpaid. Incurred losses include a provision for claims that
have occurred but have not yet been reported to the insurer ("IBNR").                                                                                                      
|                                           
|Layers                                      | The division of a particular reinsurance program delineated by an
attachment point and a maximum limit. Often, a reinsurance program will be divided into
several layers, with the lower layers typically having higher premiums and higher claim
frequency and the higher layers typically having lower premiums and claim frequency.
|                                           
|Loss adjustment expenses (LAE)            | The expenses of settling claims, including legal and other fees and the
portion of general expenses allocated to claim settlement costs.                                                                                                                                                                                              
|                                           
|Loss and LAE ratio                          | Loss and LAE ratio is equal to losses and LAE divided by earned premiums.                                                                                                                                                                                                                                                             
|                                           
|Loss portfolio transfers                    | A transfer of certain loss obligations already incurred by the ceding
company, as of a specific date, for a reinsurance consideration.                                                                                                                                                                                                
|                                           
|Loss reserves                               | Liabilities established by insurers and reinsurers to reflect the
estimated cost of claims payments that the insurer or reinsurer ultimately will be
required to pay in respect of insurance or reinsurance it has written. Reserves are
established for losses and for LAE and consist of case reserves and bulk reserves.           
|                                           
|Manual rates                                | Insurance rates for lines and classes of business that are approved and
published by state insurance departments.                                                                                                                                                                                                                     
|                                           
|Net premiums earned                         | The portion of net premiums written that is earned during a period and
recognized for accounting purposes as revenue.                                                                                                                                                                                                                 

28

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|Net premiums written                    | Gross premiums written for a given period less premiums ceded to
reinsurers during such period.                                                                                                                                                                                                                                                                               
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                       
|Per occurrence                          | A form of insurance or reinsurance under which the date of the loss event
is deemed to be the date of the occurrence, regardless of when reported and permits all
losses arising out of one event to be aggregated instead of being handled on a
risk-by-risk basis.                                                                                                          
|                                       
|Policyholders dividend ratio           | The ratio of policyholdersdividends to earned premiums.                                                                                                                                                                                                                                                                                                                      
|                                       
|Primary insurer                         | An insurance company that issues insurance policies to the general public
or to certain non-insurance entities.                                                                                                                                                                                                                                                               
|                                       
|Pro rata reinsurance                    | A form of reinsurance in which the reinsurer shares a proportional part
of the ceded insurance liability, premiums and losses of the ceding company. Pro rata
reinsurance also is known as proportional reinsurance or participating reinsurance.                                                                                                                             
|                                       
|Property insurance and/or reinsurance   | Insurance and/or reinsurance that indemnifies a person with an insurable
interest in tangible property for his property loss, damage or loss of use.                                                                                                                                                                                                                          
|                                       
|Reinsurance                             | A transaction whereby the reinsurer, for consideration, agrees to
indemnify the reinsured company against all or part of the loss the company may sustain
under the policy or policies it has issued. The reinsured may be referred to as the
original or primary insurer, the direct writing company or the ceding company.                                                  
|                                       
|Retention, retention layer              | The amount or portion of risk that an insurer or reinsurer retains for
its own account. Losses in excess of the retention layer are paid by the reinsurer or
retrocessionaire. In proportional treaties, the retention may be a percentage of the
original policys limit. In excess of loss business, the retention is a dollar
amount of loss, a loss ratio or a percentage.
|                                       
|Retrocession; retrocessionaire          | A transaction whereby a reinsurer cedes to another reinsurer (the retrocessionaire)
all or part of the reinsurance it has assumed. Retrocession does not legally discharge
the ceding reinsurer from its liability with respect to its obligations to the reinsured.                                                                                                        
|                                       
|Semi-automatic facultative arrangements | Facultative reinsurance contracts where the ceding company has the right,
but not the obligation to cede risks to a reinsurer and the reinsurer is obligated to
accept such risks as they are within stated criteria. If a risk falls outside such
criteria, the reinsurer has the option of either accepting the risk, declining the risk,
or repricing the risk.            
|                                       
|Spread-loss reinsurance                 | A form of excess of loss reinsurance in which the reinsured company
spreads its losses over a multi-year period, and the premium is adjusted based on the
loss experience.                                                                                                                                                                                                    
|                                       
|Statutory accounting principles (SAP) | Recording transactions and preparing
financial statements in accordance with the rules and procedures prescribed or permitted
by state insurance regulatory authorities including the NAIC.                                                                                                                                                                                   

