10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 2800      Philadelphia, 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.

INDEX

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

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

        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			Gross			Net			Gross			Net
PMA Re	$	776,787		$	639,039		$	476,591		$	360,604		$	394,823		$	261,505			56	%		58	%
The PMA Insurance Group		515,332			452,276			416,695			355,547			335,466			268,839			37	%		41	%
Run-off Operations		105,308			14,563			124,335			53,674			93,405			16,043			7	%		1	%
Corporate and Other		(10,881	)		(881	)		(767	)		(767	)		(2,431	)		(832	)		--			--
Total	$	1,386,546		$	1,104,997		$	1,016,854		$	769,058		$	821,263		$	545,555			100	%		100	%

        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

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 12^th 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

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	59	%	$	68,828	59	%	$	63,455	47	%
Pro Rata		129,657	41	%		46,986	41	%		71,269	53	%
Total Traditional-Treaty	$	314,172	100	%	$	115,814	100	%	$	134,724	100	%

• 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

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			Net			Gross		Net
Traditional - Treaty
Casualty	$	248,955	$	200,928	$	98,264		$	66,754		$	155,913	$	85,401
Property		128,256		108,040		71,668			47,674			67,742		48,752
Other		5,744		5,204		1,386			1,386			571		571
Total		382,955		314,172		171,318			115,814			224,226		134,724
Finite Risk and Financial Products
Casualty		127,291		112,042		115,220			90,480			57,825		40,309
Property		105,527		99,671		128,110			118,296			50,007		47,736
Other		19,595		19,007		1,197			1,163			1,230		1,209
Total		252,413		230,720		244,527			209,939			109,062		89,254
Specialty - Treaty
Casualty		87,648		71,594		31,690			24,452			48,689		32,082
Property		3,915		3,358		2,093			1,403			1,531		1,229
Other		525		519		397			397			751		751
Total		92,088		75,471		34,180			26,252			50,971		34,062
Facultative
Casualty		39,750		12,034		21,498			4,917			6,450		95
Property		9,581		6,642		5,069			3,683			4,113		3,369
Other		--		--		(1	)		(1	)		1		1
Total		49,331		18,676		26,566			8,599			10,564		3,465
Total Casualty		503,644		396,598		266,672			186,603			268,877		157,887
Total Property		247,279		217,711		206,940			171,056			123,393		101,086
Total Other		25,864		24,730		2,979			2,945			2,553		2,532
Total Premiums Written	$	776,787	$	639,039	$	476,591		$	360,604		$	394,823	$	261,505

        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	$	222,880		29%
AON Reinsurance		181,463		23%
Towers Perrin		114,076		15%
Benfield Blanch		102,124		13%

5

        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

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%	$	321,942	77%	$	250,237	75%
Commercial automobile		55,946	11%		50,474	12%		40,398	12%
Commercial multi-peril		34,898	7%		34,227	8%		38,325	11%
Other		13,511	2%		10,052	3%		6,506	2%
Total	$	515,332	100%	$	416,695	100%	$	335,466	100%
Net premiums written:
Workers' compensation and integrated disability	$	373,353	82%	$	292,171	82%	$	210,870	78%
Commercial automobile		44,743	10%		35,985	10%		29,178	11%
Commercial multi-peril		26,627	6%		22,360	6%		27,317	10%
Other		7,553	2%		5,031	2%		1,474	1%
Total	$	452,276	100%	$	355,547	100%	$	268,839	100%

7

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%	$	132,211	43%	$	120,276	48%
New Jersey		36,312	9%		37,794	12%		30,769	13%
New York		33,176	8%		29,349	10%		19,113	8%
Virginia		23,230	6%		20,736	7%		18,319	7%
North Carolina		17,726	5%		16,063	5%		13,925	6%
Maryland		15,834	4%		12,039	4%		8,253	3%
Delaware		10,665	3%		6,477	2%		7,643	3%
Georgia		10,325	3%		8,200	3%		5,078	2%
South Carolina		8,397	2%		6,745	2%		5,275	2%
Other		57,870	15%		37,597	12%		20,137	8%
Total	$	390,240	100%	$	307,211	100%	$	248,788	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%		59%		60%
Loss-sensitive products		33%		34%		33%
Alternative market products		9%		7%		7%
Total		100%		100%		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

