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, 2002

/  /   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. /X/

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES
/X/ NO /  /

The aggregate market value of the
voting and non-voting common equity held by non-affiliates of the registrant as of
June 30, 2002, was $464,633,141.

There were 31,328,922 shares
outstanding of the registrants Class A Common stock, $5 par value per share, as of
the close of business on February 28, 2003.

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, 2002, as indicated
          herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Part III of this Form 10-K incorporates by reference portions of the
          registrants definitive proxy statement to be dated on or about April 21, 2003 for the
          2003 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   
|Run-off Operations                                                                  | 12  
|Reinsurance and Retrocessional Protection                                           | 13  
|Loss Reserves                                                                       | 16  
|Investments                                                                         | 20  
|Competition                                                                         | 21  
|Regulatory Matters                                                                  | 23  
|Employees                                                                           | 26  
|Available Information                                                               | 26  
|Glossary of Selected Insurance Terms                                                | 27  
|Risk Factors                                                                        | 30  
|Item 2    Properties                                                                | 35  
|Item 3    Legal Proceedings                                                         | 35  
|Item 4    Submission of Matters to a Vote of Security Holders                       | 36  
|Executive Officers of the Registrant                                                | 36  
|                                                                                    |     
|PART II                                                                            
|                                                                                    |     
|Item 5    Market for the Registrant's Common Equity and Related Shareholder Matters | 37  
|Item 6    Selected Financial Data                                                   | 37  
|Item 7    Management's Discussion and Analysis of Financial Condition              
|and Results of Operations                                                           | 37  
|Item 7A Quantitative and Qualitative Disclosure About Market Risk                   | 37  
|Item 8    Financial Statements and Supplementary Data                               | 37  
|Item 9    Changes in and Disagreements with Accountants on                         
|Accounting and Financial Disclosure                                                 | 37  
|                                                                                    |     
|PART III                                                                           
|                                                                                    |     
|Item 10   Directors and Executive Officers of the Registrant                        | 37  
|Item 11   Executive Compensation                                                    | 37  
|Item 12   Security Ownership of Certain Beneficial Owners and Management and       
|Related Shareholder Matters                                                         | 38  
|Item 13   Certain Relationships and Related Transactions                            | 38  
|Item 14   Controls and Procedures                                                   | 38  
|                                                                                    |     
|PART IV                                                                            
|                                                                                    |     
|Item 15   Exhibits, Financial Statement Schedules and Reports on Form 8-K           | 39  
|                                                                                    |     
|Signatures                                                                          | 40  
|Certifications                                                                      | 41  
|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. Words such as believes, estimates,
anticipates, expects or similar words are intended to identify
forward-looking statements. Our 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 Risk Factors beginning
on page 30 and in the Cautionary Statements on page 48 of our
Managements Discussion and Analysis (MD&A) section of our 2002
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

We
are an insurance holding company focused on specialty insurance markets where we believe
our underwriting expertise, experienced management and financial strength allow us to
produce attractive returns. Through our operating subsidiaries, we are a leading provider
of property and casualty reinsurance and a regionally focused provider of commercial
property and casualty insurance. Our primary insurance business has been in operation
since 1915 and our reinsurance operations began writing business in 1969. At December 31,
2002, we had total assets of approximately $4.1 billion and shareholders equity of
approximately $581.4 million.

We
conduct our insurance and reinsurance business through two specialty operating segments:

| |  |  | Our
reinsurance operations, PMA Re, offer excess of loss and pro rata property and casualty
reinsurance protection         mainly through reinsurance brokers. PMA Re focuses on
risk-exposed business, which we believe allows us to best utilize our
        underwriting and actuarial expertise.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Our
property and casualty insurance operations, The PMA Insurance Group, write workers'
compensation, integrated         disability and, to a lesser extent, other standard lines
of commercial insurance, primarily in the eastern part of the United         States.
Currently, approximately 90% of The PMA Insurance Group's business is produced through
independent agents and brokers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Prior to May 1, 2002, we operated a
third specialty risk management business, Caliber One, which wrote excess and surplus
lines of business throughout the United States, generally through surplus lines brokers.
Effective May 1, 2002, we announced our decision to withdraw from the excess and surplus
lines marketplace. As previously announced, on January 2, 2003, we completed the sale of
the capital stock of Caliber One Indemnity Company to Northern Homelands Company. The sale
generated gross proceeds of approximately $31 million, representing $3.5 million plus
surplus of approximately $27 million. Pursuant to agreement of sale, we have retained all
assets and liabilities related to the in-force policies and outstanding claim obligations relating to
Caliber Ones business written prior to closing. The transaction is not expected to
have a material effect on our financial condition and results of operations. As a result of the decision to exit
this business, the results of this segment have been reported as Run-off Operations.

In
addition, we have a Corporate and Other segment, which includes unallocated investment
income and expenses, including debt service, as well as the results of certain of our real
estate properties.

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 2002 presentation. Revenues, pre-tax operating income (loss) and assets
attributable to each of our operating segments and our Corporate and Other segment for the
last three years are set forth in Note 15 to our consolidated financial statements for the
year ended December 31, 2002 (Financial Statements) included in our Annual
Report.

1

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Our
gross and net premiums written by segment were as follows:

|                              | 2002  |  | 2001 |           | 2000  |   | 2002 as % of Total |  
|----------------------------- | ----- |  | ---- | --------- | ----- | - | ------------------ | -
|(dollar amounts in thousands) | Gross |  | Net  |           | Gross |   | Net                |  
|                             
|                             
|PMA Re                        |       |  | $    | 776,787   |       | $ | 639,039            |  
|The PMA Insurance Group       |       |  |      | 515,332   |       |   | 452,276            |  
|Run-off Operations            |       |  |      | 105,308   |       |   | 14,563             |  
|Corporate and Other           |       |  |      | (10,881   | )     |   | (881               | )
|                              |       |  |      |           |       |   |                    |  
|Total                         |       |  | $    | 1,386,546 |       | $ | 1,104,997          |  
|                              |       |  |      |           |       |   |                    |  
|                             
|                             

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 (which we refer to as 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.

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 our ongoing operating segments
were as follows:

|                        |  |  |  | 2002  |   |  | 2001  |   |  | 2000  |  
|----------------------- |  |  |  | ----- | - |  | ----- | - |  | ----- | -
|                       
|PMA Re                  |  |  |  | 106.4 | % |  | 114.2 | % |  | 123.3 | %
|The PMA Insurance Group |  |  |  | 103.2 | % |  | 105.5 | % |  | 111.7 | %
|                       
|                       

Because
time normally elapses between the receipt of premiums and the payment of claims and
certain related expenses, we invest the available premiums. Underwriting results do not
include investment income from these funds. Given the long-tail nature of our liabilities,
we believe that the operating ratios are also important in evaluating our business. The
operating ratio is the combined ratio less the net investment income ratio, which is net
investment income divided by premiums earned. The operating ratios of our ongoing
operating segments were as follows:

|                        |  |  |  | 2002 |   |  | 2001  |   |  | 2000  |  
|----------------------- |  |  |  | ---- | - |  | ----- | - |  | ----- | -
|                       
|PMA Re                  |  |  |  | 97.6 | % |  | 100.9 | % |  | 102.9 | %
|The PMA Insurance Group |  |  |  | 94.5 | % |  | 94.1  | % |  | 92.7  | %
|                       
|                       

A glossary of selected insurance
terms used in this Form 10-K is included on pages 27 to 29.

2

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PMA RE

Background

Our
reinsurance operations conduct business mainly in the broker market. We offer excess of
loss and pro rata property and casualty reinsurance protection mainly through reinsurance
brokers. PMA Re focuses on risk-exposed business, which we believe allows us to best
utilize our underwriting and actuarial expertise to price our products and to control our
loss exposures. PMA Re provides treaty reinsurance on both a traditional and finite risk
basis as well as facultative reinsurance. From 1999 through 2001, PMA Res mix of
business included an increasing amount of finite risk business, which offers a more
predictable level of profitability, and, lower volatility in earnings. As market
conditions for our traditional treaty and facultative reinsurance products improved
beginning in 2001 and into 2002, premium for these businesses grew dramatically, while
demand for our finite products remained strong.

PMA
Re competes on the basis of its ability to offer specialized products, long-term
relationships with insurance company clients and brokers, and prompt and responsive
service. PMA Re focuses on providing reinsurance to small- to medium-sized insurers, which
we define as insurers with less than $500 million of statutory surplus. PMA Re believes
that its underwriting and actuarial expertise is important to ceding companies in that
size category and accordingly, it can build long-term relationships with its ceding
companies. As of December 31, 2002, PMA Capital Insurance Company, PMA Res insurance
entity, was the 12th largest broker market reinsurance company in the United
States in terms of statutory net premiums written, according to data provided by the
Reinsurance Association of America.

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.

Late
in 2000, PMA Re invested in a Lloyds of London managing general agency, Cathedral
Capital PLC, and commencing in 2001, we began participating in the results of Syndicate
2010. Cathedral Capital primarily provides underwriting and management services for
various Lloyds syndicates. Syndicate 2010 primarily writes property and aviation
reinsurance. In the fourth quarter of 2002, we increased our ownership in Cathedral
Capital to 29.9% of their outstanding capital stock. At December 31, 2002, our interest in
Cathedral Capital was approximately $29 million. In connection with that transaction, we
ceased our direct participation in Syndicate 2010 effective December 31, 2002. In
addition, Cathedral Capital has agreed to indemnify us for losses exceeding £300,000
arising from Syndicate 2010 related to the 2001 and 2002 underwriting years of account in
which we participated. In consideration for the indemnification, we have agreed to pay
Cathedral Capital 30% of any underwriting profit related to the 2001 and 2002 years of
account.

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 during 2002,
97% were treaty and 3% were facultative.

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

| |  |  | Traditional-Treaty:This underwriting unit writes general property and casualty business and emphasizes
risk-exposed, excess of loss programs. 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,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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| |  |  | such as
self-insureds. 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. Excess of loss reinsurance,
         sometimes called nonproportional reinsurance, generally indemnifies the
reinsured against all or a specified portion of          losses on underlying insurance
policies in excess of a specified dollar amount. With pro rata reinsurance, sometimes
called          proportional or participating reinsurance, the reinsurer shares a
proportional part of the ceded insurance liability,          premiums and losses of the
ceding company.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The breakdown
of the Traditional-Treaty unit's net premiums written between excess of loss and pro rata
reinsurance is as          follows:
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------

|(dollar amounts in thousands) | 2002 |  | 2001 |         | 2000 | 
|----------------------------- | ---- |  | ---- | ------- | ---- | 
|                             
|                              |      |  |      |         |      | 
|Excess of Loss                |      |  | $    | 184,515 |      | 
|Pro Rata                      |      |  |      | 129,657 |      | 
|                              |      |  |      |         |      | 
|Total Traditional-Treaty      |      |  | $    | 314,172 |      | 
|                              |      |  |      |         |      | 
|                             
|                             

| |  |  | Finite
Risk and Financial Products:In 1998, PMA Re made the strategic decision to broaden its
product offerings by adding a finite risk underwriting unit to its traditional
treaty reinsurance portfolio. This underwriting unit is charged with providing
PMA Re's clients with creative risk management solutions that complement their
traditional reinsurance program. Under its finite risk covers, PMA Re assumes a
measured amount of insurance risk in exchange for a specified margin. Our finite
risk reinsurance covers typically include a combination of sub-limits and caps on the
maximum gain or loss to PMA Re as the reinsurer. 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 financial quota share coverages,
aggregate stop-loss coverages and funded catastrophe coverages.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | These
finite risk and financial products, in various formats, have been used by ceding
companies for decades. PMA Re's          approach is to create customized risk management
solutions for its clients. Our average account size is approximately $5.5
         million of premiums. Although most of the Finite Risk and Financial Products
unit's business is related to domestic          insurers, approximately $45 million of
the unit's gross premiums written for 2002 were generated from foreign insurers and
         reinsurers.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Specialty-Treaty:This unit underwrites business that falls outside the confines of our traditional
property and casualty risks. These risks include directors' and officers'
liability and errors and omissions, as well as all other forms of professional
liability.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Facultative:This unit writes property and casualty reinsurance on an individual risk basis and on a
program/semi-automatic basis, in which we agree to accept risks that fall within
certain predetermined parameters. In addition to serving the facultative
brokerage community, this unit strengthens PMA Re's reputation as a full service
reinsurer. The facultative casualty focus is on general liability, umbrella and
commercial automobile lines. Our Facultative unit's emphasis in commercial
automobile is on manufacturing, contracting and service fleets. This unit also reinsures
a broad range of professional liability business, with an emphasis on directors'
and officers' liability, and medical malpractice/hospital professional
liability. Through its facultative property book, PMA Re emphasizes
program/semi-automatic business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Accident-Treaty:In 2002, the Accident-Treaty unit was created to take advantage of market opportunities
and to expand the portfolio of products offered by PMA Re. The Accident-Treaty
unit offers a wide variety of accident products to life insurance companies,
writers of workers' compensation insurance and writers of Special Risk insurance. The
unit had $3.9 million of gross premiums written and $3.4 million of net premiums
written in 2002, which are included with Traditional-Treaty in the table on page
5.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

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

|(dollar amounts in thousands)      | 2002  |  | 2001 |         | 2000  |  
|---------------------------------- | ----- |  | ---- | ------- | ----- | -
|                                  
|                                   | Gross |  | Net  |         | Gross |  
|                                  
|Traditional - Treaty               |       |  |      |         |       |  
|Casualty                           |       |  | $    | 248,955 |       | $
|Property                           |       |  |      | 128,256 |       |  
|Other                              |       |  |      | 5,744   |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 382,955 |       |  
|                                   |       |  |      |         |       |  
|Finite Risk and Financial Products |       | 
|Casualty                           |       |  |      | 127,291 |       |  
|Property                           |       |  |      | 105,527 |       |  
|Other                              |       |  |      | 19,595  |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 252,413 |       |  
|                                   |       |  |      |         |       |  
|Specialty - Treaty                 |       | 
|Casualty                           |       |  |      | 87,648  |       |  
|Property                           |       |  |      | 3,915   |       |  
|Other                              |       |  |      | 525     |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 92,088  |       |  
|                                   |       |  |      |         |       |  
|Facultative                        |       | 
|Casualty                           |       |  |      | 39,750  |       |  
|Property                           |       |  |      | 9,581   |       |  
|Other                              |       |  |      | --      |       |  
|                                   |       |  |      |         |       |  
|Total                              |       |  |      | 49,331  |       |  
|                                   |       |  |      |         |       |  
|Total Casualty                     |       |  |      | 503,644 |       |  
|Total Property                     |       |  |      | 247,279 |       |  
|Total Other                        |       |  |      | 25,864  |       |  
|                                   |       |  |      |         |       |  
|Total Premiums Written             |       |  | $    | 776,787 |       | $
|                                   |       |  |      |         |       |  
|                                  
|                                  

As
of December 31, 2002, traditional catastrophe covers accounted for approximately 2% of PMA
Res gross property premiums written. The per risk property programs written by PMA
Re generally contain per occurrence limits and in some instances there is less catastrophe
exposure either because of the locations of the insured values or the nature of the
underlying exposures. In addition, PMA Res gross premiums written include
approximately $35 million of funded catastrophe coverages written by the Finite Risk and
Financial Products unit. These funded covers contain per occurrence and aggregate limits,
as well as loss sensitive additional premium provisions in the event of a loss to mitigate
the severity of the catastrophic loss to us.