29

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|Statutory or policyholders' surplus; statutory capital & surplus | The excess of admitted assets over total liabilities (including loss
reserves), determined in accordance with SAP.                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                
|Stop loss                                                        | See "Excess of loss reinsurance."                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                
|Treaty reinsurance                                               | The reinsurance of a specified type or category of risks defined in a
reinsurance agreement (a treaty) between a primary insurer or other reinsured
and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is
obligated to offer and the reinsurer is obligated to accept a specified portion of all
agreed upon types or categories of risks originally written by the primary insurer or
reinsured.
|                                                                
|Underwriting                                                     | The reinsurers process of reviewing applications submitted for
insurance coverage, deciding whether to accept all or part of the coverage requested and
determining the applicable premiums.                                                                                                                                                                                                                                       
|                                                                
|Underwriting expenses                                            | The aggregate of policy acquisition costs, including commissions, and the
portion of administrative, general and other expenses attributable to underwriting
operations.                                                                                                                                                                                                                                                            
|                                                                
|Unearned premiums                                                | The portion of a premium representing the unexpired portion of the
exposure period as of a certain date.                                                                                                                                                                                                                                                                                                                            
|                                                                
|Unearned premium reserve                                         | Liabilities established by insurers and reinsurers to reflect unearned
premiums which are refundable to policyholders if an insurance or reinsurance contract is
canceled prior to expiration of the contract term.                                                                                                                                                                                                                 

30

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Item 2.     Properties

The
Companys and PMA Res headquarters are located in 87,500 square feet
of leased space in center city Philadelphia, Pennsylvania. The PMA Insurance
Groups headquarters are located in a four story, 110,000 square foot
building in Blue Bell, Pennsylvania. Caliber Ones headquarters are located
in 20,000 square feet of leased office space in Yardley, Pennsylvania.

Through various
wholly owned subsidiaries, the Company also owns and occupies additional office
facilities in three other locations and rents additional office space for its
insurance operations in 14 other locations. The Company believes that such owned
properties are suitable and adequate for its current business operations.

Item 3.     Legal Proceedings

The Company is
continuously involved in numerous lawsuits arising, for the most part, in the
ordinary course of business, either as a liability insurer defending third-party
claims brought against its insureds, or as an insurer defending coverage claims
brought against it by its policyholders or other insurers. While the outcome of
all litigation involving the Company, including insurance-related litigation,
cannot be determined, litigation is not expected to result in losses that differ
from recorded reserves by amounts that would be material to financial condition,
results of operations or liquidity. In addition, reinsurance recoveries related
to claims in litigation, net of the allowance for uncollectible reinsurance, are
not expected to result in recoveries that differ from recorded receivables by
amounts that would be material to the Companys financial condition,
results of operations or liquidity.

Item 4.     Submission of Matters to a Vote of Security Holders

There were no
matters submitted to a vote of security holders during the fourth quarter of
2000.

Executive Officers of the Registrant

The executive
officers of the Company are as follows:

|Name                   | Age                            | Position                                      
|---------------------- | ------------------------------ | ----------------------------------------------
|John W. Smithson       | 55                             | President and Chief Executive Officer         
|Frederick W. Anton III | 67                             | Chairman of the Board                         
|Ronald S. Austin       | 43                             | President and Chief Operating Officer -       
|                       | Caliber One Management Company
|Vincent T. Donnelly    | 48                             | President and Chief Operating Officer -       
|                       | The PMA Insurance Group       
|Francis W. McDonnell   | 44                             | Senior Vice President, Chief Financial Officer
|                       | and Treasurer                 
|Robert L. Pratter      | 56                             | Senior Vice President, General Counsel and    
|                       | Secretary                     
|Stephen G. Tirney      | 47                             | President and Chief Operating Officer -       
|                       | PMA Re Management Company     

John W. Smithson
has served as President and Chief Executive Officer of the Company, since May
1997, and as a director of the Company, since 1987. Mr. Smithson served as
President and Chief Operating Officer of the Company from 1995 to May 1997. He
has also served as Chairman and Chief Executive Officer of the following
subsidiaries: PMA Re Management Company, since 2000; PMA Capital Insurance
Company (formerly PMA Reinsurance Corporation), since 1984; The PMA Insurance
Group, since 1995; Caliber One Management Company, since 1997; and Caliber One
Indemnity Company, since 1997. He started with the Company in 1972.

Frederick W.
Anton III has served as Chairman of the Board, since 1995 and as a director of
the Company, since 1972. Mr. Anton served as Chairman of the Board and Chief
Executive Officer from 1995 to May 1997, and as President and Chief Executive
Officer from 1981 to 1995. He started with the Company in 1962.

31

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Ronald S. Austin
has served as the President and Chief Operating Officer of Caliber One
Management Company and Caliber One Indemnity Company, since 1997, and has served
as Executive Vice President of PMA Capital Insurance Company, since November
2000. From 1988 to 1997, Mr. Austin served as an officer and director of General
Star Management Company, a member of the General Re Group.