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

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		$	45.0 million
Property lines	$	10.0 million		$	40.0 million
Per Risk:
Property lines	$	1.0 million		$	4.0 million
Casualty lines	$	1.5 million		$	6.0 million
The PMA Insurance Group
Per Occurrence:
Workers' compensation	$	250,000	(2)	$	104.8 million
Per Risk:
Property lines(3)	$	500,000		$	19.5 million
Auto physical damage	$	500,000		$	2.5 million
Other casualty lines(4), (5)	$	500,000		$	4.5 million

(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)	Reinsurance Receivables	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

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

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		$	1,284.4	$	1,128.7	$	1,143.1	$	1,184.3
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		$	494.9	$	457.0	$	644.3		--
- two years later		779.1		746.1			763.7			780.0			669.6			646.0			717.7			764.1		838.8
- three years later		1,066.8		1,055.9			1,072.9			999.0			894.8			924.6			880.3			1,052.9
- 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		$	1,290.9	$	1,152.2	$	1,302.8		--
- two years later		2,006.5		1,982.5			2,073.4			1,866.8			1,700.5			1,557.6			1,299.7			1,304.1		1,269.4
- three years later		2,060.6		2,163.9			1,986.7			1,819.2			1,611.1			1,495.3			1,288.9			1,336.6
- 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	)	$	52.2	$	140.7	$	159.7		--
V. Net liability			$	1,932.0		$	1,855.9		$	1,808.5		$	1,834.5		$	1,670.9		$	1,347.2		$	1,284.4	$	1,128.7	$	1,143.1	$	1,184.3
Reinsurance recoverables				218.7			247.9			261.5			256.6			332.3			593.7			648.2		924.4		1,181.3		1,265.6
Gross liability			$	2,150.7		$	2,103.8		$	2,070.0		$	2,091.1		$	2,003.2		$	1,940.9		$	1,932.6	$	2,053.1	$	2,324.4	$	2,449.9
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	$	1,269.4	$	1,302.8
Re-estimated reinsurance       recoverables				220.7			264.6			295.6			279.6			344.8			627.2			879.1		1,156.3		1,292.7
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	$	2,425.7	$	2,595.5

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	$	(1,568	)	$	9,691
The PMA Insurance Group		1,082		2,889			(6,074	)
Run-off Operations		51,800		22,191			2,874
Total net unfavorable development	$	159,748	$	23,512		$	6,491

        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

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

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

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

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

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

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

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

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 Officer and Treasurer
Robert L. Pratter	58	Senior Vice President, General Counsel and Secretary
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

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

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	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	3,096,494	16.93	2,000,661
Equity compensation plans not approved by security holders	-0-	-0-	-0-
Total	3,096,494	16.93	2,000,661

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

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 and a 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 Corporation
Index 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			2001
Assets
Cash	$	-		$	1
Investment in subsidiaries		700,399			741,700
Related party receivables		6,609			-
Deferred income taxes, net		38,044			20,953
Other assets		18,542			8,040
Total assets	$	763,594		$	770,694
Liabilities
Short-term debt	$	65,000		$	62,500
Long-term debt		86,250			-
Related party payables		-			66,773
Other liabilities		30,954			29,415
Total liabilities		182,204			158,688
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)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		319,014			382,165
Accumulated other comprehensive income		34,552			5,375
Notes receivable from officers		(62	)		(158	)
Treasury stock, at cost (2002 - 2,889,023 shares; 2001 - 3,050,939 shares)		(52,535	)		(55,797	)
Total shareholders' equity		581,390			612,006
Total liabilities and shareholders' equity	$	763,594		$	770,694

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

FS-2

PMA Capital Corporation
Schedule II – Registrant Only Financial Statements
Statements of Operations
(Parent Company Only)

	Years Ended December 31,
(dollar amounts in thousands)	2002			2001			2000
Revenues:
Net investment income (expense)	$	(18	)	$	45		$	(60	)
Other revenues		8			50			653
Total revenues		(10	)		95			593
Expenses:
General expenses		8,819			6,143			5,189
Interest expense		4,090			7,629			12,708
Total expenses		12,909			13,772			17,897
Loss before income taxes and equity in earnings
(loss) of subsidiaries		(12,919	)		(13,677	)		(17,304	)
Income tax benefit		(32,548	)		(16,415	)		(11,628	)
Income (loss) before equity in earnings (loss)
of subsidiaries		19,629			2,738			(5,676	)
Equity in earnings (loss) of subsidiaries		(67,653	)		4,365			7,001
Net income (loss)	$	(48,024	)	$	7,103		$	1,325

