THIRD AMENDMENT TO CREDIT AGREEMENT

THIS THIRD
AMENDMENT TO CREDIT AGREEMENT, dated as of December 7, 2001 (this
Amendment), is made in respect of the Credit Agreement dated as of
March 14, 1997 (as amended, the Credit Agreement), by and
between PMA CAPITAL CORPORATION, a Pennsylvania corporation formerly
known as Pennsylvania Manufacturers Corporation (the Borrower), the
banks and financial institutions listed on the signature pages thereof or that
become parties thereto after the date thereof (collectively the
Lenders), THE BANK OF NEW YORK, as administrative agent for
the Lenders (in such capacity, the Administrative Agent), and
FIRST UNION NATIONAL BANK(formerly known as First Union National Bank of
North Carolina), as documentation agent for the Lenders (in such capacity, the
Documentation Agent) (each of the Administrative Agent and
Documentation Agent, an Agent and collectively, the
Agents). Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Credit Agreement.

RECITALS

The Borrower has
requested that the Credit Agreement be amended to permit it to engage in certain
transactions as set forth herein, and the Required Lenders signing below are
willing to approve such request subject to the terms and conditions set forth
below.

STATEMENT OF AGREEMENT

NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Borrower, the Agents and the Lenders, for
themselves and their successors and assigns, agree as follows:

ARTICLE I

AMENDMENTS TO CREDIT AGREEMENT

1.1 Amendment to Section
1.1.

(a) Section 1.1 of the
Credit Agreement shall be amended by amending and restating the definition of Applicable
Margin as follows:

| | Applicable
          Margin shall mean, at any time with respect to any LIBOR Committed Loan,
          1.375%, and with respect to the Facility Fee, 0.375%. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

(b) Section 1.1 of the
Credit Agreement is further amended by deleting the period at the end of the definition
of Letter of Credit Facility and replacing it with and as the same may
be replaced by a similar letter of credit agreement with the same or different agents,
issuing banks and other banks.

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(c) Section 1.1 of the
Credit Agreement is further amended by adding the following definitions in appropriate
alphabetical order:

| | Asset
          Disposition shall mean any sale, assignment, transfer or other disposition
          by the Borrower or any of its Subsidiaries to any other Person (other than to
          the Borrower or to a Wholly Owned Subsidiary), whether in one transaction or in
          a series of related transactions, of any of its assets, business units or other
          properties (including any interests in property, whether tangible or intangible,
          and including capital stock of Subsidiaries), excluding sales and licenses of
          inventory and other assets in the ordinary course of business. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | Debt
          Issuance shall mean the issuance or sale by the Borrower or any of its
          Subsidiaries of any debt securities, whether in a public offering of such
          securities or otherwise, to any Person that is not an Affiliate of the Borrower,
          except for any Indebtedness permitted under clauses (i), (ii), (iii), (iv),
          (vii), (viii), (ix), (xi) and (xii) of Section 7.2. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Net
          Cash Proceeds shall mean (i) in the case of any Debt Issuance or
          issuance of capital stock of the Borrower, the aggregate cash payments received
          by the Borrower and its Subsidiaries less reasonable and customary fees and
          expenses (including underwriting discounts and commissions) incurred by the
          Borrower and its Subsidiaries in connection therewith, and (ii) in the case
          of any Asset Disposition, the aggregate amount of all cash payments received by
          the Borrower and its Subsidiaries in connection with such Asset Disposition less
          (x) reasonable fees and expenses incurred by the Borrower and its
          Subsidiaries in connection therewith, (y) Indebtedness to the extent the
          amount thereof is secured by a Lien on the property that is the subject of such
          Asset Disposition and the transferee of (or holder of the Lien on) such Property
          requires that such Indebtedness be repaid as a condition to such Asset
          Disposition, and (z) any income or transfer taxes paid or reasonably
          estimated by the Borrower to be payable by the Borrower and its Subsidiaries as
          a result of such Asset Disposition. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | New
          Note Indebtedness Documents shall mean the applicable note purchase
          agreement and/or other documents evidencing the Indebtedness permitted under
          Section 7.2(xiii). | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Third
          Amendment Date shall mean the date of the Third Amendment to this
          Agreement. | 
| | -------------------------------------------------------------------------------------------------------- | 