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
beginning on page 13 for PMA Res catastrophe retrocessional program.

Distribution

PMA
Re operates primarily through the domestic broker reinsurance market. We believe that PMA
Re 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
2002 were as follows:

|(dollar amounts in thousands) | Gross premiums written | % of total
|----------------------------- | ---------------------- | ----------
|                             
|                             
|                              |                        |           
|Guy Carpenter                 |                        |           
|AON Reinsurance               |                        |           
|Towers Perrin                 |                        |           
|Benfield Blanch               |                        |           
|                             
|                             

5

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As
of December 31, 2002, PMA Re had approximately 390 unaffiliated clients, with no
individual client accounting for more than 10% of gross premiums written in 2002.
Approximately 74% of PMA Res gross premiums written in 2002 was 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 treaty, as well as
throughout the life of the reinsurance contract.

PMA
Res underwriters and actuaries 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.

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. We believe 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.

PMA
Re is attempting to exclude coverage of losses due to future terrorist acts from its
assumed reinsurance policies. However, if a client, because of the types of coverages that
they are writing, cannot accept a full terrorism exclusion and PMA Re still desires to
write the particular business, its underwriters will attempt to include terms and
conditions in the reinsurance contracts intended to limit PMA Res exposure to losses
from future terrorist acts, such as occurrence caps, aggregate limits and specific
terrorism-event exclusions. Further, PMA Res underwriters also review and monitor
geographic concentrations of underlying risks along with the classes of business and
industries to be reinsured in deciding whether to write the business.

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 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.

PMA
Res claims department uses electronic data exchange 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 emphasizes its traditional core business, workers compensation
insurance and integrated disability. We also provide a range of other commercial insurance
products but generally only if they complement our workers compensation products,
including commercial automobile and multi-peril coverages, general liability and related
services. The PMA Insurance Group focuses primarily on middle-market and large accounts
operating in our principal marketing territory concentrated in the eastern part of the
United States. Currently, approximately 90% of this business is produced through
independent agents and brokers.

The
PMA Insurance Group competes on the basis of its ability to offer tailored workplace
disability management solutions to its clients, its long-term relationships with its
agents and brokers, its localized service and its reputation as a high-quality claims and
risk control service provider.

The
PMA Insurance Group believes it has enhanced its ability to handle multi-state clients
based in its operating territory but which have operations in other parts of the U.S. by
being authorized to do business in 52 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. The PMA Insurance Group is one of the leading
providers of integrated disability products with 139 accounts as of December 31, 2002 that
generated approximately $48 million in combined workers compensation and integrated
disability premium in 2002. The PMA Insurance Groups primary insurance subsidiaries
(Pennsylvania Manufacturers Association Insurance Company, Manufacturers Alliance
Insurance Company and Pennsylvania Manufacturers Indemnity Company) will sometimes be
referred to as the Pooled Companies because they share results under an intercompany
pooling agreement.

Products

The
PMA Insurance Groups premiums written were as follows:

|(dollar amounts in thousands)                   |  | 2002 |   | 2001    |  | 2000 |     
|----------------------------------------------- |  | ---- | - | ------- |  | ---- | ----
|                                               
|Gross premiums written:                         |  |      |   |         |  |      |     
|Workers' compensation and integrated disability |  |      | $ | 410,977 |  |      | 80% 
|Commercial automobile                           |  |      |   | 55,946  |  |      | 11% 
|Commercial multi-peril                          |  |      |   | 34,898  |  |      | 7%  
|Other                                           |  |      |   | 13,511  |  |      | 2%  
|                                                |  |      |   |         |  |     
|Total                                           |  |      | $ | 515,332 |  |      | 100%
|                                                |  |      |   |         |  |     
|Net premiums written:                           |  |     
|Workers' compensation and integrated disability |  |      | $ | 373,353 |  |      | 82% 
|Commercial automobile                           |  |      |   | 44,743  |  |      | 10% 
|Commercial multi-peril                          |  |      |   | 26,627  |  |      | 6%  
|Other                                           |  |      |   | 7,553   |  |      | 2%  
|                                                |  |      |   |         |  |     
|Total                                           |  |      | $ | 452,276 |  |      | 100%
|                                                |  |      |   |         |  |     
|                                               
|                                               

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) |  | 2002 |   | 2001    |  | 2000 |     
|----------------------------- |  | ---- | - | ------- |  | ---- | ----
|                             
|                              |  |      |   |         |  |      |     
|Pennsylvania                  |  |      | $ | 176,705 |  |      | 45% 
|New Jersey                    |  |      |   | 36,312  |  |      | 9%  
|New York                      |  |      |   | 33,176  |  |      | 8%  
|Virginia                      |  |      |   | 23,230  |  |      | 6%  
|North Carolina                |  |      |   | 17,726  |  |      | 5%  
|Maryland                      |  |      |   | 15,834  |  |      | 4%  
|Delaware                      |  |      |   | 10,665  |  |      | 3%  
|Georgia                       |  |      |   | 10,325  |  |      | 3%  
|South Carolina                |  |      |   | 8,397   |  |      | 2%  
|Other                         |  |      |   | 57,870  |  |      | 15% 
|                              |  |      |   |         |  |     
|Total                         |  |      | $ | 390,240 |  |      | 100%
|                              |  |      |   |         |  |     
|                             
|                             

Based
upon direct written premium information published by the A.M. Best Company for the most
recently available year (2001), The PMA Insurance Group is the largest writer of
workers compensation insurance in Pennsylvania and ranks among the fifteen largest
writers of workers compensation insurance in Delaware, District of Columbia, New
Jersey, 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
its assessment of each states respective business, economic, legal and regulatory
climates. We closely monitor and take into consideration rate adequacy, regulatory climate
and economic conditions in each state in the underwriting process. The PMA Insurance Group
intends to employ similar analyses in determining whether and to what extent it will offer
products in additional jurisdictions.

The
PMA Insurance Group is focused on expanding 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 addition, The PMA Insurance Group continues to
benefit from writing business for insureds mainly operating in The PMA Insurance
Groups principal marketing territory but with some operations in other states.

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, New York and Maryland.
In these three states, separate governmental entities write all of the workers
compensation residual market business. In 2002, The PMA Insurance Group wrote $12.7
million in premiums of residual market business, which constituted less than 4% of its
gross workers compensation premiums written. Based upon data for policy year 2001
reported by the National Council on Compensation Insurance, the percentage of residual
market business for the industry as a whole, in all states, was 6.6% of direct
workers compensation premiums written.

8

---

The
PMA Insurance Group offers a variety of workers compensation products to its
customers. Rate-sensitive products are essentially based on manual rates filed and
approved by state insurance departments, while loss-sensitive products are priced to a
certain extent on the basis of the insureds own loss experience. 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:

|                            | 2002 |  | 2001 |      | 2000 | 
|--------------------------- | ---- |  | ---- | ---- | ---- | 
|                           
|                           
|                            |      |  |      |      |      | 
|Rate-sensitive products     |      |  |      | 58%  |      | 
|Loss-sensitive products     |      |  |      | 33%  |      | 
|Alternative market products |      |  |      | 9%   |      | 
|                            |      |  |      |      |      | 
|Total                       |      |  |      | 100% |      | 
|                            |      |  |      |      |      | 
|                           
|                           

| |  |  | Rate-sensitive
products include fixed-cost policies and dividend paying policies. The premium charged on
a fixed-cost policy is essentially 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 with 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

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 what we consider to be 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, programs designed to encourage faster return to work and
heightened employee productivity. In 2002, the number of PMA One clients totaled 139, and
generated approximately $48 million of combined workers compensation and integrated
disability written premiums. PMA One clients include health care systems, educational
institutions, manufacturers and financial institutions.

Through
The PMA Insurance Groups workers compensation and integrated disability
product offerings, we provide a comprehensive array of managed care services to control
loss costs. These include:

| |  |  | Case
review and intervention by disability management coordinators, all of who 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 PMA
Insurance Groups claims professionals and the insured 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. Utilization of the network generally results in reduced
medical costs, in comparison to medical costs incurred when a claim is handled outside
this 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | TMESYS® retail
pharmacy network. TMESYS® is the only Cardless pharmacy program designed
specifically for the workers compensation industry. It includes access to a nationwide
network of pharmacies, increased savings through higher utilization, on-line drug
utilization review and the ability to capture the first prescription within the program.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commercial Lines

The
PMA Insurance Group writes property and liability coverages for larger and middle market
accounts that satisfy its underwriting standards. See Underwriting on page 11.
These coverages feature commercial automobile, commercial multi-peril, general liability and umbrella business. The PMA Insurance Group offers these products, but
generally only if they complement the core workers compensation business.

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 we have already established.

Under
this arrangement, the client purchases an insurance policy from us and chooses a
participation level. We then cede this portion of the premium and loss exposures to either
a Bermuda- or Cayman-based subsidiary. 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. Our principal sources of income from this rent-a-captive
program are the premium income on the risk retained by us and captive management fees
earned.

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

10

---

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.

As
of December 31, 2002, The PMA Insurance Group employed 12 direct sales representatives and
used approximately 330 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, 2002, these employees produced approximately $45 million in
direct premiums written, constituting approximately 10% 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 2002, brokers and agents accounted for
approximately 90% of The PMA Insurance Groups direct written premiums. The top ten
brokers and agents accounted for approximately 30% of The PMA Insurance Groups
direct written premiums, the largest of which accounted for approximately 8% 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.

As
of December 31, 2002, the field organization consisted of 16 offices throughout The PMA
Insurance Groups principal marketing territory. These 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. Because terrorism exclusions have never been permitted for workers
compensation business, we refined our workers compensation underwriting guidelines
to reduce the underwriting exposure from terrorism risks, including the review of
aggregation of risks by geographic location, evacuation and security of buildings in which
insured employees work, and the type of entities located in the vicinity of the
prospective insured. These refined procedures have not materially affected The PMA
Insurance Groups mix of business.

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 who utilize loss-sensitive and alternative market
products and specify the type and amount of collateral that customers must provide under
these arrangements.

11

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Claims Administration

Claims
services are delivered to customers primarily through employees located in the field
offices. Claim handling specialists are assigned to each reported loss based on coverage
and jurisdictional expertise. Claim handlers are also supported by a network of in-house
legal counsel and an anti-fraud investigative unit. A special claims unit has also been
established in the home office to focus on more complex specialized matters such as
asbestos and environmental claims.

The
PMA Insurance Group maintains a centralized claim processing center in order to minimize
the volume of clerical and repetitive administrative demands on our claims specialists.
The centers ability to handle loss reports, claim set-up, payments and statutory
reporting allows the specialists to focus immediate contact and a timely and effective
resolution process. A centralized call center is also located in the claim processing
center to provide 24 hour coverage for customer requests and inquiries.

In
2002, The PMA Insurance Group expanded its internet-based functionality to include
claim reporting capability. Currently, 20% of new losses are reported through PMA
Cinch®, our internet risk management information technology.

RUN-OFF OPERATIONS

Run-off
Operations, formerly known as Caliber One, comprise the assets and liabilities relating to
the inforce policies of our former excess and surplus lines business written prior to
January 2, 2003. Our excess and surplus lines business focused on excess and surplus lines
of insurance for low frequency/high severity risks that were declined by the standard
market. The Run-off Operations wrote business throughout the United States, generally
through surplus lines brokers.

Our
Run-off Operations analyzes and investigates reported claims, establishes individual claim
reserves, pays claims and monitors the progress and ultimate outcome of the excess and
surplus lines claims. In addition, they determine that subrogation, salvage and other cost
recovery opportunities have been adequately explored.

All
notices of claims are reported to the Run-off Operations centralized claims
department. Claims services are delivered to customers through employees and independent
adjusters under the direction of internal claims staff. The claims staff actively directs
and manages the activities of all outside attorneys utilized in the claims process.

See
Note 14 to the Financial Statements in our Annual Report for additional information regarding the Run-Off Operations.

12

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REINSURANCE AND
RETROCESSIONAL PROTECTION

We
follow the customary insurance practice of reinsuring with other insurance companies a
portion of the risks under the policies written by our 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 our 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. Our reinsurance is on a per risk and per occurrence
basis. Per risk reinsurance offers reinsurance protection for each risk involved in each
occurrence. Per occurrence reinsurance is a form of 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.