These financial statements should be read in conjunction with the Consolidated Financial
Statements 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			2001			2000
Cash Flows From Operating Activities:
Net income (loss)	$	(48,024	)	$	7,103		$	1,325
Adjustments to reconcile net income (loss) to net cash flows provided
by operating activities:
Equity in earnings (loss) of subsidiaries		67,653			(4,365	)		(7,001	)
Dividends received from subsidiaries		28,000			29,600			35,925
Net tax sharing payments received from subsidiaries		11,989			2,403			6,404
Deferred income tax benefit		(16,954	)		(12,520	)		(4,091	)
Other, net		(6,994	)		(9,583	)		3,838
Net cash flows provided by operating activities		35,670			12,638			36,400
Cash Flows From Investing Activities:
Cash contributions to subsidiaries		(25,175	)		(103,850	)		(9,000	)
Net cash flows used in investing activities		(25,175	)		(103,850	)		(9,000	)
Cash Flows From Financing Activities:
Proceeds from issuance of stock		-			157,868			-
Dividends paid to shareholders		(12,102	)		(9,035	)		(8,020	)
Proceeds from exercise of stock options		2,866			1,387			2,866
Purchase of treasury stock		(1,726	)		(5,323	)		(18,427	)
Proceeds from issuance of debt		151,250			-			-
Debt issue costs		(3,009	)		-			-
Repayments of debt		(62,500	)		(100,500	)		-
Net repayments (issuance) of notes receivable from officers		96			(102	)		-
Change in related party receivables and payables		(85,371	)		46,483			(3,989	)
Net cash flows provided by (used in) financing activities		(10,496	)		90,778			(27,570	)
Net decrease in cash		(1	)		(434	)		(170	)
Cash - beginning of year		1			435			605
Cash - end of year	$	-		$	1		$	435
Supplementary cash flow information:
Income taxes paid (refunded)	$	(10,649	)	$	(8,991	)	$	7,300
Interest paid	$	2,924		$	8,163		$	12,615

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

FS-4

PMA Capital Corporation
Schedule III
Supplementary Insurance Information

(dollar amounts in thousands)	Deferred acquisition costs		Unpaid losses and loss adjustment expenses			Unearned premiums		Net premiums earned			Net investment income(1)			Losses and loss adjustment expenses		Acquisition expenses		Operating expenses		Net premiums written
December 31, 2002:
PMA Re	$	56,029	$	1,089,079		$	195,400	$	551,513		$	48,736		$	439,228	$	134,146	$	13,453	$	639,039
The PMA Insurance Group		32,266		1,192,069			189,799		410,266			35,613			307,734		71,874		48,032		452,276
Run-off Operarions		927		215,667			20,180		30,113			1,140			76,696		10,964		31,094		14,563
Corporate and Other (2)		-		(46,925	)		-		(881	)		(608	)		-		-		10,229		(881	)
Total	$	89,222	$	2,449,890		$	405,379	$	991,011		$	84,881		$	823,658	$	216,984	$	102,808	$	1,104,997
December 31, 2001:
PMA Re	$	34,286	$	1,047,503		$	105,085	$	340,401		$	45,361		$	297,623	$	71,013	$	20,188	$	360,604
The PMA Insurance Group		24,932		1,107,141			146,658		346,574			39,444			258,933		60,909		40,181		355,547
Run-off Operarions		5,132		189,534			56,549		46,232			3,124			60,207		7,060		8,257		53,674
Corporate and Other (2)		-		(19,739	)		-		(767	)		(984	)		-		-		9,389		(767	)
Total	$	64,350	$	2,324,439		$	308,292	$	732,440		$	86,945		$	616,763	$	138,982	$	78,015	$	769,058
December 31, 2000:
PMA Re	$	22,969	$	871,727		$	90,851	$	251,109		$	51,125		$	229,925	$	65,522	$	14,084	$	261,505
The PMA Insurance Group		23,554		1,058,524			138,554		252,348			47,969			189,001		46,464		34,495		268,839
Run-off Operarions		1,999		132,104			40,329		28,799			4,424			30,462		668		9,107		16,043
Corporate and Other (2)		-		(9,217	)		-		(832	)		(927	)		-		-		9,395		(832	)
Total	$	48,522	$	2,053,138		$	269,734	$	531,424		$	102,591		$	449,388	$	112,654	$	67,081	$	545,555