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1.2 Amendments to
Section 2.6. Section 2.6 of the Credit Agreement is hereby amended by changing
subsection (d) thereof to subsection (e), and by inserting the following as a new
subsection (d):

| | (d)
          The Commitments shall, on each date upon which a prepayment of the Loans is
          required under Section 2.7(d), be automatically and permanently
          reduced by the amount, if any, of such required prepayment. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.3 Amendments to
Section 2.7. Section 2.7 of the Credit Agreement is hereby amended by changing
subsection (d) thereof to subsection (e), and by inserting the following as new
subsection (d):

| | (d)
          Promptly upon (and in any event not later than three (3) Business Days after)
          its receipt thereof, the Borrower will prepay the outstanding principal amount
          of the Loans in an amount equal to 100% of the Net Cash Proceeds from any Asset
          Disposition or Debt Issuance and will deliver to the Agents, concurrently with
          such prepayment, a certificate in form and substance reasonably satisfactory to
          the Agents setting forth the calculation of such Net Cash Proceeds. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.4 Amendment to Article
V. Article V shall be amended by adding new Sections 5.13 and 5.14 as follows:

| | 5.13
Best Efforts Regarding Capital Raising. The Borrower shall use its best efforts to raise
additional capital in order to repay the Obligations and reduce the Commitments in
accordance with the terms hereof. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | 5.14
          Reinsurance Agreement. On or before March 31, 2002, the Borrower will, or
          will cause its Subsidiaries to, consummate one or more Reinsurance Agreements
          with an aggregate cover amount of at least $40,000,000 and a duration until at
          least December 31, 2002 with third-party reinsurers reasonably acceptable to the
          Agents with respect to the reserves of all of the Borrowers Material
          Insurance Subsidiaries. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.5 Amendment to
Section 7.2. Section 7.2 of the Credit Agreement shall be amended by deleting the
word andat the end of clause (xi), by substituting (other than
Indebtedness specified in clauses (i) through (viii) and in clauses (x) through (xiii)) for
the first parenthetical in clause (ix), by substituting ; and for the period (.)
at the end of clause (xii), and by adding the following new clause (xiii) to the end
thereof:

| | (xiii)
          unsecured Indebtedness of the Borrower or its Subsidiaries incurred through Debt
          Issuance consummated after the Third Amendment Date, provided
          (a) the Borrower shall make the prepayments required by Section
          2.7(d), (b) such Indebtedness | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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| | shall have covenants and undertakings that,
          in the reasonable determination of the Agents, are not more restrictive on the
          Borrower and its Subsidiaries than those set forth herein, (c) such
          Indebtedness shall not require any scheduled payment of principal prior to 90
          days after the Maturity Date, (d) such Indebtedness shall be ranked no
          better than pari passu in right and time of payment to the Obligations,
          and (e) if requested by the Agents, the holders of such Indebtedness shall
          have entered into an intercreditor agreement with the Agents, on behalf of the
          Lenders, in form and substance satisfactory to the Agents. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.6 Amendment to
Section 7.3. Section 7.3 of the Credit Agreement shall be amended by deleting the
following language from the introductory clause thereof: or enter into or suffer to
exist any agreement or restriction that prohibits or conditions the creation, incurrence
or assumption of,.

1.7 Amendment to
Section 7.5. Section 7.5 of the Credit Agreement shall be amended by amending and
restating subclause (ii) thereof as set forth below and by adding a new subclause (iii)
as set forth below:

| | (ii)
          the Borrower may declare and make dividend payments or other distributions, in
          cash or in-kind, in each case provided that, immediately after giving
          effect thereto, no Default or Event of Default would exist; and | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | (iii)
          the Borrower may purchase, redeem, retire or otherwise acquire shares of its
          capital stock provided that, (a) immediately after giving effect
          thereto, no Default or Event of Default would exist, and (b) the aggregate
          amount repurchased does not exceed (x) $3,000,000 during the period
          beginning on October 1, 2001 and ending on the date that the Borrower
          provides evidence satisfactory to the Agents (in their sole discretion) that the
          Borrower has received Net Cash Proceeds in an aggregate amount of at least
          $100,000,000 from any issuance of its capital stock, and (y) $15,000,000
          thereafter. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.8 Amendment to Section
7.9. Section 7.9 of the Credit Agreement shall be amended and restated as follows:

| | 7.9
          Limitation on Certain Restrictions. The Borrower will not, and will not
          permit or cause any of its Subsidiaries to, directly or indirectly, create or
          otherwise cause or suffer to exist or become effective any restriction or
          encumbrance on (i) the ability of the Borrower and its Subsidiaries to
          perform and comply with their respective obligations under the Credit Documents,
          the Letter of Credit Facility or the New Note Indebtedness Documents, (ii) the
          ability of the Borrower or any Subsidiary to grant, assume or permit to exist
          any Lien upon any of its assets or properties as security, | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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| | directly or
          indirectly, for the Obligations, other than the restrictions set forth in the
          Credit Documents, Letter of Credit Facility or the New Note Indebtedness
          Documents, or (iii) the ability of any Subsidiary of the Borrower to make
          any dividend payments or other distributions in respect of its capital stock, to
          make loans or advances to the Borrower or any other Subsidiary, or to transfer
          any of its assets or properties to the Borrower or any other Subsidiary, in each
          case other than such restrictions or encumbrances existing under or by reason of
          the Credit Documents, the Letter of Credit Facility, the New Note Indebtedness
          Documents or applicable Requirements of Law. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

1.9 Amendment to
Section 8.1. Section 8.1 is further amended by deleting the or at end of
clause (k) thereof, by substituting ; or for the period (.) at the
end of clause (l), and by adding the following as a new clause (m) thereof:

| | (m)
There shall be a "default" or a "change of control" under the New Note Indebtedness
Documents. | 
| | -------------------------------------------------------------------------------------------------- | 

ARTICLE II

CONDITIONS TO EFFECTIVENESS

This Amendment
shall be effective (the Effective Date) only upon the satisfaction
of the following conditions precedent:

2.1 Executed Amendment.
The Documentation Agent shall have received executed signature pages of this Amendment
from the Borrower and the Required Lenders.

2.2 Representations and
Warranties. The representations and warranties contained in this Amendment shall be true
and correct as of the Effective Date.

2.3 Material Adverse
Change. No Material Adverse Change shall have occurred after December 31, 2000 other than
as disclosed in writing to the Lenders on or before the date hereof.

2.4 Material Proceedings.
There shall be no material pending litigation, bankruptcy or insolvency injunction, order
or claim pending with respect to the Borrower or any of its Subsidiaries.

2.5 Fees. The
Borrower shall have paid (i) to each Lender executing this Amendment, an amendment
fee equal to 0.10% of such Lenders Commitment outstanding on the date hereof, and
(ii) all other fees due and payable in connection with this Amendment.

2.6 Costs and Expenses.
The Borrower shall have paid all reasonable costs and expenses of the Agents presented to
it prior to the Effective Date in accordance with the Credit Documents.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1 Representations and
Warranties. As an inducement to obtain the consent and amendments set forth herein, the
Borrower represents and warrants to the Agents and the Lenders as follows:

(a) Each of the
representations and warranties of the Borrower contained in Article IV the Credit
Agreement is true and correct in all material respects on and as of the date hereof with
the same effect as if made on and as of the date hereof (except (i) to the extent
any such representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty is true and correct as of
such date and (ii) with respect to Section 4.10 only, as disclosed in writing to the
Lenders on or before the date hereof).

(b) After giving effect
to this amendment, no Default or Event of Default has occurred and is continuing.

ARTICLE IV

GENERAL

4.1 Effect of Amendment.
From and after the date hereof, all references to the Credit Agreement set forth in any
other Credit Document or other agreement or instrument shall, unless otherwise
specifically provided, be references to the Credit Agreement as amended by this Amendment
and as may be further amended, modified, restated or supplemented from time to time. This
Amendment is limited as specified and shall not constitute or be deemed to constitute an
amendment, modification or waiver of any provision of the Credit Agreement or of any
other Credit Document except as expressly set forth herein. Except as expressly amended
hereby, the Credit Agreement shall remain in full force and effect in accordance with its
terms.