At
December 31, 2002, our reinsurance and retrocessional protection for major lines of
business that we write were as follows:

|                             |  | Retention |   | Limits (1)   |    
|---------------------------- |  | --------- | - | ------------ | ---
|                            
|                            
|                             |  |           |   |              |    
|PMA Re                       |  |           |   |              |    
|Per Occurrence:              |  |          
|Casualty lines               |  |           | $ | 5.0 million  |    
|Property lines               |  |           | $ | 10.0 million |    
|Per Risk:                    |  |          
|Property lines               |  |           | $ | 1.0 million  |    
|Casualty lines               |  |           | $ | 1.5 million  |    
|                            
|The PMA Insurance Group      |  |          
|Per Occurrence:              |  |          
|Workers' compensation        |  |           | $ | 250,000      | (2)
|Per Risk:                    |  |          
|Property lines(3)            |  |           | $ | 500,000      |    
|Auto physical damage         |  |           | $ | 500,000      |    
|Other casualty lines(4), (5) |  |           | $ | 500,000      |    
|                            
|                            

|(1) |  | Represents
the amount of loss protection above our level of loss retention.
|--- |  | ---------------------------------------------------------------------------

|(2) |  | The
PMA Insurance Group retains the first $3 million of losses.
|--- |  | ---------------------------------------------------------------

|(3) |  | This
coverage also provides protection of $41.5 million per occurrence over the combined net
retention of $500,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(4) |  | This
coverage also provides protection of $59.5 million per occurrence over the combined net
retention of $500,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(5) |  | Effective
January 1, 2003, the retention and limits were changed to $1.5 million and $3.5 million,
respectively.  The    coverage also provides protection of $48.5 million over the
combined net retention of $1.5 million.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
addition to the reinsurance and retrocessional protections shown in the table above, for
2002 we had excess of loss retrocessional protection that allows us to cede losses up to a
limit of $150 million once our loss and LAE ratio exceeds a predetermined level. This
policy includes protection for losses caused by terrorist activities. In January 2002, we
supplemented our reinsurance and retrocessional programs with coverage for adverse loss
development on certain lines of business written prior to 2002. The program provides
coverage of up to $125 million in losses in return for $55 million, which we funded in
2002. Cessions of losses under these contracts may require us to cede additional premiums
ranging from 40% to 50% of ceded losses depending on the level of such losses.

PMA
Re and The PMA Insurance Group do not write a significant amount of natural catastrophe
exposed business in their traditional underwriting units. Excluding PMA Res Finite
Risk and Financial Products writings, less than 1% of gross written premiums is for
property catastrophe coverage. The Finite Risk and Financial Products unit wrote $35
million in premiums for property catastrophe coverage in 2002. However, these contracts
generally provide for additional premiums payable to PMA Re to mitigate the severity of the catastrophic loss.
We actively manage our exposure to catastrophes through our underwriting
process, where we generally monitor 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, we

13

---

manage our net retention in each
exposure. PMA Res property per occurrence reinsurance provides catastrophe
protection of $40.0 million in excess of $10.0 million on its traditional property book
and $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 $20.0
million of Traditional and/or Finite Risk and Financial Products occurrence losses under
certain industry loss scenarios. Certain of these contracts require that we cede
additional premiums of up to 20% of ceded losses depending on the level of such losses.
The PMA Insurance Group maintains catastrophe reinsurance protection of 95% of $18.0
million excess of $2.0 million.

In
2002 and 2000, our loss and LAE ratios were not significantly impacted by catastrophes. In
2001, our loss and LAE ratios were impacted by the attack on the World Trade Center as
discussed on page 26 of the Annual Report. Although we believe that we have adequate
reinsurance to protect against the estimated probable maximum gross loss from a
catastrophe, an especially severe catastrophe or series of catastrophes could exceed our
reinsurance and/or retrocessional protection and may have a material adverse impact on our
financial condition, results of operations and liquidity.

With
respect to the reinsurance and retrocessional protection shown in the table on page 13,
our treaties that renewed effective January 1, 2003 do not cover us for losses sustained
from terrorist activities, except for PMA Res property per occurrence treaty.
Further, for treaties that renew later in 2003 it is possible that losses due to terrorist
attacks may be excluded. Therefore, future terrorist attacks may result in losses that
have a material adverse effect on our financial condition, results of operations and
liquidity.

The
collectibility of reinsurance is largely a function of the solvency of reinsurers. At
December 31, 2002, the Company had reinsurance receivables due from the following
unaffiliated reinsurers in excess of 5% of shareholders equity:

|(dollar amounts in thousands)                  |  | ReinsuranceReceivables |  | Collateral | 
|---------------------------------------------- |  | ---------------------- |  | ---------- | 
|                                               | 
|The London Reinsurance Group and Affiliates(1) |  | $421,415               |  | $351,471   | 
|St. Paul and Affiliates(2)                     |  | 157,196                |  | 153,211    | 
|Underwriters Re                                |  | 101,500                |  | 101,500    | 
|Houston Casualty                               |  | 97,050                 |  | --         | 
|PXRE                                           |  | 53,520                 |  | 37,681     | 
|PartnerRe                                      |  | 39,781                 |  | --         | 
|Folksamerica Re                                |  | 36,157                 |  | --         | 
|Berkley Insurance Company                      |  | 35,985                 |  | --         | 
|                                               | 
|                                               | 

|(1) |  | Includes
Trabaja Reinsurance Company ($369.7 million), London Life & General Reinsurance Company
($50.7 million) and London    Life & Casualty Reinsurance Corporation ($1.0 million).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
United States Fidelity & Guaranty Insurance Company ($106.4 million)  and Mountain Ridge
Insurance Company ($50.8 million).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

We
perform credit reviews of our reinsurers focusing on, among other things, financial
capacity, stability, trends and commitment to the reinsurance business. Prospective and
existing reinsurers failing to meet our standards are excluded from our reinsurance
programs. In addition, we require 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. At December
31, 2002 and 2001, our reinsurance receivables were supported by $666.9 million and $626.9
million of collateral. Of the uncollateralized reinsurance receivables as of December 31,
2002, approximately 91% were recoverable from reinsurers rated A- or better by
A.M. Best (A++   5%, A+  37%, A 
35%, and A-  14%). We believe that the amounts receivable from
reinsurers are fully collectible and that the valuation allowance is
adequate to cover any disputes about amounts owed by reinsurers to us. In the last three
years combined, we have written off approximately $4 million of reinsurance receivables,
substantially all from the Run-off Operations in 2002. The timing and collectibility of
reinsurance receivables have not had, and are not expected to have, a material adverse
effect on our liquidity.

Our
largest reinsurance receivable is due from Trabaja Reinsurance Company (Trabaja). Reinsurance
receivables from Trabaja were $369.7 million at December 31, 2002, of which 81% were
collateralized. Trabaja, formerly PMA Insurance Cayman, Ltd. (PMA Cayman), is
a wholly owned subsidiary of London Life and Casualty Reinsurance

14

---

Corporation
(London Reinsurance Group). We sold PMA Cayman to London Reinsurance
Group for $1.8 million, and transferred approximately $230 million of cash and invested
assets as well as loss reserves to the buyer in 1998. Under
the terms of the sale of PMA Cayman to London Reinsurance Group in 1998, we have
agreed to indemnify London Reinsurance Group up to a maximum of $15 million if the actual
claim payments in the aggregate exceed the estimated payments upon which the loss reserves
of PMA Cayman were established. If the actual claim payments in the aggregate are less
than the estimated payments upon which the loss reserves have been established, then we
 will participate in such favorable loss reserve development.

The
total equity of Trabaja as of December 31, 2002 and 2001 is $1.3 million and $679,000,
respectively. We believe that the assets of Trabaja of $272.5 million at December 31,
2002, are sufficient to satisfy Trabajas reinsurance obligations to us. All
of Trabajas reinsurance transactions are conducted with us.

In
January 2002, we supplemented our in-force reinsurance programs for PMA Re and The PMA
Insurance Group with retroactive reinsurance contracts with Trabaja that provide coverage
for adverse loss development on certain lines of business written prior to
2002. These contracts provide coverage of up to $125 million in losses in return for $55
million of funding, which included $50 million of assets and $5 million in ceded premiums.
Under the terms of the contracts, PMA Res losses and LAE ceded to Trabaja for
accident years 1996 through 2001 are recoverable as they are incurred by us. In 2002, PMA
Re recognized a benefit of $25 million for losses ceded to these reinsurance contracts.
Any future cession of losses under these contracts may require us to cede additional
premiums ranging from 40% to 50% of ceded losses depending on the level of such losses.

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, 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. In general, liabilities for reinsurers become
known more slowly than for primary insurers and are generally subject to more unforeseen
development and uncertainty. Estimating our 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, legal and legislative
developments, judicial theories of liability, regulatory trends on benefit levels for both medical and indemnity payments,
changes in social attitudes and economic conditions, the estimates are revised accordingly. If our ultimate losses,
net of reinsurance, prove to differ substantially from the amounts recorded at December
31, 2002, the related adjustments could have a material adverse effect on our 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 2002. 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, 2002;
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 1999
relating to losses incurred in 1992 would be included in the cumulative deficiency amount
for each of the years 1992 through 1998. However, the deficiency would be reflected in
operating results in 1999 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)

|                                           |  | 1992 |   | 1993    |         | 1994 |         | 1995    |   | 1996    |         | 1997 |         | 1998    |   | 1999    |         | 2000 |         | 2001    |   | 2002    |        
|------------------------------------------ |  | ---- | - | ------- | ------- | ---- | ------- | ------- | - | ------- | ------- | ---- | ------- | ------- | - | ------- | ------- | ---- | ------- | ------- | - | ------- | -------
|                                          
|                                           |  |      |   |         |         |      |         |         |   |         |         |      |         |         |   |         |         |      |         |         |   |         |        
|I. Initial estimated liability for         |  |      |   |         |         |      |         |         |   |         |         |      |         |         |   |         |         |      |         |         |   |         |        
|unpaid losses and LAE,                     |  |     
|net of reinsurance                         |  |      | $ | 1,941.0 |         | $    | 1,932.0 |         | $ | 1,855.9 |         | $    | 1,808.5 |         | $ | 1,834.5 |         | $    | 1,670.9 |         | $ | 1,347.2 |        
|                                           | 
|                                           | 
|II. Amount of reserve paid,                |  |     
|net of reinsurance through:                |  |     
|                                           | 
|- one year later                           |  |      | $ | 442.4   |         | $    | 407.8   |         | $ | 398.9   |         | $    | 437.6   |         | $ | 398.8   |         | $    | 360.7   |         | $ | 354.6   |        
|- two years later                          |  |      |   | 779.1   |         |      | 746.1   |         |   | 763.7   |         |      | 780.0   |         |   | 669.6   |         |      | 646.0   |         |   | 717.7   |        
|- three years later                        |  |      |   | 1,066.8 |         |      | 1,055.9 |         |   | 1,072.9 |         |      | 999.0   |         |   | 894.8   |         |      | 924.6   |         |   | 880.3   |        
|- four years later                         |  |      |   | 1,329.2 |         |      | 1,330.6 |         |   | 1,252.2 |         |      | 1,183.5 |         |   | 1,118.2 |         |      | 1,013.0 |         |   | 1,125.8 |        
|- five years later                         |  |      |   | 1,573.8 |         |      | 1,472.7 |         |   | 1,405.9 |         |      | 1,369.7 |         |   | 1,172.3 |         |      | 1,196.9 |        
|- six years later                          |  |      |   | 1,688.7 |         |      | 1,605.4 |         |   | 1,573.2 |         |      | 1,407.9 |         |   | 1,325.2 |        
|- seven years later                        |  |      |   | 1,805.4 |         |      | 1,761.7 |         |   | 1,595.8 |         |      | 1,542.2 |        
|- eight years later                        |  |      |   | 1,953.8 |         |      | 1,779.3 |         |   | 1,722.5 |        
|- nine years later                         |  |      |   | 1,967.6 |         |      | 1,897.7 |        
|- ten years later                          |  |      |   | 2,075.7 |        
|                                           | 
|III. Reestimated liability,                |  |     
|net of reinsurance, as of                  |  |     
|                                           | 
|- one year later                           |  |      | $ | 1,998.1 |         | $    | 1,932.3 |         | $ | 1,907.4 |         | $    | 1,964.6 |         | $ | 1,748.5 |         | $    | 1,624.3 |         | $ | 1,314.7 |        
|- two years later                          |  |      |   | 2,006.5 |         |      | 1,982.5 |         |   | 2,073.4 |         |      | 1,866.8 |         |   | 1,700.5 |         |      | 1,557.6 |         |   | 1,299.7 |        
|- three years later                        |  |      |   | 2,060.6 |         |      | 2,163.9 |         |   | 1,986.7 |         |      | 1,819.2 |         |   | 1,611.1 |         |      | 1,495.3 |         |   | 1,288.9 |        
|- four years later                         |  |      |   | 2,258.2 |         |      | 2,078.3 |         |   | 1,942.0 |         |      | 1,742.1 |         |   | 1,542.3 |         |      | 1,480.8 |         |   | 1,326.3 |        
|- five years later                         |  |      |   | 2,170.3 |         |      | 2,030.5 |         |   | 1,880.3 |         |      | 1,672.6 |         |   | 1,524.3 |         |      | 1,482.9 |        
|- six years later                          |  |      |   | 2,126.6 |         |      | 1,973.2 |         |   | 1,822.1 |         |      | 1,658.0 |         |   | 1,519.0 |        
|- seven years later                        |  |      |   | 2,079.9 |         |      | 1,922.1 |         |   | 1,807.6 |         |      | 1,655.3 |        
|- eight years later                        |  |      |   | 2,036.5 |         |      | 1,910.9 |         |   | 1,807.3 |        
|- nine years later                         |  |      |   | 2,027.0 |         |      | 1,912.7 |        
|- ten years later                          |  |      |   | 2,030.2 |        
|                                           | 
|IV. Cumulative deficiency                  |  |     
|(redundancy):                              |  |      | $ | 89.2    |         | $    | (19.3   | )       | $ | (48.6   | )       | $    | (153.2  | )       | $ | (315.5  | )       | $    | (188.0  | )       | $ | (20.9   | )      
|                                           | 
|                                           | 
|V. Net liability                           |  |      |   | $       | 1,932.0 |      | $       | 1,855.9 |   | $       | 1,808.5 |      | $       | 1,834.5 |   | $       | 1,670.9 |      | $       | 1,347.2 |   | $       | 1,284.4
|Reinsurance recoverables                   |  |      |   |         | 218.7   |      |         | 247.9   |   |         | 261.5   |      |         | 256.6   |   |         | 332.3   |      |         | 593.7   |   |         | 648.2  
|                                           | 
|Gross liability                            |  |      |   | $       | 2,150.7 |      | $       | 2,103.8 |   | $       | 2,070.0 |      | $       | 2,091.1 |   | $       | 2,003.2 |      | $       | 1,940.9 |   | $       | 1,932.6
|                                           | 
|                                           | 
|VI. Re-estimated net liability             |  |      |   | $       | 1,912.7 |      | $       | 1,807.3 |   | $       | 1,655.3 |      | $       | 1,519.0 |   | $       | 1,482.9 |      | $       | 1,326.3 |   | $       | 1,336.6
|Re-estimated reinsurance      recoverables |  |      |   |         | 220.7   |      |         | 264.6   |   |         | 295.6   |      |         | 279.6   |   |         | 344.8   |      |         | 627.2   |   |         | 879.1  
|                                           | 
|Re-estimated gross liability               |  |      |   | $       | 2,133.4 |      | $       | 2,071.9 |   | $       | 1,950.9 |      | $       | 1,798.6 |   | $       | 1,827.7 |      | $       | 1,953.5 |   | $       | 2,215.7
|                                           | 