(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 Corporation
Schedule IV
Reinsurance

(dollar amounts in thousands)	Direct amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
Year Ended December 31, 2002:
Property and liability insurance premiums	$	599,827	$	300,556	$	691,740	$	991,011		70%
Year Ended December 31, 2001:
Property and liability insurance premiums	$	508,821	$	243,356	$	466,975	$	732,440		64%
Year Ended December 31, 2000:
Property and liability insurance premiums	$	416,152	$	278,556	$	393,828	$	531,424		74%

FS-6

PMA Capital Corporation
Schedule V
Valuation and Qualifying Accounts

(dollar amounts in thousands)
Description	Balance at beginning of period	Charged (credited) to costs and expenses		Deductions - write-offs of uncollectible accounts		Balance at end of period
Year ended December 31, 2002:
Allowance for uncollectible accounts:
Premiums receivable	$12,583	$245		($3,300	)	$9,528
Reinsurance receivables	4,562	4,371		(3,450	)	5,483
Year ended December 31, 2001:
Allowance for uncollectible accounts:
Premiums receivable	$16,630	($4,358	)	$311		$12,583
Reinsurance receivables	4,328	234		-		4,562
Year ended December 31, 2000:
Allowance for uncollectible accounts:
Premiums receivable	$18,088	($1,450	)	($8	)	$16,630
Reinsurance receivables	5,528	(1,200	)	-		4,328

FS-7

PMA Capital Corporation
Schedule VI
Supplemental Information Concerning Property and Casualty Insurance Operations

(dollar amounts in thousands)
Affiliation with registrant	Deferred acquisition costs		Unpaid losses and loss adjustment expenses		Discount on unpaid losses and loss adjustment expenses(1)		Unearned premiums		Net premiums earned		Net investment income		Losses and loss adjustment expenses incurred        related to        Current        Prior     year       years(2)				Acquisition expenses		Paid losses and loss adjustment expenses		Net premiums written
Consolidated property-casualty
subsidiaries:
December 31, 2002	$	89,222	$	2,449,890	$	103,811	$	405,379	$	991,011	$	84,881	$	655,395	$	159,748	$	216,984	$	732,469	$	1,104,997
December 31, 2001		64,350		2,324,439		113,712		308,292		732,440		86,945		586,392		23,512		138,982		602,355		769,058
December 31, 2000		48,522		2,053,138		103,994		269,734		531,424		102,591		432,767		6,491		112,654		556,053		545,555

(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 on
Financial 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.	Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q/A, No. 1 for the quarter ended June 30, 2001 and incorporated herein by reference.
	3.2	Amended and Restated Bylaws of the Company.	Filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q/A, No. 1 for the quarter ended June 30, 2001 and incorporated herein by reference.
(4)		Instruments defining the rights of security holders, including indentures:
	4.1	Rights Agreement, dated as of May 3, 2000, between the Company and The Bank of New York, as Rights Agent.	Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated May 5, 2000 and incorporated herein by reference.
	4.2	Senior Indenture, dated as of October 21, 2002, between the Company and State Street Bank and Trust Company, as Trustee.	Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
	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.	Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
	4.4	Form of 4.25% Convertible Senior Debenture due September 30, 2022.	Filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
(10)		Material Contracts: Exhibits 10.1 through 10.26 are management contracts or compensatory plans.
	10.1	Description of 2001 stock appreciation rights.	Filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference.
	10.2	PMA Capital Corporation 401(k) Excess Plan (as Amended and Restated effective January 1, 2000).	Filed herewith.
	10.3	PMA Capital Corporation Executive Deferred Compensation Plan (as Amended and Restated effective January 1, 2000).	Filed herewith.
	10.4	PMA Capital Corporation Supplemental Executive Retirement Plan (as Amended and Restated effective January 1, 2000).	Filed herewith.
	10.5	PMA Capital Corporation Executive Management Pension Plan (as Amended and Restated effective January 1, 2000).	Filed herewith.
	10.6	Amended and Restated Employment Agreement, dated May 1, 1999, between PMA Capital Corporation and Frederick W. Anton III.	Filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q/A, No. 1 for the quarter ended June 30, 1999 and incorporated herein by reference.