4.2 Governing Law. This
Amendment shall be governed by and construed and enforced in accordance with the laws of
the State of North Carolina (without regard to the conflicts of law provisions thereof).

4.3 Severability.
To the extent any provision of this Amendment is prohibited by or invalid under the
applicable law of any jurisdiction, such provision shall be ineffective only to the
extent of such prohibition or invalidity and only in any such jurisdiction, without
prohibiting or invalidating such provision in any other jurisdiction or the remaining
provisions of this Amendment in any jurisdiction.

4.4 Successors and
Assigns. This Amendment shall be binding upon, inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.

4.5 Construction.
The headings of the various sections and subsections of this Amendment have been inserted
for convenience only and shall not in any way affect the meaning or construction of any
of the provisions hereof.

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4.6 Counterparts;
Effectiveness. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one and the
same instrument.

[The remainder of this page left blank intentionally]

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IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be executed by
their duly authorized officers all as of the day and year first above written.

| |                                                                   |                          
| | ----------------------------------------------------------------- | -------------------------
| | PMA CAPITAL CORPORATION                                          
|
| | By:                                                               | /s/ Albert D. Ciavardelli
| |                                                                   |                          
| | Name:                                                             | Albert D. Ciavardelli    
| |                                                                   |                          
| | Title:                                                            | Vice President - Finance 
| |                                                                   |                          
|
| | THE BANK OF NEW YORK, as Administrative Agent and a Lender       
|
| | By:                                                               | /s/ David Trick          
| |                                                                   |                          
| | Name:                                                             | David Trick              
| |                                                                   |                          
| | Title:                                                            | Vice President           
| |                                                                   |                          
|
| | FIRST UNION NATIONAL BANK, as Documentation Agent and as a Lender
|
| | By:                                                               | /s/ Kimberly Shaffer     
| |                                                                   |                          
| | Name:                                                             | Kimberly Shaffer         
| |                                                                   |                          
| | Title:                                                            | Director                 
| |                                                                   |                          
|

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| |                                 |                       
| | ------------------------------- | ----------------------
| | CREDIT LYONNAIS NEW YORK BRANCH
|
| | By:                             | /s/ Sebastian Rocco   
| |                                 |                       
| | Name:                           | Sebastian Rocco       
| |                                 |                       
| | Title:                          | Senior Vice President 
| |                                 |                       
|
| | FLEET NATIONAL BANK            
|
| | By:                             | /s/ Lawrence Davis    
| |                                 |                       
| | Name:                           | Lawrence Davis        
| |                                 |                       
| | Title:                          | Portfolio Manager     
| |                                 |                       
|
| | PNC BANK, NATIONAL ASSOCIATION 
|
| | By:                             | /s/ Robert J. Giannone
| |                                 |                       
| | Name:                           | Robert J. Giannone    
| |                                 |                       
| | Title:                          | Vice President        
| |                                 |                       
|
|
| | MELLON BANK N.A.               
|
| | By:                             | /s/ Gary A. Best      
| |                                 |                       
| | Name:                           | Gary A. Best          
| |                                 |                       
| | Title:                          | Vice President        
| |                                 |                       
|

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| |                                                           |                              
| | --------------------------------------------------------- | -----------------------------
| | DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH
|
| | By:                                                       | /s/ Erika P. Walters-Engemann
| |                                                           |                              
| | Name:                                                     | Erika P. Walters-Engemann    
| |                                                           |                              
| | Title:                                                    | Director                     
| |                                                           |                              
|
|
| | By:                                                       | /s/ Jonathan Wallin          
| |                                                           |                              
| | Name:                                                     | Jonathan Wallin              
| |                                                           |                              
| | Title:                                                    | Vice President               
| |                                                           |                              
|
| | UNION BANK OF CALIFORNIA, N.A.                           
|
| | By:                                                       | /s/ Christine Davis          
| |                                                           |                              
| | Name:                                                     | Christine Davis              
| |                                                           |                              
| | Title:                                                    | Vice President               
| |                                                           |                              

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