17

---

Unpaid
losses and LAE on a GAAP basis were $2,449.9 million and $2,324.4 million at December 31,
2002 and 2001, respectively. Unpaid losses and LAE on a statutory basis were $970.9
million and $1,039.8 million at December 31, 2002 and 2001, 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 for statutory purposes.

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

|(dollar amounts in thousands)     | 2002 |  | 2001 |         | 2000 |  
|--------------------------------- | ---- |  | ---- | ------- | ---- | -
|                                 
|                                 
|                                  |      |  |      |         |      |  
|PMA Re                            |      |  | $    | 106,866 |      | $
|The PMA Insurance Group           |      |  |      | 1,082   |      |  
|Run-off Operations                |      |  |      | 51,800  |      |  
|                                  |      |  |      |         |      |  
|Total net unfavorable development |      |  | $    | 159,748 |      | $
|                                  |      |  |      |         |      |  
|                                 
|                                 

During
2002, PMA Re recorded unfavorable prior year development of $106.9 million. In the fourth
quarter, PMA Res actuarial department conducted its routine year-end reserve study
to determine the impact of any emerging data on anticipated loss development trends and
recorded unpaid losses and LAE reserves. During the fourth quarter, our actuaries noticed a
higher than expected increase in the level of
reported losses by our ceding companies. 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 and LAE reserves for prior accident years needed to be increased by
approximately $86 million in the fourth quarter, primarily for excess of loss and pro rata
general liability occurrence contracts ($54 million) and, to a lesser extent, excess of
loss general liability claims-made contracts ($13 million), from accident years 1998, 1999
and 2000. Under existing retrocessional contracts, approximately $22 million of the higher
than expected losses were ceded to PMA Res retrocessionaires, reducing the impact on
net losses and LAE to approximately $64 million.

The
remaining $43 million of unfavorable prior year development at PMA Re in 2002 primarily
reflects the recording of losses and LAE on additional earned premium recorded during 2002
as a result of a change in our estimate of ultimate premiums written from prior years.
Because premiums from ceding companies are typically reported on a delayed basis, we
monitor and update as appropriate the estimated ultimate premiums written. Our periodic
reviews of estimated ultimate premiums written, which compared actual reported premiums
to originally estimated premiums based on ceding company estimates, indicated that
premiums written in recent years, primarily in the Traditional- and Specialty-Treaty units
for 2001 and 2000, were higher than originally estimated. As a result, PMA Re recorded
additional net premiums earned during 2002, including $39.9 million in the second quarter,
which were completely offset by losses and LAE and acquisition expenses.

In
2001, PMA Re recorded favorable prior year development of $1.6 million, reflecting
re-estimated loss trends for prior accident years that were lower than previous
expectations and concentrated in casualty lines of business.

In
2000, PMA Re recorded unfavorable prior year development of $9.7 million, mainly
reflecting the recognition of higher than expected losses and LAE primarily from more
recent accident years, partially offset by lower than expected losses and LAE for accident
years 1996 and prior. The unfavorable development primarily related to 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, the Company increased its estimate of gross loss and LAE reserves by $83
million primarily reflecting higher than expected losses mainly in the Companys pro
rata business. The concentration of estimated adverse loss development related primarily
to general liability treaties written on a claims made basis covering losses in 1998 and
1999, property treaties covering 1999 losses and, to a lesser extent, commercial
automobile liability treaties covering losses in 1998 and 1999. In addition, the third
quarter reserve increase reflects unfavorable prior year loss reserve development in the
excess of loss general liability line for accident years 1998 and 1999. Under existing
retrocessional contracts, $60 million of gross losses were ceded to PMA Res
retrocessionaires, reducing the impact on net incurred losses and LAE to $23 million
during the third quarter. This net unfavorable prior year development was partially offset
by favorable loss development for accident years prior to 1997.

18

---

The
PMA Insurance Group experienced unfavorable prior year development of $1.1 million and
$2.9 million in 2002 and 2001, respectively, and favorable prior year development of $6.1
million in 2000. The unfavorable prior year development in 2002 and 2001 reflects higher
than expected claims handling costs. The favorable prior year development in 2000
primarily 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 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.

During
2002, the Run-off Operations recorded unfavorable prior year development of approximately
$52 million. During 2002, company actuaries conducted reserve reviews 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 range of
actuarially determined loss reserve estimates was developed by accident year for each
major line of business written by Caliber One. Managements selection of the ultimate
losses resulting from their reviews indicated that net loss reserves for prior accident
years, mainly 1999 and 2000, needed to be increased by approximately $52 million, net of
$12 million of ceded losses. This unfavorable prior year development reflects the impact
of higher than expected claim severity and, to a lesser extent, frequency, that emerged in
2002 on casualty lines of business, primarily professional liability policies for the
nursing homes class of business; general liability, including policies covering
contractors liability for construction defects; and commercial automobile, mainly
for accident years 1999 and 2000.

As
a result of its reserve reviews conducted during 2001, the Run-off Operations revised its
estimate of ultimate expected claims activity and, accordingly, increased its estimate of
ultimate losses, substantially all for accident years 1999 and 2000. During 2001, the
Run-off Operations recorded unfavorable prior year development of $22.2 million, which is
net of losses of approximately $26 million ceded to third party reinsurers under existing
reinsurance contracts. These losses primarily reflect higher than expected claim frequency
and severity that emerged in 2001 on certain casualty lines of business, primarily
professional liability policies for the nursing homes class of business, and, to a lesser
extent, property lines of business.

During
2000, the Run-off Operations 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 (nursing homes), commercial automobile, general
liability and property lines of business for coverage of 1999 exposures. During 2000, the
Run-off Operations 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.

At
December 31, 2002 and 2001, our GAAP loss reserves were stated net of discount of $103.8
million and $113.7 million, respectively, primarily related to workers compensation
business. Pre-tax income (loss) is negatively impacted by accretion of discount on prior
year reserves and favorably impacted by recording of discount for current year reserves.
The net of these amounts is referred to as net discount accretion. Net discount accretion
benefited pre-tax results by $6.8 million and $11.5 million in 2002 and 2001,
respectively.

At
December 31, 2002, our loss reserves were stated net of $41.1 million of salvage and
subrogation. Our 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 us. 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.

19

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Asbestos and
Environmental Reserves

At
December 31, 2002, 2001 and 2000, gross reserves for asbestos-related losses were $42.1
million, $59.9 million and $49.2 million, respectively ($25.8 million, $28.6 million and
$32.0 million, net of reinsurance, respectively). Of the net asbestos reserves,
approximately $22.9 million, $26.6 million, and $27.2 million related to IBNR losses at
December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, 2001 and 2000, gross
reserves for environmental-related losses were $18.2 million, $29.6 million and $29.5
million, respectively ($14.3 million, $16.0 million and $18.0 million, net of reinsurance,
respectively). Of the net environmental reserves, approximately $7.9 million, $9.2 million
and $9.2 million related to IBNR losses at December 31, 2002, 2001 and 2000, respectively.
All incurred asbestos and environmental losses were for accident years 1986 and prior.

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 and regulations. We believe that
our 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 and damages among
participating insurers, and proof of coverage, our ultimate exposure for these claims may
vary significantly from the amounts currently recorded, resulting in a potential future
adjustment that could be material to our financial condition and results of operations.

INVESTMENTS

An
important component of our financial results is the return on invested assets. Our
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 our business
objectives, (iv) provide portfolio flexibility for changing business and investment
climates and (v) provide liquidity to meet operating objectives. Our investment strategy
includes guidelines for asset quality standards, asset allocations among investment types
and issuers, and other relevant criteria for our 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 our board of directors is responsible for our investment
objectives. We retain outside investment advisers to provide investment advice and
guidance, supervise our portfolio and arrange securities transactions through brokers and
dealers. Investments by the Pooled Companies and PMA Capital Insurance Company must comply
with the insurance laws and regulations of the Commonwealth of Pennsylvania.

We
do not currently own any derivative financial instruments. We do not use derivatives for
speculative purposes. Our investment portfolio does not contain any significant
concentrations in single issuers other than U.S. Treasury and agency obligations. In
addition, we do not have a significant concentration of investments in any single industry
segment other than finance companies, which comprise 15% of invested assets at December
31, 2002. Included in this industry segment are financial institutions, including
financing subsidiaries of automotive manufacturers.

For
additional information on our investments, including carrying values by category, quality
ratings and net investment income, see pages 39 to 43 of the MD&A as well as Notes 2B
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 competes with certain alternative market arrangements,
such as captive insurers, risk-sharing pools and associations, risk retention groups, and
self-insurance programs. Many of our competitors are larger and have greater financial
resources than us.

The
main factors upon which entities in our markets compete are price, service, product
capabilities and financial security. PMA Re and The PMA Insurance Group 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 our rate of return targets. The soft
pricing environment which existed until the second half of 2000 in most of our business
has made competing solely on the basis of price increasingly difficult. PMA Re and The PMA
Insurance Group 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, we maintain 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 our products and
services. We periodically participate in surveys of intermediaries and clients to gain an
understanding of the perceptions of our service as compared to our competitors.

We
attempt to design products that meet the needs of clients in our 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 five years include accident reinsurance and
finite risk and financial products 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 continues to benefit 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. We continually evaluate new product
opportunities for PMA Re and The PMA Insurance Group.

Industry Trends

During
the 1990s and into 2000, the property and casualty insurance and reinsurance industry was
characterized by excess capacity, which resulted in highly competitive market conditions
evidenced by declining premium rates and, in many cases, policy terms less favorable to
the insurers. As a result of this prolonged soft market, beginning in 2000, capacity in
the property and casualty market began to contract as companies withdrew from the business
or ceased operations. In response to market conditions, many insurance and reinsurance
companies, including our companies, independently sought and achieved significant price
increases and improved policy terms commencing in the second half of 2000. In 2001, we
realized an increase of approximately 30% in premiums on renewal business at PMA Re and
achieved average (weighted by premium volume) price increases at The PMA Insurance Group
in excess of 15%. These increases continued in 2002 as follows:

|PMA Re                   |  |  |  | 35 | %
|------------------------ |  |  |  | -- | -
|The PMA Insurance Group: |  | 
|Workers' Compensation    |  |  |  | 17 | %
|Commercial Lines         |  |  |  | 28 | %

In
addition to these increases, we have achieved generally improved terms in certain of our
insurance and reinsurance policies. For example, we have implemented broader coverage
exclusions, lower occurrence limits, lower ceding commissions, accelerated payment terms
and higher retentions or deductibles for insureds. These improvements in terms and
conditions should further enhance the profitability of our business.

21

---

Despite
current market conditions, there can be no assurance that prices and premiums will
increase at a level consistent with these expectations. Even if the industry in general
experiences those types of increases, we cannot assure you that we will see similar
increases in one or more of our businesses or that we will achieve price increases
consistent with 2002. Further, any benefit that we derive from such price increases may be
partially or completely offset by increases in ceded reinsurance premiums and unexpected
increases in our loss reserves.

Ratings

Nationally recognized ratings
agencies rate the financial strength of our principal insurance subsidiaries and the debt
of PMA Capital Corporation. Ratings are not recommendations to buy our securities.

Rating
agencies rate insurance companies based on financial strength and the ability to pay
claims, factors more relevant to policyholders than investors. We believe that the ratings
assigned by nationally recognized, independent rating agencies, particularly A.M. Best,
are material to our operations. A.M. Best, Standard & Poors and Moodys
Investor Services currently rate our principal insurance subsidiaries.