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

	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 the Sarbanes-Oxley Act of 2002	Filed herewith.
	99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-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

EX-10

PMA CAPITAL CORPORATION
401(k) EXCESS PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)

TABLE OF CONTENTS

                                                TABLE OF CONTENTS
                                                                                                               Page

ARTICLE I - INTRODUCTION..........................................................................................1

   1.1   Introduction.............................................................................................1

ARTICLE II - DEFINITIONS..........................................................................................1

   2.1   Administrator............................................................................................1
   2.2   Affiliated Employer......................................................................................1
   2.3   Annual Distribution Period...............................................................................1
   2.4   Beneficiary..............................................................................................2
   2.5   Board of Directors.......................................................................................2
   2.6   Change of Control........................................................................................2
   2.7   Code.....................................................................................................2
   2.8   Compensation.............................................................................................2
   2.9   Deferred Compensation Plan...............................................................................2
   2.10  Determination Date.......................................................................................2
   2.11  Early Retirement Date....................................................................................2
   2.12  Eligible Employee........................................................................................2
   2.13  Employee Pre-Tax Contributions...........................................................................2
   2.14  Employee Pre-Tax Credits.................................................................................2
   2.15  Employer Matching Contributions..........................................................................3
   2.16  Employer Matching Credits................................................................................3
   2.17  Employment Termination Date..............................................................................3
   2.18  ERISA....................................................................................................3
   2.19  Excess 401(k) Plan Account...............................................................................3
   2.20  Excess Salary Reduction Agreement........................................................................3
   2.21  Normal Retirement Date...................................................................................3
   2.22  Participant..............................................................................................3
   2.23  Participating Company....................................................................................3
   2.24  Payroll Period...........................................................................................3
   2.25  Plan.....................................................................................................3
   2.26  Plan Sponsor.............................................................................................3
   2.27  Plan Year................................................................................................3
   2.28  Qualified Plan...........................................................................................3
   2.29  Restatement Effective Date...............................................................................4
   2.30  Total Disability.........................................................................................4
   2.31  Valuation Date...........................................................................................4
   2.32  Vanguard Funds...........................................................................................4

ARTICLE III - PARTICIPATION.......................................................................................4

   3.1   Eligibility to Participate...............................................................................4
   3.2   Procedure for and Effect of Admission....................................................................4

ARTICLE IV - CREDITS TO EXCESS 401(K) PLAN ACCOUNTS...............................................................4

   4.1   Establishment of Plan Accounts...........................................................................4
   4.2   Investment Obligation of the Plan Sponsor................................................................4
   4.3   Employee Pre-Tax Credit..................................................................................5
   4.4   Salary Reduction Agreement...............................................................................5
   4.5   Employer Matching Credits................................................................................5
   4.6   Allocation among Investment Options......................................................................5
   4.7   Administration of Investments............................................................................6
   4.8   Valuation of Excess 401(k) Plan Accounts.................................................................6

ARTICLE V - VESTING...............................................................................................6

   5.1   Immediate Vesting........................................................................................6

ARTICLE VI - PAYMENT OF BENEFITS..................................................................................6

   6.1   Benefit upon Termination of Employment...................................................................6
   6.2   Payment of Benefits at Retirement........................................................................6
   6.3   Payment of Benefits Following Death......................................................................7
   6.4   Earnings  where Installment Payments Are Made............................................................7
   6.5   Form of Payment..........................................................................................7
   6.6   Change of Control where Installment Payments Are Made....................................................7
   6.7   Reduced Benefit upon Request following a Change of Control...............................................7
   6.8   Total Disability.........................................................................................7