Vincent T.
Donnelly has served as President and Chief Operating Officer of The PMA
Insurance Group, since February 1997, and has served as Executive Vice President
of PMA Capital Insurance Company, since November 2000. Mr. Donnelly served as
Senior Vice President  Finance and Chief Actuary of The PMA Insurance
Group from 1995 to 1997.

Francis W.
McDonnell has served as Senior Vice President and Chief Financial Officer of the
Company, since 1995 and as Treasurer, since 1997, and has served as Senior Vice
President and Chief Financial Officer of PMA Capital Insurance Company (formerly
PMA Reinsurance Corporation), since 1995.

Robert L.
Pratter has served as Senior Vice President, General Counsel and Secretary,
since 1999, and has served as Vice President and General Counsel of PMA Capital
Insurance Company, since November 2000. From 1969 to 1999, Mr. Pratter was an
attorney and partner in the law firm of Duane, Morris & Heckscher LLP.

Stephen G.
Tirney has served as President and Chief Operating Officer of PMA Re Management
Company, since November 2000, Executive Vice President of PMA Capital Insurance
Company, since November 2000 and President and Chief Operating Officer of PMA
Reinsurance Corporation from 1997 to November 2000. Mr. Tirney served as
Executive Vice President of PMA Reinsurance Corporation from 1993 to 1997.

PART II

Item 5.     Market for the Registrant's Common Equity and Related Shareholder
Matters

The Class
A Common Stock Prices under the caption Quarterly Financial
Information and the last paragraph on page 69 of the Annual Report, as
well as the information under the captions Securities Listing and
Dividends on page 72 of the Annual Report are incorporated herein by
reference. Further, the information in Note 14 to the Financial Statements in
the Annual Report and under the caption Regulatory
MattersRestrictions on Subsidiaries Dividends and Other
Payments in Item 1 of this Form 10-K is incorporated herein by reference.

Item 6.     Selected Financial Data

The information
under the caption Selected Financial Data on pages 26 and 27 of the
Annual Report is incorporated herein by reference.

Item 7.     Management's Discussion and Analysis of Financial Condition and
Results of Operations

Managements
Discussion and Analysis of Financial Condition and Results of Operations on
pages 28 through 44 of the Annual Report is incorporated herein by reference.

32

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Item 7A.    Quantitative and Qualitative Disclosure About Market Risk

The information
under the caption Market Risk of Financial Instruments on page 42 of
the Annual Report is incorporated herein by reference.

Item 8.     Financial Statements and Supplementary Data

The
Companys Consolidated Financial Statements and Notes to Consolidated
Financial Statements on pages 45 through 67 and the Report of Independent
Accountants on page 68 of the Annual Report are incorporated herein by
reference, as is the unaudited Income Statement Data and Per
Share Data under the caption Quarterly Financial Information
on page 69 of the Annual Report.

Item 9.     Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 10.    Directors and Executive Officers of the Registrant

See
Executive Officers of the Registrant under Item 4 above. The
information under the captions Nominees For Election and
Directors Continuing in Office on pages 6 and 7 of the
Companys Proxy Statement, dated March 23, 2001 for the 2001 Annual
Meeting of Shareholders (Proxy
Statement) is incorporated herein by reference, as is the information
under the caption Section 16(a) Beneficial Ownership Reporting Compliance on
page 19 of the Proxy Statement.

Item 11.    Executive Compensation

The information
under the caption Compensation of Executive Officers on pages 10
through 13 and under the caption Director Compensation on page 9 of
the Proxy Statement is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

The information
under the caption Beneficial Ownership of Class A Common Stock on
pages 3 through 5 of the Proxy Statement is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

The information
under the caption Certain Transactions on page 18 of the Proxy
Statement is incorporated herein by reference.

33

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PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

FINANCIAL STATEMENTS AND SCHEDULES

|(a) (1) |  | The following consolidated financial statements of PMA Capital and its subsidiary
companies and Report of Independent Accountants, included on pages 45 through 68 of the
Annual Report are incorporated herein by reference:
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated
Balance Sheets at December 31, 2000 and 1999
|- |  | ---------------------------------------------------------

| |  | Consolidated
Statements of Operations for the years ended December 31, 2000, 1999 and 1998
|- |  | ------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998
|- |  | ------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998
|- |  | ----------------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Comprehensive Income (Loss) for the years ended December 31, 2000, 1999 and
1998
|- |  | -----------------------------------------------------------------------------------------------------------

| |  | Notes
to Consolidated Financial Statements
|- |  | ------------------------------------------

| |  | Report
of Independent Accountants
|- |  | ---------------------------------

|(a) (2) |  | The Financial Statement Schedules are listed in the Index to Financial Statement
Schedules on page FS-1
|------- |  | -------------------------------------------------------------------------------------------------------

All other schedules specified by Article 7 of Regulation S-X are
not required pursuant to the related instructions or are inapplicable and,
therefore, have been omitted.