The
rating scales of A.M. Best, S&P, and Moodys are characterized as follows:

| |  |  | A.M.
Best--A++ to S ("Superior" to "Suspended")
| | - |  | -----------------------------------------------

| |  |  | S&P--AAA to
R ("Extremely Strong" to "Regulatory Supervision")
| | - |  | --------------------------------------------------------------

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

As
of March 19, 2003, our principal insurance subsidiaries had the following financial
strength ratings:

|                                        | A. M. Best                   | S&P                       | Moody's                      
|--------------------------------------- | ---------------------------- | ------------------------- | -----------------------------
|                                        |                              |                           |                              
|PMA Capital Insurance   Company (1) (2) | A- ("Excellent" - 4th of 16) | A- ("Strong" - 7th of 21) | Baa1 ("Adequate" - 8th of 21)
|Pooled Companies(2) (3)                 | A- ("Excellent" - 4th of 16) | A- ("Strong" - 7th of 21) | Baa1 ("Adequate" - 8th of 21)
|                                       

|(1) |  | PMA
Re writes its reinsurance business through PMA Capital Insurance Company.
|--- |  | -----------------------------------------------------------------------------

|(2) |  | The
ratings of PMA Capital Insurance Company and The Pooled Companies' have a stable outlook
from A.M. Best and a negative      outlook from Moody's.  S&P does not provide an outlook
in connection with insurance company financial strength ratings.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The
Pooled Companies (Pennsylvania Manufacturers' Association Insurance Company, Pennsylvania
Manufacturers Indemnity      Company and Manufacturers Alliance Insurance Company)
represent the domestic subsidiary insurance companies through which The PMA
     Insurance Group writes its insurance business, which share results through an
intercompany pooling agreement.  The Pooled      Companies are rated as one entity.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A
downgrade in these ratings could affect our competitive position in the insurance industry
and make it more difficult for us to market our products. A significant downgrade could
result in a material loss of business as policyholders move to other companies with higher
financial strength ratings.

Debt
ratings are assessments of the likelihood that the we will make timely scheduled payments
of principal and interest when due. The principal agencies that rate PMA Capitals
senior debt characterize their rating scales as follows:

| |  |  | S&P--AAA to
D ("Extremely Strong" to "Default")
| | - |  | -----------------------------------------------

| |  |  | Moody's--Aaa
to C ("Best" to "Lowest")
| | - |  | --------------------------------------

As
of March 19, 2003, PMA Capitals senior debt was rated BBB- (Adequate
10th of 22) by S&P, which is the lowest investment-grade debt rating of S&P,
and Ba1 (Moderate 11th of 21) by Moodys, which is Moodys
highest noninvestment-grade debt rating. A downgrade of our debt ratings could affect our
ability to raise additional debt with terms and conditions similar to our current debt,
and accordingly, likely increase our cost of capital. In addition, a downgrade of these
ratings could make it more difficult to raise capital to refinance any maturing debt
obligations, to support business growth at our insurance subsidiaries and to maintain or
improve the current financial strength ratings of our principal insurance subsidiaries
described above.

These
ratings are subject to revision or withdrawal at any time by the rating agencies, and
therefore, no assurance can be given that we or our principal insurance subsidiaries can
maintain these ratings. Each rating should be evaluated independently of any other rating.

22

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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. One or
more of the Pooled Companies are licensed to transact insurance business in, and are
subject to regulation and supervision by, 52 jurisdictions (including Puerto Rico and the
District of Columbia). Our 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. 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.

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 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. On November 26,
2002, President Bush signed into law the Terrorism Risk Insurance Act of 2002
(TRIA). TRIA provides federal reinsurance protection for property and casualty
losses in the United States or to United States aircraft or vessels arising from certified
terrorist acts through the end of 2005. For terrorist acts to be covered under TRIA, they
must be certified as such by the Secretary of the Treasury, Secretary of State and
Attorney General and must be committed by individuals acting on behalf of a foreign person
or interest. TRIA contains a make available provision, which requires insurers
subject to the Act, to offer coverage for acts of terrorism that does not differ
materially from the terms (other than price), amounts and other coverage limitations
offered to the policyholder for losses from events other than acts of terrorism. The
make available provision permits exclusions for certain types of losses, if a
state permits exclusions for such losses. TRIA requires insurers to retain losses based on
a percentage of their commercial lines direct earned premiums for the prior year equal to
a 7% deductible for 2003, 10% for 2004 and 15% for 2005. The federal government covers 90%
of the losses above the deductible, while a company retains 10% of the losses. TRIA
contains an annual limit of $100 billion of industry-wide covered losses. TRIA applies to
commercial lines of property and casualty insurance, including workers compensation,
but does not apply to reinsurance. The PMA Insurance Group would have a deductible of
approximately $35 million in 2003.

Because
TRIA does not apply to assumed reinsurance business, PMA Re is currently attempting to
exclude coverage of losses due to terrorist activity in our assumed reinsurance contracts
where underwriters determine that there is a significant risk of loss from terrorist
activities. However, because PMA Res clients may not accept a full terrorism
exclusion in connection with business that it may still desire to write without an
exclusion, some or many of our reinsurance contracts may not include a terrorism exclusion
or only include a limited exclusion. PMA Re has refined its underwriting procedures to
take into account terrorism risk.

For
the commercial insurance business other than workers compensation offered by The PMA
Insurance Group, in general, TRIA voided all existing terrorism exclusions. Workers
compensation insurers were not permitted to exclude terrorism from coverage prior to the
enactment of TRIA, and continue to be subject to this prohibition. When underwriting
existing and new commercial insurance business, The PMA Insurance Group considers the
added potential risk of loss due to terrorist activity, and this may lead it to decline to
write or non-renew certain business. Appropriate rates may be charged for terrorism
coverage, and as of February 28, 2003, The PMA Insurance Group had adopted premium charges
for workers compensation insurance in all states except California, Massachusetts
and Texas, where filings were still pending. The PMA Insurance Group has refined its
underwriting procedures to take into account terrorism risk.

In
1999, Gramm-Leach-Bliley Financial Modernization Act was signed into law. This Act removed
many of the restrictions on affiliations among firms in different financial services
businesses, notably banking, securities and insurance. The Act also contained provisions
to protect the privacy of certain information on individuals held by insurance companies
and financial institutions. Several governmental agencies and insurance departments have
enacted or proposed

23

---

regulations to implement these privacy provisions. To date, the Act
has not had a material effect on us, although future privacy regulations could result in
additional costs to us. Further, the Act may result in additional competition in one or
more of the markets in which we sell our products and services.

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

State
insurance departments in jurisdictions in which our 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. Both PMA Capital Insurance
Company and the Pooled Companies are under exam as of December 31, 2002. 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.

Insurance Holding
Company Regulation

The
Company and its insurance subsidiaries are subject to regulation pursuant to the insurance
holding company laws of Pennsylvania. Pennsylvanias 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 insurance
department authorities, to file with it 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 the Pennsylvania 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 law, no person may acquire, directly or indirectly, a controlling interest in
our capital stock unless such person, corporation or other entity has obtained prior
approval from the Commissioner for such acquisition of control. Pursuant to the
Pennsylvania 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 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 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 our 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 to us by our insurance subsidiaries.

Restrictions on Subsidiaries'
Dividends and Other Payments

We
are a holding company that transacts substantially all of our business directly and
indirectly through subsidiaries. Our primary assets are the stock of our operating
subsidiaries. Our ability to meet our obligations on our outstanding debt and to pay
dividends and our general and administrative expenses depends on the surplus and earnings
of our subsidiaries and the ability of our subsidiaries to pay dividends or to advance or
repay funds to us.

24

---

Our
domestic insurance subsidiaries ability to pay dividends is regulated under the
insurance laws and regulations of Pennsylvania. In addition to the regulatory
restrictions, our existing revolving credit and letter of credit facilities limit the
amount of dividends that our subsidiaries may pay to us. As a result, we may not be able
to receive dividends from these subsidiaries at times and in amounts necessary to meet our
obligations or to pay dividends on our Class A Common stock.

Under
Pennsylvania laws and regulations, our insurance subsidiaries 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.

All
of our domestic insurance entities are owned by PMA Capital Insurance Company. Only PMA
Capital Insurance Company, a Pennsylvania domiciled company, may pay dividends directly to
us. During 2002, we received $28 million in dividends from PMA Capital Insurance Company.
As of December 31, 2002, approximately $58 million of dividends are available to be paid
to us without prior approval of the Pennsylvania Insurance Commissioner during 2003. As of
December 31, 2002, The PMA Insurance Groups Pooled Companies can pay up to $24.6
million in dividends to PMA Capital Insurance Company during 2003.

In
the event that PMA Capital Insurance Companys ability to pay dividends or make other
payments to us in the future is reduced or eliminated, our ability to pay dividends to our
shareholders and meet our 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. In the event that the Pennsylvania Insurance Commissioner
determines that the policyholders surplus of one subsidiary is inadequate, the
Commissioner could use his or her broad discretionary authority to seek to require us to
apply payments received from another subsidiary for the benefit of that insurance
subsidiary.

In
addition to regulatory restrictions on dividends, our Credit Facility and Letter of Credit
Facility also impose restrictions on the ability of our insurance subsidiaries to pay
dividends. Under the most restrictive debt covenant of the facilities, PMA Capital would
be able to pay approximately $25 million in dividends in 2003.

Risk-Based Capital

The
National Association of Insurance Commissioners has adopted risk-based capital
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 (known as the 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 insurer 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 insurer must 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

25

---

At
December 31, 2002, the RBC ratios of the Pooled Companies ranged from 432% to 744% and PMA
Capital Insurance Companys RBC ratio was 304%.

We
believe that we will be able to maintain the RBC ratios of our insurance subsidiaries in
excess of 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 our control,
including but not limited to changes in the regulatory environment, economic conditions
and competitive conditions in the jurisdictions in which we 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 (known as 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 2002, each of the Pooled Companies reported an unusual value in one ratio,
relating to reserve development due to the paydown of loss reserves.

In
2002, PMA Capital Insurance Company reported three unusual values, relating to: (1) the
change in net premiums written, (2) liabilities to liquid assets ratio and (3) estimated
current reserve deficiency to policyholder surplus. The unusual value relating to the
change in net premiums written is attributable to price increases across all of our
business segments, an intercompany quota share reinsurance treaty with a subsidiary,
 which commenced in 2001 and was terminated in 2002, and higher ceded premiums in 2001 due to the
attack on the World Trade Center. The unusual value relating to the liabilities to liquid
assets ratio is due largely to additional investments in PMA Capital Insurance
Companys insurance subsidiaries. These investments are
not considered liquid assets, and therefore caused the ratio to increase. The unusual
value relating to the estimated current reserve deficiency to policyholder surplus is due
primarily to the unfavorable prior year development in 2002.

EMPLOYEES

As
of February 28, 2003, we had approximately 1,250 full-time employees. None of our
employees are represented by a labor union and we are not a party to any collective
bargaining agreements. We consider our employee relations to be good.

AVAILABLE INFORMATION

The
address for our internet website is www.pmacapital.com. We make available, free of charge,
through our internet website, our annual report on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after we electronically file such material with, or furnish
it to, the SEC.

26

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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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                    
|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.                                                                                                                                                                                                                                                                                                                                                     
|                                                    
|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.                                                                                                                                                                                                                                                                                                                                      
|                                                    
|Facultative reinsurance                              | The reinsurance of all or a portion of the insurance provided by a single
policy. Each policy reinsured is separately negotiated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                    
|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.                                                                                                                                                                                                                                                                                                         

27

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|                                             |                                                                                                                                                                                                                                                                                                                                       
|-------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                            
|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 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.                                                                                                                                                                                                                 
|                                            
|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 consumers or businesses
on a first dollar basis, sometimes subject to a deductible.                                                                                                                                                                                            
|                                            
|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.                                                                                     
|                                            

28

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|                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                  
|                                                                
|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 and the NAIC. Statutory or policyholders' surplus; statutory capital
& surplus The excess of admitted assets over total liabilities (including loss
reserves), determined in accordance with SAP.                                                           
|                                                                
|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 insurer's/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.                                                                                                                                                                                                                             
|                                                                
|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.                                                                                                                                                                                                                 
|                                                                

29

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RISK FACTORS

Our
business faces significant risks. The risks described below may not be the only risks we
face. Additional risks that we do not yet know of or that we currently think are
immaterial may also impair our business operations. If any of the following risks actually
occur, our business, financial condition, results of operations or prospects could be
affected materially.

Our results may fluctuate as a
result of many factors, including cyclical changes in the insurance and reinsurance
industry.

The
results of companies in the property and casualty insurance industry historically have
been subject to significant fluctuations and uncertainties. The industrys
profitability can be affected significantly by:

| |  | rising
levels of actual costs that are not known by companies at the time they price their
products;
|- |  | ----------------------------------------------------------------------------------------------------

| |  | volatile
and unpredictable developments, including man-made, weather-related and other natural
catastrophes;
|- |  | ------------------------------------------------------------------------------------------------------------

| |  | changes
in reserves resulting from the general claims and legal environments as different types
of claims arise and judicial      interpretations relating to the scope of insurers'
liability develop;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | fluctuations
in interest rates, inflationary pressures and other changes in the investment
environment, which affect returns      on invested capital and may impact the ultimate
payout of losses; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | volatility
associated with the long-tail nature of the reinsurance business, which may impact our
operating results.
|- |  | --------------------------------------------------------------------------------------------------------------------

The
property and casualty insurance industry historically is cyclical in nature. The demand
for property and casualty insurance can vary significantly, rising as the overall level of
economic activity increases and falling as such activity decreases. The property and
casualty insurance industry and especially the reinsurance business also have been very
competitive, although our insurance subsidiaries have experienced more favorable terms and
pricing beginning in the second half of 2000 and continuing into early 2003. These
fluctuations in demand and competition and the impact on us of other factors identified
above could have a negative impact on our results of operations and financial condition.