ARTICLE VII - ADMINISTRATION OF THE PLAN..........................................................................7

   7.1    Administrator...........................................................................................7
   7.2   Committee Action.........................................................................................8
   7.3   Powers and Duties of the Administrator...................................................................8
   7.4   Decisions of Administrator...............................................................................9
   7.5   Administrative Expenses..................................................................................9
   7.6   Eligibility to Participate...............................................................................9
   7.7   Insurance and Indemnification for Liability..............................................................9
   7.8   Agent for Service of Legal Process.......................................................................9
   7.9   Delegation of Responsibility.............................................................................9
   7.10  Claims Procedure.........................................................................................9

ARTICLE VIII - AMENDMENT AND TERMINATION.........................................................................11

   8.1   Amendment or Termination................................................................................11

ARTICLE IX - MISCELLANEOUS.......................................................................................11

   9.1   Funding.................................................................................................11
   9.2   Status of Employment....................................................................................11
   9.3   Payments to Minors and Incompetents.....................................................................11
   9.4   Inalienability of Benefits..............................................................................12
   9.5   Governing Law...........................................................................................12
   9.6   Severability............................................................................................12
   9.7   Required Information to Administrator...................................................................12
   9.8   Income and Payroll Tax Withholding......................................................................12
   9.9   Application of Plan.....................................................................................12
   9.10  No Effect on Other Benefits.............................................................................12
   9.11  Inurement...............................................................................................13
   9.12  Notice..................................................................................................13
   9.13  Captions................................................................................................13
   9.14  Acceleration of Payments................................................................................13
   9.15  Reporting and Disclosure Requirements...................................................................13
   9.16  Gender and Number.......................................................................................13

ARTICLE X - ADOPTION BY AFFILIATED EMPLOYERS.....................................................................14

   10.1  Adoption of Plan........................................................................................14
   10.2  Withdrawal from Plan....................................................................................14
   10.3  Application of Withdrawal Provisions....................................................................14
   10.4  Plan Sponsor Appointed Agent of Participating Companies.................................................14

APPENDIX A - INVESTMENT OPTIONS AVAILABLE FOR MEASUREMENT OF INVESTMENT EARNINGS OR LOSSES UNDER PLAN............15


APPENDIX B - LIST OF PARTICIPATING COMPANIES.....................................................................16


PLAN EXHIBIT A - PLAN ADOPTION AGREEMENT.........................................................................17


PLAN ADOPTION AGREEMENT - PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - PMA CAPITAL INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE INDEMNITY COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE MANAGEMENT COMPANY, INC.


PLAN ADOPTION AGREEMENT - PMA MANAGEMENT CORP.


PLAN ADOPTION AGREEMENT - PMA RE MANAGEMENT COMPANY

-iii-

PMA CAPITAL CORPORATION
401(k) EXCESS PLAN

ARTICLE I - INTRODUCTION

        1.1 Introduction. PMA Capital Corporation (then known as the Pennsylvania Manufacturers Corporation) (the “Plan Sponsor”) previously established the PMA Capital Corporation Executive Deferred Compensation Plan (then known as the PMC Executive Deferred Compensation Plan) (the “Deferred Compensation Plan”) to provide certain benefits in excess of the benefit provided under the PMA Capital Corporation 401(k) Plan (then known as The PMC 401(k) Plan) (the “Qualified Plan”). The Plan Sponsor decided, effective January 1, 1999, to provide certain benefits previously provided under the Deferred Compensation Plan in a separate plan known as the PMA Capital Corporation 401(k) Excess Plan (the “Plan”), and restated the Deferred Compensation Plan to, among other things, reflect the removal from the Deferred Compensation Plan of those provisions set forth herein.

        The Plan was established for the purpose of providing certain employees of the Plan Sponsor and certain of its affiliated employers with certain benefits that would be provided under the Qualified Plan but for the limitations imposed by Sections 401(k), 401(m), 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended. The Plan is intended to be an unfunded arrangement, maintained primarily for the purpose of providing deferred compensation for a select group of management and/or highly compensated employees of the Plan Sponsor and its affiliated employers within the meaning of Sections 201(2) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.

        The Plan Sponsor now desires to provide that the termination of a Participant’s employment by a Participating Company before such Participant’s Normal Retirement Date shall not constitute a Participant’s Employment Termination Date for purposes of Article VI of the Plan if such Participant is immediately thereafter employed by PMA Foundation or by one of its affiliates.