|(a) (3) |  | The Exhibits are listed in the Index to Exhibits on pages E-1 through E-4.
|------- |  | --------------------------------------------------------------------------

|(b) |  | Reports
on Form 8-K filed during the quarter ended December 31, 2000:
|--- |  | ---------------------------------------------------------------------

| | During
the quarterly period ended December 31, 2000, the Company filed the following reports on
Form 8-K:
| | ---------------------------------------------------------------------------------------------------------

| |  | dated
November 1, 2000, Item 5  containing a news release regarding its third quarter 2000
results
| | - | ---------------------------------------------------------------------------------------------------

| |  | dated
November 2, 2000, Item 5  informing investors that its third quarter 2000
statistical supplement is available on its website at www.pmacapital.com.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

34

---

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf, and in the capacities indicated, by the undersigned,
thereunto duly authorized.

|                     |  |                                             
|-------------------- |  | --------------------------------------------
|                     |  | PMA CAPITAL CORPORATION                     
|                     |  |                                             
|                     |  |                                             
|Date: March 22, 2001 |  | By: /s/ Francis W. McDonnell                
|                     |  | Francis W. McDonnell                        
|                     |  | Senior Vice President,                      
|                     |  | Chief Financial Officer and Treasurer       
|                     |  | (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 22, 2001.

|Signature*                                                                                    |  | Title                                                                            
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|                                                                                              |  |                                                                                  
|John W. Smithson                                                                              |  | President and Chief Executive Officer anda Director (Principal Executive Officer)
|                                                                                              |  |                                                                                  
|Frederick W. Anton III                                                                        |  | Chairman of the Board and a Director                                             
|Paul I. Detwiler, Jr.                                                                         |  | Director                                                                         
|Joseph H. Foster                                                                              |  | Director                                                                         
|Thomas J. Gallen                                                                              |  | Director                                                                         
|Anne S. Genter                                                                                |  | Director                                                                         
|James F. Malone III                                                                           |  | Director                                                                         
|A. John May                                                                                   |  | Director                                                                         
|Louis N. McCarter III                                                                         |  | Director                                                                         
|John W. Miller, Jr.                                                                           |  | Director                                                                         
|Edward H. Owlett                                                                              |  | Director                                                                         
|Louis I. Pollock                                                                              |  | Director                                                                         
|Roderic H. Ross                                                                               |  | Director                                                                         
|L. J. Rowell, Jr.                                                                             |  | Director                                                                         
|                                                                                              |  |                                                                                  
|* By: /s/ Charles A. Brawley, III
        Charles A. Brawley, III
           Attorney-in-Fact |  |                                                                                  

35

---

PMA Capital CorporationIndex to Financial Statement Schedules

| | Schedule No. | Description                                              | Page        
| | ------------ | -------------------------------------------------------- | ------------
|
| | II           | Condensed Financial Information of                       | FS-2 to FS-4
| |              | Registrant as of December 31, 2000 and                  
| |              | 1999 and for the years ended December 31,               
| |              | 2000, 1999 and 1998                                     
| |             
| | III          | Supplementary Insurance Information for the              | FS-5        
| |              | years ended December 31, 2000, 1999 and 1998            
| |             
| | IV           | Reinsurance for the years ended December 31,             | FS-6        
| |              | 2000, 1999 and 1998                                     
| |             
| | V            | Valuation and Qualifying Accounts for the                | FS-7        
| |              | years ended December 31, 2000, 1999 and 1998            
| |             
| | VI           | Supplemental Information Concerning                      | FS-8        
| |              | Property and Casualty Insurance Operations              
| |              | for the years ended December 31, 2000, 1999 and 1998    
| |             
| |              | Report of Independent Accountants on Financial Statement | FS-9        
| |              | Schedules                                               

Certain financial statement schedules have been omitted because
they are either not applicable or the required financial information is
contained in the Companys 2000 consolidated financial statements and notes
thereto.

FS-1

---

PMA Capital CorporationSchedule II  Registrant Only Financial Statements
Balance Sheets(Parent Company Only)