Because we operate in a highly
competitive industry, we may be unable to maintain adequate rates.

The
property and casualty insurance and reinsurance industry is highly competitive. PMA Re
competes with approximately 35 U.S. and non-U.S. reinsurers none of whom dominate the U.S.
market. The PMA Insurance Group has seven major competitors. Its primary competitors are
Liberty Mutual Insurance Company, Royal & SunAlliance Insurance Company, American
International Group, Inc., Zurich/Farmers Group, CNA Insurance Companies, Travelers
Property & Casualty and The Hartford Insurance Group. Some of our competitors have
greater financial, marketing and management resources than we do.

A
number of new, proposed or potential legislative or industry developments could further
increase competition in our industry. These developments include:

| |  | an
influx of new capital in the marketplace as existing companies attempt to expand their
business and new companies attempt      to enter the insurance and reinsurance business
as a result of better pricing and/or terms;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
enactment of the Gramm-Leach-Bliley Act of 1999 (which permits financial services
companies, such as banks and brokerage      firms, to engage in certain insurance
activities), which could result in increased competition from financial services
companies;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | programs
in which state-sponsored entities provide property insurance in catastrophe-prone areas
or other alternative      markets types of coverage; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changing
practices caused by the Internet, which have led to greater competition in the insurance
business.
|- |  | -----------------------------------------------------------------------------------------------------------

30

---

These
developments could make the property and casualty insurance marketplace more competitive
by increasing the supply of insurance and reinsurance available. The significant amount of
capital in the property and casualty marketplace has, until recently, resulted in the
supply of insurance and reinsurance outpacing demand. This oversupply has made it
difficult to achieve a level of rate adequacy related to the amount of risk undertaken.
Although rates have improved recently, continued oversupply may negatively influence the
sustainability of adequate rate changes, and accordingly, have an adverse effect on our
earnings.

If our actual losses from insureds
exceed our loss reserves, our financial results would be adversely affected.

Like
all insurers, we 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 us. We also establish reserves for loss adjustment expenses, which
represent the estimated expenses of settling claims, including legal and other fees, and
general expenses of administering the claims adjustment process. Reserves are merely
estimates and do not and cannot represent an exact measure of liability. The reserving
process involves actuarial models, which rely on the basic assumption that past
experience, adjusted for the effect of current developments and likely trends in claims
severity, frequency, judicial theories of liability and other factors, is an appropriate
basis for predicting future events. However, 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.
Further, liabilities for reinsurers generally become known more slowly than for primary
insurers and are generally subject to more unforeseen development.

If,
during that time, actual losses and loss adjustment expenses develop faster or are larger
than our loss reserve estimates, which may be due to a wide range of factors, including
inflation, changes in claims and litigation trends and legislative or regulatory changes,
we would have to increase reserves. As a result, we would incur a charge to earnings in
the period the reserves are increased. For example, in the fourth quarter of 2002, we took
a charge of approximately $45 million pre-tax primarily as a result of higher than
expected loss and loss adjustment expenses in our reinsurance business, which emerged in
the fourth quarter of 2002 on general liability business, mainly for accident years 1998,
1999 and 2000.

Reserve
estimates are continually refined through an ongoing process as further claims are
reported and settled and additional information concerning loss experience becomes known.
Because setting reserves is inherently uncertain, our current reserves may prove
inadequate in light of subsequent developments. As stated in the preceding paragraph, if
we increase our reserves, our earnings for the period will generally decrease by a
corresponding amount. Therefore, future reserve increases could have a material adverse
effect on our results of operations and financial condition.

We have exposure to unpredictable
catastrophes, which can materially affect our financial results.

We
are subject to claims arising out of catastrophes that may have a significant effect on
our results of operations, liquidity and financial condition. Catastrophes can be caused
by various events, including hurricanes, windstorms, earthquakes, hailstorms, explosions,
severe winter weather and fires. The incidence and severity of catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of both the total
amount of insured exposure in the area affected by the event and the severity of the
event. Insurance companies are not permitted to reserve for catastrophes until such event
takes place. Therefore, although we actively manage our exposure to catastrophes through
our underwriting process and the purchase of reinsurance protection, an especially severe
catastrophe or series of catastrophes could exceed our reinsurance protection and may have
a material adverse impact on our financial condition, results of operations and liquidity.

Man-made
events, such as terrorism, can also cause catastrophes. For example, the attack on the
World Trade Center resulted in approximately $30 million in pre-tax losses to us, after
deduction of all reinsurance and retrocessional protection, for 2001. This estimate is
based on our analysis of the available facts known by us to date and our examination of
known exposures. However, it is difficult to fully estimate our losses from the attack
given the uncertain nature of damage theories and loss amounts, and the possible
development of additional facts related to the attack. As more information becomes
available, we may need to increase our estimate of these losses.

Although
the Terrorism Risk Insurance Act of 2002 may mitigate the impact of future terrorism
losses in connection with the commercial insurance business offered by The PMA Insurance
Group, because of its uncertain application, the amount of losses a company must retain
and the fact that it does not apply to reinsurance business, future terrorist attacks may
result in losses that have a material adverse effect on our financial condition, results
of operations and liquidity.

We face a risk of
non-collectibility of reinsurance, which could materially affect our results of
operations.

We
follow the customary insurance practice of reinsuring with other insurance and reinsurance
companies a portion of the risks under the policies written by our insurance and
reinsurance subsidiaries. During 2002, we had nearly $1.4 billion of gross written
premiums of which we ceded approximately $281.5 million, or 20% of gross written premiums,
to reinsurers for reinsurance protection. This reinsurance is maintained to protect our
insurance and reinsurance subsidiaries

31

---

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 our subsidiaries from their
primary obligation to pay policyholders for losses insured under the policies we issue,
reinsurance does make the assuming reinsurer liable to  the insurance subsidiaries for the
reinsured portion of the risk. As of December 31, 2002, we had $1.3 billion of reinsurance
receivables from reinsurers for paid and unpaid losses that they are obligated to
reimburse us for under our reinsurance contracts. The collectibility of reinsurance is
largely a function of the solvency of reinsurers. We perform annual credit reviews on our
reinsurers, focusing on, among other things, financial capacity, stability, trends and
commitment to the reinsurance business. We also require assets in trust, letters of credit
or other acceptable collateral to support balances due from reinsurers not authorized to
transact business in the applicable jurisdictions. Despite these measures, a
reinsurers insolvency or inability to make payments under the terms of a reinsurance
contract could have a material adverse effect on our results of operations and financial
condition.

We face a risk of non-availability
of reinsurance, which could materially affect our ability to write business and our
results of operations.

Market
conditions beyond our control, such as the amount of surplus in the reinsurance market and
natural and man-made catastrophes, determine the availability and cost of the reinsurance
protection we purchase. We cannot assure you that reinsurance will remain continuously
available to us to the same extent and on the same terms and rates as are currently
available. If we are unable to maintain our current level of reinsurance or purchase new
reinsurance protection in amounts that we consider sufficient, we would either have to be
willing to accept an increase in our net exposures or reduce our insurance writings.

Because insurance and credit
ratings are important to our policyholders and creditors, downgrades in our ratings may
adversely affect us.

Nationally
recognized ratings agencies rate the financial strength of our principal insurance
subsidiaries and the debt of PMA Capital Corporation. Ratings are not recommendations to
buy our securities. Please see COMPETITION  Ratings  for a complete
description of our ratings.

A
downgrade in our insurance financial strength ratings could affect our competitive
position in the insurance industry and make it more difficult for us to market our
products. A significant downgrade could result in a material loss of business as
policyholders move to other companies with higher financial strength ratings.  A downgrade of our debt ratings could affect our ability to raise additional debt with terms and
conditions similar to our current debt, and accordingly, likely increase our cost of capital. In addition, a downgrade of these
ratings could make it more difficult to raise capital to refinance any maturing debt obligations, to support business growth at
our insurance subsidiaries and to maintain or improve the current financial strength ratings of our principal insurance
subsidiaries.

These
ratings are subject to revision or withdrawal at any time by the rating agencies, and
therefore, no assurance can be given that we or our principal insurance subsidiaries can
maintain these ratings. Each rating should be evaluated independently of any other rating.

32

---

Because we are heavily regulated
by the states in which we do business, we may be limited in the way we operate.

We
are subject to extensive supervision and regulation in the states in which we do business.
The supervision and regulation relate to numerous aspects of our business and financial
condition. The primary purpose of the supervision and regulation is the protection of our
insurance policyholders, and not our investors. The extent of regulation varies, but
generally is governed by state statutes. These statutes delegate regulatory, supervisory
and administrative authority to state insurance departments. This system of supervision
and regulation covers, among other things:

| |  | standards
of solvency, including risk-based capital measurements;
|- |  | -----------------------------------------------------------------

| |  | restrictions
on the nature, quality and concentration of investments;
|- |  | ---------------------------------------------------------------------

| |  | limitations
on the rates that we may charge on our workers' compensation business;
|- |  | ----------------------------------------------------------------------------------

| |  | restrictions
on the types of terms and conditions that we can include in the insurance policies
offered by our primary      insurance operations;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | certain
required methods of accounting;
|- |  | ---------------------------------------

| |  | reserves
for unearned premiums, losses and other purposes; and
|- |  | --------------------------------------------------------------

| |  | potential
assessments for the provision of funds necessary for the settlement of covered claims
under certain policies      provided by impaired, insolvent or failed insurance companies.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
regulations of the state insurance departments may affect the cost or demand for our
products and may impede us from obtaining rate increases on insurance policies offered by
our primary insurance operations or taking other actions we might wish to take to increase
our profitability. Further, we may be unable to maintain all required licenses and
approvals and our business may not fully comply with the wide variety of applicable laws
and regulations or the relevant authoritys interpretation of the laws and
regulations, which may change from time to time. Also, regulatory authorities have
relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not
have the requisite licenses and approvals or do not comply with applicable regulatory
requirements, the insurance regulatory authorities could preclude or temporarily suspend
us from carrying on some or all of our activities or impose substantial fines. As of
December 31, 2002, no state insurance regulatory authority had imposed on us any
substantial fines or revoked or suspended any of our licenses to conduct insurance
business in any state, which would have a material adverse effect on our results of
operations or financial condition. In light of recent insolvencies of large property and
casualty insurers, it is possible that the regulations governing the level of the guaranty
fund or association assessments against us may change, requiring us to increase our level
of payments.

33

---

Because our reinsurance operations
depend on a few reinsurance brokers for a large portion of their revenue, loss of business
provided by them could adversely affect us.

We
market our reinsurance products through reinsurance brokers. Four brokerage firms Guy
Carpenter, Benfield Blanch, Towers Perrin and AON Reinsurance, accounted for approximately
80% of our reinsurance gross premiums written and 45% of our consolidated gross premiums
written for the year ended December 31, 2002. Please see PMA
ReDistribution beginning on page 5 for a further description of our broker
relationships. Loss of all or a substantial portion of the business provided by these
brokers could have a material adverse effect on us.

Because our investment portfolio
is made up primarily of fixed-income securities, the fair value of our investment
portfolio and our investment income could suffer as a result of fluctuations in interest
rates.

We
currently maintain and intend to continue to maintain an investment portfolio made up
primarily of fixed-income securities. The fair value of these securities can fluctuate
depending on changes in interest rates. Generally, the fair market value of these
investments increases or decreases in an inverse relationship with changes in interest
rates, while net investment income earned by us from future investments in fixed-income
securities will generally increase or decrease with interest rates. Our overall investment
strategy is to invest in high quality securities while maintaining diversification to
avoid significant concentrations in individual issuers, industry segments and geographic
regions. All of our fixed-income securities are classified as available for sale; as a
result, changes in the market value of our fixed-income securities are reflected in our
balance sheet. Accordingly, changes in interest rates may result in fluctuations in the
income from, and the valuation of, our fixed-income investments, which could have an
adverse effect on our results of operations and financial condition.

Our status as an insurance holding
company with no direct operations could adversely affect our ability to meet our
obligations and pay dividends.

We
are a holding company that transacts substantially all of our business directly and
indirectly through subsidiaries. Our primary assets are the stock of our operating
subsidiaries. Our ability to meet our obligations on our outstanding debt and to pay
dividends and our general and administrative expenses depends on the surplus and earnings
of our subsidiaries and the ability of our subsidiaries to pay dividends or to advance or
repay funds to us. Payments of dividends and advances and repayments by our insurance
operating subsidiaries are restricted by state insurance laws, including laws establishing
minimum solvency and liquidity thresholds. Approximately $58 million of dividends are
available to be paid to us in 2003 from our domestic insurance subsidiaries without prior
regulatory approval. In addition to the regulatory restrictions, our existing credit and
letter of credit facilities limit the amount of dividends that our subsidiaries may pay to
us. As a result, we may not be able to receive dividends from these subsidiaries at times
and in amounts necessary to meet our debt obligations or to pay dividends on our capital
securities.

The covenants in our debt
agreements could limit our financial and operational flexibility, which could have an
adverse effect on our financial condition, and limit the amount of dividends that we can
pay on any class of capital stock.

We
have incurred indebtedness and may incur additional indebtedness in the future. At March
19, 2003, we had $131.25 million outstanding indebtedness and $15.7 million outstanding in
letters of credit under our secured letter of credit facility. The agreements governing
our indebtedness contain numerous covenants that limit, or have the effect of limiting,
our ability to, among other things, borrow money, sell assets, merge or consolidate and
make investments. These restrictions could limit our ability to take advantage of business
and investment opportunities, and therefore, could adversely affect our financial
condition, liquidity and results of operations. In addition, these agreements limit our
ability to pay dividends on our Class A Common stock. In 2003, under the most restrictive
covenants of these agreements, we would be able to pay dividends of approximately $25
million on any class of capital stock.