|                                                                        |  | December 31, |  
|----------------------------------------------------------------------- |  | ------------ | -
|(dollar amounts in thousands)                                           |  | 2000         |  
|                                                                       
|Assets                                                                  |  |              |  
|Cash                                                                    |  |              | $
|Investment in subsidiaries                                              |  |              |  
|Deferred income taxes, net                                              |  |              |  
|Other assets                                                            |  |              |  
|                                                                        |  |             
|Total assets                                                            |  |              | $
|                                                                        |  |             
|                                                                       
|Liabilities                                                             |  |             
|Long-term debt                                                          |  |              | $
|Related party payables                                                  |  |              |  
|Other liabilities                                                       |  |              |  
|                                                                        |  |             
|Total liabilities                                                       |  |              |  
|                                                                        |  |             
|                                                                       
|Shareholders' Equity                                                    |  |             
|Class A Common stock, $5 par value (40,000,000 shares authorized;       |  |             
|2000 - 24,442,945 shares issued and 21,573,316 outstanding              |  |             
|1999 - 11,358,280 shares issued and 9,692,854 outstanding)              |  |              | $
|Common stock, $5 par value (2000 - 0 shares authorized,                 |  |             
|issued and outstanding                                                  |  |             
|1999 - 13,084,665 shares issued and 12,648,658 outstanding)             |  |              |  
|Additional paid-in capital - Class A Common stock                       |  |              |  
|Retained earnings                                                       |  |              |  
|Accumulated other comprehensive loss                                    |  |              |  
|Notes receivable from officers                                          |  |              |  
|Treasury stock, at cost:                                                |  |             
|Class A Common stock (2000 - 2,869,629 shares; 1999 - 1,665,426 shares) |  |              |  
|Common stock (2000 - 0 shares; 1999 - 436,007 shares)                   |  |              |  
|                                                                        |  |             
|Total shareholders' equity                                              |  |              |  
|                                                                        |  |             
|Total liabilities and shareholders' equity                              |  |              | $
|                                                                        |  |             

These financial statements should be read in conjunction with the
Consolidated FinancialStatements and the notes thereto.

FS-2

---

PMA Capital CorporationSchedule II  Registrant Only Financial Statements
Statements of Operations(Parent Company Only)

|                                                                | Years Ended December 31,
|--------------------------------------------------------------- | ------------------------
|(dollar amounts in thousands)                                   | 2000                    
|                                                               
|                                                                |                         
|Revenues:                                                       |                         
|Net investment expense                                          |                         
|Net realized investment loss                                    |                         
|Other revenues                                                  |                         
|                                                                |                         
|Total revenues                                                  |                         
|                                                                |                         
|                                                                |                         
|Expenses:                                                       |                         
|General expenses                                                |                         
|Interest expense                                                |                         
|                                                                |                         
|Total expenses                                                  |                         
|                                                                |                         
|                                                                |                         
|Loss before income taxes and equity in earnings of subsidiaries |                         
|                                                                |                         
|Income tax expense (benefit)                                    |                         
|                                                                |                         
|                                                                |                         
|Loss before equity in earnings of subsidiaries                  |                         
|                                                                |                         
|Equity in earnings of subsidiaries                              |                         
|                                                                |                         
|                                                                |                         
|Net income                                                      |                         
|                                                                |                         

These financial statements should be read in conjunction with the
Consolidated Financial Statements and the notes thereto.

FS-3

---

PMA Capital CorporationSchedule II  Registrant Only Financial Statements
Statements of Cash Flows(Parent Company Only)

|                                                               | Years Ended December 31,
|-------------------------------------------------------------- | ------------------------
|(dollar amounts in thousands)                                  | 2000                    
|                                                              
|Cash Flows From Operating Activities:                          |                         
|Net income                                                     |                         
|Adjustments to reconcile net income to net cash flows provided |                         
|by operating activities:                                       |                         
|Equity in earnings of subsidiaries                             |                         
|Dividends received from subsidiaries                           |                         
|Net tax sharing payments received from subsidiaries            |                         
|Net realized investment losses                                 |                         
|Deferred income tax expense (benefit)                          |                         
|Other, net                                                     |                         
|                                                               |                         
|Net cash flows provided by operating activities                |                         
|                                                               |                         
|Cash Flows From Investing Activities:                          |                         
|Cash contributions to subsidiaries                             |                         
|                                                               |                         
|Net cash flows used by investing activities                    |                         
|                                                               |                         
|                                                               |                         
|Cash Flows From Financing Activities:                          |                         
|Dividends paid to shareholders                                 |                         
|Proceeds from exercise of stock options                        |                         
|Purchase of treasury stock                                     |                         
|Repayments of long-term debt                                   |                         
|Net repayments (issuance) of notes receivable from officers    |                         
|Change in related party receivables and payables               |                         
|                                                               |                         
|Net cash flows used by financing activities                    |                         
|                                                               |                         
|                                                               |                         
|Net increase (decrease) in cash                                |                         
|Cash - beginning of year                                       |                         
|                                                               |                         
|Cash - end of year                                             |                         
|                                                               |                         
|                                                               |                         
|Supplementary cash flow information:                           |                         
|Income taxes paid (refunded)                                   |                         
|Interest paid                                                  |                         

These financial statements should be read in conjunction with the
Consolidated Financial Statements and the notes thereto.