Our business is dependent upon our
key executives who do not have employment agreements with restrictive covenants and can
leave our employment at any time.

Our
success depends significantly on the efforts and abilities of our Chairman, Frederick W.
Anton III; our President and Chief Executive Officer, John W. Smithson; the President and
Chief Operating Officer of PMA Re, Stephen G. Tirney; and the President and Chief
Operating Officer of The PMA Insurance Group, Vincent T. Donnelly. We do not presently
have employment agreements that include restrictive covenants with our key executives.
Accordingly, our key executives may leave our employment at any time. Because our business
is based to some extent upon relationships with our brokers and insureds, our future
results of operations could be adversely affected if we are unable to retain our current
executives or to attract new executives.

34

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PMA Foundation and our directors and executive
officers collectively have significant shareholdings and may influence action requiring
stockholder approval and may have interests different than, or adverse to, those of our
other security holders.

PMA
Foundation and our directors and executive officers beneficially owned approximately 31.1%
of our Class A common stock at December 31, 2002. As a result, these stockholders, acting
alone or together, may be able to influence matters requiring approval by our stockholders
and may have interests different than, or adverse to, those of our other security holders,
including preventing changes in our board of directors or management that stockholders may
desire.

Provisions in our charter
documents and the ownership of our shares of Class A common stock by PMA Foundation and
management may impede attempts to replace or remove our board or management with
management favored by stockholders.

Our
Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that
could delay or prevent changes in our board of directors or management that stockholders
may desire. These provisions include:

| |  | requiring
advance notice requirements for nominations for election to the board of directors or for
proposing business that      can be acted on by stockholders at meetings;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | establishing
a classified board of directors and permitting our board to increase its size and appoint
directors to fill      newly created board vacancies;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | requiring
stockholders to show cause to remove one or more directors; and
|- |  | -------------------------------------------------------------------------

| |  | prohibiting
stockholders from acting by written consent.
|- |  | --------------------------------------------------------

Item 2. Properties

PMA
Capital Corporation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. We also lease approximately 63,000 square feet of office space in
Yardley, Pennsylvania, which previously housed our excess and surplus lines business and now is
subleased to an unaffiliated third party.

Through
various wholly owned subsidiaries, we also own and occupy additional office facilities in
three other locations and rent additional office space for our insurance operations in 16
other locations. We believe that such owned and leased properties are suitable and
adequate for our current business operations.

Item 3. Legal Proceedings

We
are 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 our insureds, or as an insurer defending coverage claims brought against it by our
policyholders or other insurers. While the outcome of all litigation involving us,
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 our 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 our financial condition, results of
operations or liquidity.

35

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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 2002.

Executive Officers of the
Registrant

Our
executive officers are as follows:

|Name                    | Age | Position                                                        
|----------------------- | --- | ----------------------------------------------------------------
|John W. Smithson        | 57  | President and Chief Executive Officer                           
|Frederick W. Anton III  | 69  | Chairman of the Board                                           
|Vincent T. Donnelly     | 50  | President and Chief Operating Officer -The PMA Insurance Group  
|William E. Hitselberger | 45  | Senior Vice President, Chief Financial Officerand Treasurer     
|Robert L. Pratter       | 58  | Senior Vice President, General Counsel andSecretary             
|Stephen G. Tirney       | 49  | President and Chief Operating Officer -PMA Re Management Company

John
W. Smithson has served as our President and Chief Executive Officer since May 1997, and as
a director since 1987. Mr. Smithson served as our President and Chief Operating Officer
from 1995 to May 1997. He has also served as Chairman and Chief Executive Officer of the
following subsidiaries: PMA Capital Insurance Company since 1984; The PMA Insurance Group
since 1995; and PMA Re Management Company since 2000.

Frederick
W. Anton III has served as Chairman of the Board since 1995 and as a director 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.

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.

William
E. Hitselberger has served as our Senior Vice President, Chief Financial Officer and
Treasurer since June 2002. He has also served as Vice President and Chief Financial
Officer of The PMA Insurance Group from 1998 to June 2002 and Vice President of The PMA
Insurance Group from 1996 to 1998.

Robert
L. Pratter has served as our Senior Vice President, General Counsel and Secretary since
June 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.

36

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PART II

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

Market For Class A Common
Stock

The
Class A Common Stock Prices under the caption Quarterly Financial
Information and the last paragraph on page 74 of the Annual Report, as well as the
information under the captions Securities Listing and Dividends on
page 77 of the Annual Report are incorporated herein by reference. Further, the
information in Note 8 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 22 and 23 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 24
through 48 of the Annual Report is incorporated herein by reference.

Item 7A. Quantitative and Qualitative
Disclosure About Market Risk

The
information under the caption Market Risk of Financial Instruments on page 43
of the Annual Report is incorporated herein by reference.

Item 8. Financial Statements and
Supplementary Data

Our
Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages
49 through 72 and the Report of Independent Accountants on page 73 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 74 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 in our Proxy Statement, to be dated on or about April 21, 2003
for the 2003 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 in the Proxy Statement.

Item 11. Executive Compensation

The
information under the caption Compensation of Executive Officers and under the caption Director Compensation in the Proxy
Statement is incorporated herein by reference.

37

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Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Shareholder Matters

The
information under the caption Beneficial Ownership of Class A Common Stock in the Proxy Statement is incorporated herein by reference.

Securities
Authorized for Issuance Under Equity Compensation Plans

The
following table provides information with respect to compensation plans under which our
equity securities are authorized for issuance as of December 31, 2002.

|                                                          
|----------------------------------------------------------
|Plan Category                                             
|                                                          
|                                                          
|Equity compensation plans approved by security holders    
|                                                          
|Equity compensation plans not approved by security holders
|                                                          
|Total                                                     
|                                                          

Item 13. Certain Relationships and
Related Transactions

The
information under the caption Certain Transactions in the
Proxy Statement is incorporated herein by reference.

Item 14. Controls and Procedures

Within
the 90-day period prior to the date of this report on Form 10-K, the Company carried out
an evaluation, under the supervision and with the participation of John W. Smithson,
President and Chief Executive Officer, and William E. Hitselberger, Senior Vice President
and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective in timely alerting them to material
information relating to us (including our consolidated subsidiaries) required to be
disclosed in our periodic filings with the Securities and Exchange Commission. There were
no significant changes in our internal controls or other factors that could significantly
affect those controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses. Because of the
inherent limitations in all control systems, no evaluation of controls can provide more
than reasonable assurance that all control issues and instances of fraud, if any, within
the Company have been detected. Further, it should be noted that the design of any systems
of controls is based, in part, upon assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless how remote.

38

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PART IV

Item 15. 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 49                through 73 of the Annual Report are incorporated herein by
reference:
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated
Balance Sheets at December 31, 2002 and 2001
|- |  | ---------------------------------------------------------

| |  | Consolidated
Statements of Operations for the years ended December 31, 2002, 2001 and 2000
|- |  | ------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
|- |  | ------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000
|- |  | ----------------------------------------------------------------------------------------------------

| |  | Consolidated
Statements of Comprehensive Income (Loss) for the years ended December 31, 2002, 2001 and
2000
|- |  | -----------------------------------------------------------------------------------------------------------

| |  | 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, 2002
|--- |  | --------------------------------------------------------------------

| |  | During the
quarterly period ended December 31, 2002, the Company filed the following reports on Form
8-K:
| |  | ---------------------------------------------------------------------------------------------------------

| |  |  | dated
October 11, 2002, Item 5 - announcing that a new lender had been added to our credit
agreement.
| | - |  | -----------------------------------------------------------------------------------------------------

| |  |  | dated
October 15, 2002, Item 5 - updating our earnings per share estimates and announcing
ratings action.
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | dated
October 16, 2002, Item 5 - announcing that we entered into an underwriting agreement.
| | - |  | -------------------------------------------------------------------------------------------

| |  |  | dated
October 21, 2002, as amended on the same date Item 5 - announcing the closing of our debt
offering.
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | dated
October 30, 2002, Items 7 and 9 - containing our third quarter earnings release.
| | - |  | --------------------------------------------------------------------------------------

| |  |  | dated
November 6, 2002, Items 5 and 7 - containing a news release announcing declaration of our
regular quarterly          shareholder dividend.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | dated
November 19, 2002, Item 9 - announcing investor meetings.
| | - |  | ---------------------------------------------------------------

| |  |  | dated
December 3, 2002, Item 9 - announcing a written stock trading plan under Rule 10b5-1.
| | - |  | -------------------------------------------------------------------------------------------

39

---

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 20, 2003 |  | By: /s/ William E. Hitselberger             
|                     |  | William E. Hitselberger                     
|                     |  | 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 20, 2003.

|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                                                                         
|Louis N. McCarter III                                                                            |  | Director                                                                         
|John W. Miller, Jr.                                                                              |  | Director                                                                         
|Edward H. Owlett                                                                                 |  | Director                                                                         
|Roderic H. Ross                                                                                  |  | Director                                                                         
|L. J. Rowell, Jr.                                                                                |  | Director                                                                         
|Neal C. Schneider                                                                                |  | Director                                                                         
|                                                                                                 |  |                                                                                  
|*  By: /s/  Charles A. Brawley, III
         Charles A. Brawley, III
           Attorney-in-Fact |  |                                                                                  

40

---

---

Certification

I, John W. Smithson, President and
Chief Executive Officer of PMA Capital Corporation, certify that:

|1. |  | I
have reviewed this annual report on Form 10-K of PMA Capital Corporation;
|-- |  | ---------------------------------------------------------------------------

|2. |  | Based
on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to
the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based
on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The
registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | designed
such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual report is
being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated
the effectiveness of the registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the Evaluation
Date); and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | presented
in this annual report our conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The
registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | all
significant deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | any
fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The
registrants other certifying officer and I have indicated in this annual report
whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:   March 20, 2003 | /s/ John W. Smithson                 
|----------------------- | -------------------------------------
|                        | John W. Smithson                     
|                        | President and Chief Executive Officer

41

---

Certification

I, William E. Hitselberger, Senior
Vice President, Chief Financial Officer and Treasurer of PMA Capital Corporation, certify
that:

|1. |  | I
have reviewed this annual report on Form 10-K of PMA Capital Corporation;
|-- |  | ---------------------------------------------------------------------------

|2. |  | Based
on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to
the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based
on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The
registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | designed
such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual report is
being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated
the effectiveness of the registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the Evaluation
Date); and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | presented
in this annual report our conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The
registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | all
significant deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | any
fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The
registrants other certifying officer and I have indicated in this annual report
whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:   March 20, 2003 | /s/ William E. Hitselberger                                 
|----------------------- | ------------------------------------------------------------
|                        | William E. Hitselberger                                     
|                        | Senior Vice President, Chief Financial Officer and Treasurer

42

---

PMA Capital CorporationIndex to Financial Statement Schedules

| | Schedule No. | Description                                                                                                                               | Page        
| | ------------ | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------
|
| | II           | Condensed Financial Information of  Registrant as of December 31, 2002 and
 2001 and for the years ended December 31, 2002, 2001 and 2000 | FS-2 to FS-4
| |             
| | III          | Supplementary Insurance Information for the 
                                       years ended December 31, 2002, 2001 and 2000          | FS-5        
| |             
| | IV           | Reinsurance for the years ended December 31,  2002, 2001 and 2000                                                                         | FS-6        
| |             
| | V            | Valuation and Qualifying Accounts for the  years ended December 31, 2002, 2001 and 2000                                                   | FS-7        
| |             
| | VI           | Supplemental Information Concerning Property and Casualty Insurance Operations 
for the years ended December 31, 2002, 2001 and 2000      | FS-8        
| |             
| |              | Report of Independent Accountants on Financial Statement Schedules                                                                        | FS-9        

Certain financial statement schedules have been omitted because
they are either not applicable or the required financial information is
contained in the Companys 2002 Consolidated Financial Statements and notes
thereto.