FS-4

---

PMA Capital CorporationSchedule IIISupplementary Insurance Information

|(dollar amounts in thousands) |  | Deferred acquisitioncosts |   | Unpaid losses and lossadjustment expenses |  | Unearnedpremiums |           | Net premiumsearned |   | Net investmentincome(1) |  | Losses and lossadjustmentexpenses |         | Acquisitionexpenses |   | Operatingexpenses |   | Net premiumswritten |        
|----------------------------- |  | ------------------------- | - | ----------------------------------------- |  | ---------------- | --------- | ------------------ | - | ----------------------- |  | --------------------------------- | ------- | ------------------- | - | ----------------- | - | ------------------- | -------
|                             
|                             
|December 31, 2000:            |  |                           |   |                                           |  |                  |           |                    |   |                         |  |                                   |         |                     |   |                   |   |                     |        
|The PMA Insurance Group       |  |                           | $ | 23,554                                    |  | $                | 1,058,524 |                    | $ | 138,554                 |  | $                                 | 252,348 |                     | $ | 47,969            |   | $                   | 189,001
|PMA Re                        |  |                           |   | 22,969                                    |  |                  | 871,727   |                    |   | 90,851                  |  |                                   | 251,109 |                     |   | 51,125            |   |                     | 229,925
|Caliber One                   |  |                           |   | 1,999                                     |  |                  | 132,104   |                    |   | 40,329                  |  |                                   | 28,799  |                     |   | 4,424             |   |                     | 30,462 
|Corporate and Other           |  |                           |   |                                          |  |                  | (9,217    | )                  |   |                        |  |                                   | (832    | )                   |   | (927              | ) |                     |       
|                             
|Total                         |  |                           | $ | 48,522                                    |  | $                | 2,053,138 |                    | $ | 269,734                 |  | $                                 | 531,424 |                     | $ | 102,591           |   | $                   | 449,388
|                             
|                             
|December 31, 1999:            |  |                          
|The PMA Insurance Group       |  |                           | $ | 20,558                                    |  | $                | 1,144,087 |                    | $ | 120,928                 |  | $                                 | 221,934 |                     | $ | 50,282            |   | $                   | 166,674
|PMA Re                        |  |                           |   | 23,446                                    |  |                  | 743,528   |                    |   | 88,183                  |  |                                   | 293,862 |                     |   | 57,686            |   |                     | 206,891
|Caliber One                   |  |                           |   | 4,945                                     |  |                  | 54,809    |                    |   | 51,241                  |  |                                   | 24,729  |                     |   | 2,459             |   |                     | 18,908 
|Corporate and Other           |  |                           |   |                                          |  |                  | (9,823    | )                  |   |                        |  |                                   | (438    | )                   |   | (370              | ) |                     |       
|                             
|Total                         |  |                           | $ | 48,949                                    |  | $                | 1,932,601 |                    | $ | 260,352                 |  | $                                 | 540,087 |                     | $ | 110,057           |   | $                   | 392,473
|                             
|                             
|December 31, 1998:            |  |                          
|The PMA Insurance Group       |  |                           | $ | 18,660                                    |  | $                | 1,250,694 |                    | $ | 109,766                 |  | $                                 | 241,928 |                     | $ | 64,580            |   | $                   | 197,525
|PMA Re                        |  |                           |   | 30,446                                    |  |                  | 668,604   |                    |   | 109,675                 |  |                                   | 223,559 |                     |   | 54,734            |   |                     | 154,062
|Caliber One                   |  |                           |   | 2,009                                     |  |                  | 33,147    |                    |   | 8,504                   |  |                                   | 1,750   |                     |   | 1,453             |   |                     | 1,402  
|Corporate and Other           |  |                           |   |                                          |  |                  | (11,550   | )                  |   |                        |  |                                   | (522    | )                   |   | (642              | ) |                     | (318   
|                             
|Total                         |  |                           | $ | 51,115                                    |  | $                | 1,940,895 |                    | $ | 227,945                 |  | $                                 | 466,715 |                     | $ | 120,125           |   | $                   | 352,671
|                             

(1) Net investment income is based on each segment's invested assets.

FS-5

---

PMA Capital CorporationSchedule IVReinsurance

|(dollar amounts in thousands)             |  | Direct amount |   | Ceded to othercompanies |  | Assumed fromothercompanies |         | Net amount |   | Percentage ofamount assumedto net | 
|----------------------------------------- |  | ------------- | - | ----------------------- |  | -------------------------- | ------- | ---------- | - | --------------------------------- | 
|                                         
|                                         
|Year Ended December 31, 2000:             |  |               |   |                         |  |                            |         |            |   |                                   | 
|                                         
|Property and liability insurance premiums |  |               | $ | 416,152                 |  | $                          | 278,556 |            | $ | 393,828                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  
|                                         
|Year Ended December 31, 1999:             |  |              
|                                         
|Property and liability insurance premiums |  |               | $ | 328,590                 |  | $                          | 154,532 |            | $ | 366,029                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  
|                                         
|Year Ended December 31, 1998:             |  |              
|                                         
|Property and liability insurance premiums |  |               | $ | 286,987                 |  | $                          | 96,961  |            | $ | 276,689                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  