FS-1

---

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

|                                                                           |  | December 31, |  
|-------------------------------------------------------------------------- |  | ------------ | -
|(dollar amounts in thousands)                                              |  | 2002         |  
|                                                                          
|                                                                           |  |              |  
|Assets                                                                     |  |              |  
|Cash                                                                       |  |              | $
|Investment in subsidiaries                                                 |  |              |  
|Related party receivables                                                  |  |              |  
|Deferred income taxes, net                                                 |  |              |  
|Other assets                                                               |  |              |  
|                                                                           |  |             
|Total assets                                                               |  |              | $
|                                                                           |  |             
|                                                                           |  |             
|Liabilities                                                                |  |             
|Short-term debt                                                            |  |              | $
|Long-term debt                                                             |  |              |  
|Related party payables                                                     |  |              |  
|Other liabilities                                                          |  |              |  
|                                                                           |  |             
|Total liabilities                                                          |  |              |  
|                                                                           |  |             
|Shareholders' Equity                                                       |  |             
|Class A Common stock, $5 par value (40,000,000 shares authorized;          |  |             
|2002 - 34,217,945 shares issued and 31,328,922 outstanding                 |  |             
|2001 - 34,217,945 shares issued and 31,167,006 outstanding)                |  |              |  
|Additional paid-in capital                                                 |  |              |  
|Retained earnings                                                          |  |              |  
|Accumulated other comprehensive income                                     |  |              |  
|Notes receivable from officers                                             |  |              |  
|Treasury stock, at cost (2002 - 2,889,023 shares; 2001 - 3,050,939 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)                   | 2002                    
|                                               
|                                                |                         
|Revenues:                                       |                         
|Net investment income (expense)                 |                         
|Other revenues                                  |                         
|                                                |                         
|Total revenues                                  |                         
|                                                |                         
|                                                |                         
|Expenses:                                       |                         
|General expenses                                |                         
|Interest expense                                |                         
|                                                |                         
|Total expenses                                  |                         
|                                                |                         
|Loss before income taxes and equity in earnings |                         
|(loss) of subsidiaries                          |                         
|Income tax benefit                              |                         
|                                                |                         
|Income (loss) before equity in earnings (loss)  |                         
|of subsidiaries                                 |                         
|Equity in earnings (loss) of subsidiaries       |                         
|                                                |                         
|Net income (loss)                               |                         
|                                                |                         

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

FS-3

---

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

|                                                                      | Years ended December 31,
|--------------------------------------------------------------------- | ------------------------
|(dollar amounts in thousands)                                         | 2002                    
|                                                                     
|                                                                      |                         
|Cash Flows From Operating Activities:                                 |                         
|Net income (loss)                                                     |                         
|Adjustments to reconcile net income (loss) to net cash flows provided |                         
|by operating activities:                                              |                         
|Equity in earnings (loss) of subsidiaries                             |                         
|Dividends received from subsidiaries                                  |                         
|Net tax sharing payments received from subsidiaries                   |                         
|Deferred income tax benefit                                           |                         
|Other, net                                                            |                         
|                                                                      |                         
|Net cash flows provided by operating activities                       |                         
|                                                                      |                         
|                                                                      |                         
|Cash Flows From Investing Activities:                                 |                         
|Cash contributions to subsidiaries                                    |                         
|                                                                      |                         
|Net cash flows used in investing activities                           |                         
|                                                                      |                         
|Cash Flows From Financing Activities:                                 |                         
|Proceeds from issuance of stock                                       |                         
|Dividends paid to shareholders                                        |                         
|Proceeds from exercise of stock options                               |                         
|Purchase of treasury stock                                            |                         
|Proceeds from issuance of debt                                        |                         
|Debt issue costs                                                      |                         
|Repayments of debt                                                    |                         
|Net repayments (issuance) of notes receivable from officers           |                         
|Change in related party receivables and payables                      |                         
|                                                                      |                         
|Net cash flows provided by (used in) financing activities             |                         
|                                                                      |                         
|Net 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 FinancialStatements and the notes thereto.

FS-4

---

PMA Capital Corporation
Schedule III
Supplementary 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, 2002:           
|PMA Re                        |  |                           | $ | 56,029                                    |  | $                | 1,089,079 |                    | $ | 195,400                 |  | $                                 | 551,513 |                     | $ | 48,736            |   | $                   | 439,228
|The PMA Insurance Group       |  |                           |   | 32,266                                    |  |                  | 1,192,069 |                    |   | 189,799                 |  |                                   | 410,266 |                     |   | 35,613            |   |                     | 307,734
|Run-off Operarions            |  |                           |   | 927                                       |  |                  | 215,667   |                    |   | 20,180                  |  |                                   | 30,113  |                     |   | 1,140             |   |                     | 76,696 
|Corporate and Other (2)       |  |                           |   | -                                         |  |                  | (46,925   | )                  |   | -                       |  |                                   | (881    | )                   |   | (608              | ) |                     | -      
|                             
|Total                         |  |                           | $ | 89,222                                    |  | $                | 2,449,890 |                    | $ | 405,379                 |  | $                                 | 991,011 |                     | $ | 84,881            |   | $                   | 823,658
|                             
|December 31, 2001:            |  |                          
|PMA Re                        |  |                           | $ | 34,286                                    |  | $                | 1,047,503 |                    | $ | 105,085                 |  | $                                 | 340,401 |                     | $ | 45,361            |   | $                   | 297,623
|The PMA Insurance Group       |  |                           |   | 24,932                                    |  |                  | 1,107,141 |                    |   | 146,658                 |  |                                   | 346,574 |                     |   | 39,444            |   |                     | 258,933
|Run-off Operarions            |  |                           |   | 5,132                                     |  |                  | 189,534   |                    |   | 56,549                  |  |                                   | 46,232  |                     |   | 3,124             |   |                     | 60,207 
|Corporate and Other (2)       |  |                           |   | -                                         |  |                  | (19,739   | )                  |   | -                       |  |                                   | (767    | )                   |   | (984              | ) |                     | -      
|                             
|Total                         |  |                           | $ | 64,350                                    |  | $                | 2,324,439 |                    | $ | 308,292                 |  | $                                 | 732,440 |                     | $ | 86,945            |   | $                   | 616,763
|                             
|December 31, 2000:            |  |                          
|PMA Re                        |  |                           | $ | 22,969                                    |  | $                | 871,727   |                    | $ | 90,851                  |  | $                                 | 251,109 |                     | $ | 51,125            |   | $                   | 229,925
|The PMA Insurance Group       |  |                           |   | 23,554                                    |  |                  | 1,058,524 |                    |   | 138,554                 |  |                                   | 252,348 |                     |   | 47,969            |   |                     | 189,001
|Run-off Operarions            |  |                           |   | 1,999                                     |  |                  | 132,104   |                    |   | 40,329                  |  |                                   | 28,799  |                     |   | 4,424             |   |                     | 30,462 
|Corporate and Other (2)       |  |                           |   | -                                         |  |                  | (9,217    | )                  |   | -                       |  |                                   | (832    | )                   |   | (927              | ) |                     | -      
|                             
|Total                         |  |                           | $ | 48,522                                    |  | $                | 2,053,138 |                    | $ | 269,734                 |  | $                                 | 531,424 |                     | $ | 102,591           |   | $                   | 449,388
|                             

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

|(2) |  | Corporate
and Other includes unallocated investment income and expenses, including debt service, as
well as the results of certain of our real estate properties. Corporate and Other also
includes the effect of eliminating intercompany transactions.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2002:             |  |              
|Property and liability insurance premiums |  |               | $ | 599,827                 |  | $                          | 300,556 |            | $ | 691,740                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  
|Year Ended December 31, 2001:             |  |              
|Property and liability insurance premiums |  |               | $ | 508,821                 |  | $                          | 243,356 |            | $ | 466,975                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  
|Year Ended December 31, 2000:             |  |              
|Property and liability insurance premiums |  |               | $ | 416,152                 |  | $                          | 278,556 |            | $ | 393,828                           | 
|                                          |  |               |   |                         |  |                            |         |            |   |                                  

FS-6

---

PMA Capital CorporationSchedule VValuation and Qualifying Accounts

|(dollar amounts in thousands)        
|-------------------------------------
|                                     
|Description                          
|                                     
|                                     
|Year ended December 31, 2002:        
|Allowance for uncollectible accounts:
|Premiums receivable                  
|Reinsurance receivables              
|                                     
|Year ended December 31, 2001:        
|Allowance for uncollectible accounts:
|Premiums receivable                  
|Reinsurance receivables              
|                                     
|Year ended December 31, 2000:        
|Allowance for uncollectible accounts:
|Premiums receivable                  
|Reinsurance receivables              
|                                     

FS-7

---

PMA Capital CorporationSchedule VISupplemental Information
Concerning Property and Casualty Insurance Operations

|(dollar amounts in thousands)  | 
|------------------------------ | 
|                              
|Affiliation with registrant    | 
|                              
|                              
|Consolidated property-casualty | 
|subsidiaries:                  | 
|                               | 
|December 31, 2002              | 
|                               | 
|December 31, 2001              | 
|                               | 
|December 31, 2000              | 
|                              

(1)- Reserves discounted at approximately 5%.

(2)- Excludes accretion of loss reserve discount
of $8,515, $6,859 and $10,130 in 2002, 2001 and 2000, respectively.

FS-8

---

PRICEWATERHOUSECOOPERS LLP (LOGO)

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 5, 2003, except for Note 6, as to which the date is March 17, 2003, appearing in the 2002 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
15(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, Pennsylvania February 5, 2003

FS-9

---

INDEX TO EXHIBITS

---

|Exhibit No. | Description of Exhibit | Method of Filing                                                                                                                                                                    
|----------- | ---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3)         |                        | Articles of Incorporation and Bylaws:                                                                                                                                               
|            | 3.1                    | Restated Articles of Incorporation of the Company.                                                                                                                                  
|            | 3.2                    | Amended and Restated Bylaws of the Company.                                                                                                                                         
|(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.                                                                           
|            | 4.2                    | Senior Indenture, dated as of October 21, 2002, between the Company and State Street Bank and Trust Company, as Trustee.                                                            
|            | 4.3                    | First Supplemental Indenture, dated as of October 21, 2002, between the Company and State Street Bank and Trust Company (predecessor of U.S. Bank National Association), as Trustee.
|            | 4.4                    | Form of 4.25% Convertible Senior Debenture due September 30, 2022.                                                                                                                  
|(10)        |                        | Material Contracts:Exhibits 10.1 through 10.26 are management contracts
or compensatory plans.                                                                                      
|            | 10.1                   | Description of 2001 stock appreciation rights.                                                                                                                                      
|            | 10.2                   | PMA Capital Corporation 401(k) Excess Plan (as Amended and Restated effective January 1, 2000).                                                                                     
|            | 10.3                   | PMA Capital Corporation Executive Deferred Compensation Plan (as Amended
and Restated effective January 1, 2000).                                                                   
|            | 10.4                   | PMA Capital Corporation Supplemental Executive Retirement Plan (as
Amended and Restated effective January 1, 2000).                                                                 
|            | 10.5                   | PMA Capital Corporation Executive Management Pension Plan (as Amended and Restated effective January 1, 2000).                                                                      
|            | 10.6                   | Amended and Restated Employment Agreement, dated May 1, 1999, between PMA
Capital Corporation and Frederick W. Anton III.                                                           

E-1

---

| |       |                                                                                                                                                                                            |                                                                                                                                                        
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.7  | 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.
| | 10.8  | 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.
| | 10.9  | 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.
| | 10.10 | Employment Agreement dated May 1, 1995 between the Company and John W.
Smithson.                                                                                                           | Filed herewith.                                                                                                                                        
| | 10.11 | Amended and Restated Deferred Compensation Plan for Non-Employee
Directors of the Company.                                                                                                 | Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 and incorporated herein by reference.           
| | 10.12 | 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.                
| | 10.13 | Company's Amended and Restated 1991 Equity Incentive Plan.                                                                                                                                 | Filed herewith.                                                                                                                                        
| | 10.14 | 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.         
| | 10.15 | Company's Amended and Restated 1993 Equity Incentive Plan.                                                                                                                                 | Filed herewith.                                                                                                                                        

E-2

---

| |       |                                                                                           |                                                                                                                                               
| | ----- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | 10.16 | 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.
| | 10.17 | Company's Amended and Restated 1994 Equity Incentive Plan.                                | Filed herewith.                                                                                                                               
| | 10.18 | 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.
| | 10.19 | Company's 1995 Equity Incentive Plan.                                                     | Filed herewith.                                                                                                                               
| | 10.20 | 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.
| | 10.21 | Company's 1996 Equity Incentive Plan.                                                     | Filed herewith.                                                                                                                               
| | 10.22 | 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.
| | 10.23 | 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.       
| | 10.24 | Companys 2002 Equity Incentive Plan.                                                     | Filed as Appendix A to the Companys Proxy Statement on Schedule 14A dated March 22, 2002 and incorporated herein by reference.               

E-3

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|     |       |                                                                                                                                                                                                                                                                                       |                                                                                                                                                    
|---- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|     | 10.25 | Agreement and Release between the Company and Francis W. McDonnell.                                                                                                                                                                                                                   | Filed as Exhibit 10 to the Companys Quarterly Report on Form 10-Q for the period ending June 30, 2002 and incorporated herein by
reference.       
|     | 10.26 | Agreement and Release by and between the Company and Ronald S. Austin.                                                                                                                                                                                                                | Filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and incorporated
herein by reference.
|     | 10.27 | Credit Agreement, dated as of September 20, 2002 by and among the Company,
Bank of America N.A., as Administrative Agent, Fleet National Bank, as Syndication Agent, Credit Lyonnais New York Branch,
as Document Agent, and other lenders party thereto, including Pledge Agreement. | Filed as Exhibit 99.1 to the Company's Current Report on Form 8-K
dated September 20, 2002 and incorporated herein by reference.                   
|     | 10.28 | First Amendment, dated October 11, 2002, amending the Credit Agreement,
dated as of September 20, 2002.                                                                                                                                                                               | Filed as Exhibit 99 to the Company's Current Report on Form 8-K dated
October 11, 2002 and incorporated herein by reference.                       
|     | 10.29 | Letter of Credit Agreement dated as of December 4, 2001, by and among the
Company and Certain Co-Applicants and Fleet National Bank and Other Banks Party Thereto.                                                                                                                    | Filed as Exhibit 10.30 to the Companys Annual Report on Form 10-K for the year ended December 31, 2001 and
incorporated herein by reference.      
|     | 10.30 | First Amendment, dated June 17, 2002, to Letter of Credit Agreement dated December 4, 2001.                                                                                                                                                                                           | Filed herewith.                                                                                                                                    
|     | 10.31 | Second Amendment, dated December 4, 2002, to Letter of Credit Agreement dated December 4, 2001.                                                                                                                                                                                       | Filed herewith.                                                                                                                                    
|(12) |       | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                    | Filed herewith.                                                                                                                                    
|(13) |       | Portions of the Company's 2002 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 Accountants.                                                                                                                                                                                                                                                   | Filed herewith.                                                                                                                                    
|(24) |       | Power of Attorney:                                                                                                                                                                                                                                                                    |                                                                                                                                                    
|     | 24.1  | Powers of Attorney.                                                                                                                                                                                                                                                                   | Filed herewith.                                                                                                                                    
|     | 24.2  | Certified Resolutions.                                                                                                                                                                                                                                                                | Filed herewith.                                                                                                                                    
|(99) |       | Additional Exhibits                                                                                                                                                                                                                                                                   |                                                                                                                                                    
|     | 99.1  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002                                                                                                                                                                 | Filed herewith.                                                                                                                                    
|     | 99.2  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002                                                                                                                                                                 | 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

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