FS-6

---

PMA Capital CorporationSchedule VValuation and Qualifying Accounts

(dollar amounts in thousands)

|                                      | 
|------------------------------------- | 
|Description                           | 
|                                      | 
|                                      | 
|Year ended December 31, 2000:         | 
|Allowance for uncollectible accounts: | 
|Premiums receivable                   | 
|Reinsurance receivables               | 
|                                      | 
|                                      | 
|Year ended December 31, 1999:         | 
|Allowance for uncollectible accounts: | 
|Premiums receivable                   | 
|Reinsurance receivables               | 
|                                      | 
|                                      | 
|Year ended December 31, 1998:         | 
|Allowance for uncollectible accounts: | 
|Premiums receivable                   | 
|Reinsurance receivables               | 
|                                      | 
|                                      | 

FS-7

---

PMA Capital CorporationSchedule VI 
Supplemental Information Concerning Property and Casualty Insurance Operations

|(dollar amounts in thousands)               | 
|------------------------------------------- | 
|                                           
|Affiliation with registrant                 | 
|                                           
|Consolidated property-casualtysubsidiaries:
|                                           
|December 31, 2000                           | 
|                                           
|December 31, 1999                           | 
|                                           
|December 31, 1998                           | 
|                                           
|                                           

(1) - Workers' compensation reserves discounted at approximately 5%.

(2) - Excludes accretion of loss reserve discount of $10,130, $15,433 and
$26,088 in 2000, 1999 and 1998, respectively.

FS-8

---

PRICEWATERHOUSECOOPERS (LOGO)

| | PricewaterhouseCoopers LLPTwo Commerce Square, Suite 17002001 Market Street
Philadelphia PA 19103-7042Telephone (267) 330 3000Facsimile (267) 330 3300
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS ONFINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of PMA Capital Corporation

Our audits of the consolidated financial statements referred to
in our report dated February 7, 2001 appearing in the 2000 Annual Report to
Shareholders of PMA Capital Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Philadelphia, PA February 7, 2001

FS-9

---

|Exhibit No. | Description of Exhibit                                                                                                                                                                     | Method of Filing                                                                                                                                       
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(3)         | Articles of incorporation and bylaws:                                                                                                                                                      |                                                                                                                                                        
|3.1         | Amended and Restated Articles of Incorporation of the Company as last
amended on May 3, 2000.                                                                                              | Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000 and incorporated herein by reference.         
|3.2         | Amended and Restated Bylaws of the Company.                                                                                                                                                | Filed as Exhibit 3.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and
incorporated herein by reference.         
|(4)         | Instruments defining the rights of security holders, including indentures:                                                                                                                 |                                                                                                                                                        
|4.1         | Rights Agreement, dated as of May 3, 2000, between the Company and The
Bank of New York, as Rights Agent.                                                                                  | Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A
dated May 5, 2000 and incorporated herein by reference.                         
|(10)        | Material Contracts:Exhibits 10.1 through 10.22 are management contracts or
compensatory plans.                                                                                            
|10.1        | Amended and Restated Employment Agreement, dated May 1, 1999, between PMA
Capital Corporation and Frederick W. Anton III.                                                                  | Filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q/A,
No. 1 for the quarter ended June 30, 1999 and incorporated herein by reference.
|10.2        | Amended and Restated Split-Dollar Insurance Agreement, dated May 12,
1999, among PMA Capital Corporation, Frederick W. Anton III and Irrevocable Deed and
Trust of Frederick W. Anton III. | Filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q/A,
No. 1 for the quarter ended June 30, 1999 and incorporated herein by reference.
|10.3        | Split-Dollar Insurance Agreement, dated May 12, 1999, among PMA Capital
Corporation, Frederick W. Anton III and Irrevocable Deed of Trust of Frederick W. Anton
III.                       | Filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q/A,
No. 1 for the quarter ended June 30, 1999 and incorporated herein by reference.
|10.4        | Split-Dollar Insurance Agreement, dated May 12, 1999, among PMA Capital
Corporation, Frederick W. Anton III and Irrevocable Deed of Trust of Frederick W. Anton
III.                       | Filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q/A,
No. 1 for the quarter ended June 30, 1999 and incorporated herein by reference.
|10.5        | Employment Agreement dated May 1, 1995 between the Company and John
W. Smithson.                                                                                                           | Filed as Exhibit 10.2 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.                     

E-1

---

|10.6  | Company's EDC Plan Trust Agreement dated as of 1994.                                       | Filed as Exhibit 10.3 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            
|----- | ------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|10.7  | Amended and Restated Deferred Compensation Plan for Non-Employee
Directors of the Company. | Filed herewith.                                                                                                                               
|10.8  | Company's Annual Incentive Plan.                                                           | Filed as Annex C to the Company's Definitive Proxy Statement on Schedule
14A dated March 23, 2000 and incorporated herein by reference.       
|10.9  | Company's Amended and Restated Executive Deferred Compensation Plan.                       | Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference.  
|10.10 | Company's Supplemental Executive Retirement Plan (SERP) dated July 1995.                   | Filed as Exhibit 10.4 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            
|10.11 | Company's Amended and Restated 1987 Incentive Stock Option Plan.                           | Filed as Exhibit 10.5 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            
|10.12 | Company's Amended and Restated 1991 Equity Incentive Plan.                                 | Filed as Exhibit 10.6 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            
|10.13 | Amendment No. 1 to the Amended and Restated 1991 Equity Incentive Plan
dated May 5, 1999.  | Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.
|10.14 | Company's Amended and Restated 1993 Equity Incentive Plan.                                 | Filed as Exhibit 10.7 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            
|10.15 | Amendment No. 1 to the Amended and Restated 1993 Equity Incentive Plan
dated May 5, 1999.  | Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.
|10.16 | Company's Amended and Restated 1994 Equity Incentive Plan.                                 | Filed as Exhibit 10.8 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.            

E-2

---

|10.17 | Amendment No. 1 to the Amended and Restated 1994 Equity Incentive Plan
dated May 5, 1999.                                                                                                                                                                                                             | Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.              
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 | Company's 1995 Equity Incentive Plan.                                                                                                                                                                                                                                                                 | Filed as Exhibit 10.9 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.                          
|10.19 | Amendment No. 1 to the 1995 Equity Incentive Plan dated May 5, 1999.                                                                                                                                                                                                                                  | Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.              
|10.20 | Company's 1996 Equity Incentive Plan.                                                                                                                                                                                                                                                                 | Filed as Exhibit 10.10 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.                         
|10.21 | Amendment No. 1 to the 1996 Equity Incentive Plan dated May 5, 1999.                                                                                                                                                                                                                                  | Filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.              
|10.22 | Company's 1999 Equity Incentive Plan.                                                                                                                                                                                                                                                                 | Filed as Annex A to the Company's Definitive Proxy Statement on Schedule
14A dated March 26, 1999 and incorporated herein by reference.                     
|10.23 | Credit Agreement dated as of March 14, 1997 by and among the Company, The
Bank of New York, First Union National Bank of North Carolina, Fleet National Bank, PNC
Bank, National Association, Mellon Bank, N.A., CoreStates Bank, N.A. and Dresdner Bank
AG, New York Branch and Grand Cayman Branch. | Filed as Exhibit 10.13 to the Company's Registration Statement on Form 10
dated June 26, 1997 and incorporated herein by reference.                         
|10.24 | First Amendment, dated as of October 2, 1998, to the Credit Agreement
dated as of March 14, 1997.                                                                                                                                                                                                     | Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q/A,
No. 1 for the quarter ended September 30, 1998 and incorporated herein by reference.
|10.25 | Second Amendment and Consent, dated as of November 17, 2000, to
the Credit Agreement dated as of March 14, 1997.                                                                                                                                                                                      | Filed herewith.                                                                                                                                             
|10.26 | Second Amended and Restated Letter of Credit Agreement, dated as of
November 22, 2000, by and among the Company and PNC Bank, National Association and Other
Banks Party Thereto.                                                                                                                     | Filed herewith.                                                                                                                                             
|10.27 | First Amendment, dated December 14, 2000 to the Second Amended and
Restated Letter of Credit Agreement, dated as of November 22, 2000.                                                                                                                                                                | Filed herewith.                                                                                                                                             

E-3

---

|10.28 | Second Amendment, dated December 28, 2000 to the Second Amended and
Restated Letter of Credit Agreement, dated as of November 22, 2000.                              | Filed herewith.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------
|(12)  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                   | Filed herewith.
|(13)  | Portions of the Companys 2000 Annual Report to
Shareholders, which are expressly incorporated by reference in this Form 10-K, are filedas
part of this Form 10-K. | Filed herewith.
|(21)  | Subsidiaries of the Company.                                                                                                                                         | Filed herewith.
|(23)  | Consent of independent accountant.                                                                                                                                   | Filed herewith.
|(24)  | Power of attorney:                                                                                                                                                   |                
|24.1  | Powers of attorney.                                                                                                                                                  | Filed herewith.
|24.2  | Certified resolutions.                                                                                                                                               | Filed herewith.

Shareholders may obtain copies of exhibits by writing to the
Company at PMA Capital Corporation, 1735 Market Street, Suite
2800, Philadelphia, PA. 19103-7590, Attn: Secretary

E-4

---