        In order to effect the foregoing the Plan Sponsor desires to amend and restate the Plan effective January 1, 2000 on the terms set forth herein.

ARTICLE II - DEFINITIONS

        The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:

        2.1Administrator means the committee (hereinafter referred to as “Committee”) appointed by the President of the Plan Sponsor to serve as the Administrator of the Plan. If no such Committee is appointed, the Plan Sponsor shall be the Administrator of the Plan.

        2.2 Affiliated Employer means a member of a group of employers, of which the Plan Sponsor is a member and which group constitutes:

        (a)  A controlled group of corporations (as defined in Section 414(b) of the Code);

        (b)  Trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code);

        (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in Section 414(m) of the Code); or

        (d) Any other entity required to be aggregated with the Plan Sponsor pursuant to Section 414(o) of the Code and the Treasury regulations thereunder.

        2.3 Annual Distribution Period means the first 60 days of a Plan Year.

-1-

        2.4 Beneficiary means the Participant’s designated beneficiary under the Qualified Plan, unless the Participant designates a different beneficiary (or, in the event there is no designated beneficiary under the Qualified Plan, (a) the Participant’s surviving spouse, or (b) if there is no surviving spouse, the Participant’s beneficiary under the Plan Sponsor’s group term life insurance program, or (c) if neither (a) nor (b) is applicable, the executors and/or administrators of the Participant’s estate).

        2.5 Board of Directors means the Board of Directors of the Plan Sponsor, as from time to time constituted, or any committee thereof which is authorized to act on behalf of the Board of Directors.

        2.6 Change of Control means a change of control of the Plan Sponsor of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Item 1(a) of a Current Report on Form 8-K or any successor rule, whether or not the Plan Sponsor is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to have occurred if:

        (a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or first becomes the “beneficial owner” (as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly, in a transaction or series of transactions, of securities of the Plan Sponsor representing more than 50% of the voting power of the Plan Sponsor’s voting capital stock (the “Voting Stock”); or

        (b) The consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Plan Sponsor; or

        (c) At any time individuals who were either nominated for election by the Plan Sponsor’s Board of Directors or were elected by the Plan Sponsor’s Board of Directors cease for any reason to constitute at least a majority of the Plan Sponsor’s Board of Directors.

        2.7 Code means the Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section.

        2.8 Compensation means a Participant’s Compensation as such term is defined in the Qualified Plan, without taking into account the Code Section 401(a)(17) limitation and before reduction for employee contributions under this or any other nonqualified savings plan.

        2.9 Deferred Compensation Plan means the PMA Capital Corporation Executive Deferred Compensation Plan (formerly known as the PMC Executive Deferred Compensation Plan).

        2.10 Determination Date means March 31, June 30, September 30 and December 31 of each Plan Year.

        2.11 Early Retirement Date means “Early Retirement Date” as such term is defined in the PMA Capital Corporation Pension Plan or in the PMA Foundation Pension Plan, as applicable.

        2.12 Eligible Employee means an officer of a Participating Company, provided such officer is a member of a select group of management and highly compensated employees within the meaning of Section 201(2) of ERISA.

        2.13 Employee Pre-Tax Contributions means the employee pre-tax contributions (i.e., Basic Contributions) that a Participant may elect to make to the Qualified Plan.

        2.14 Employee Pre-Tax Credits means the amounts credited to a Participant’s Excess 401(k) Plan Account pursuant to Section 4.3.

-2-

        2.15 Employer Matching Contributions means the employer matching contributions made by the Participating Company on behalf of a Participant to the Qualified Plan.

        2.16 Employer Matching Credits means the amounts credited to a Participant’s Excess 401(k) Plan Account pursuant to Section 4.5.

        2.17 Employment Termination Date means the date on which the Participant’s status as an employee of any Participating Company terminates but if such Participant terminates employment with the Participating Companies before his/her Normal Retirement Date and is immediately thereafter employed by PMA Foundation or one of its affiliates, the Participant’s Employment Termination Date means, solely for purposes of Article VI, the date on which the Participant’s status as an employee of PMA Foundation or any of its affiliates terminates. The intent of the foregoing is that, if a Participant terminates employment with the Participating Companies before his/her Normal Retirement Date and is immediately thereafter employed by PMA Foundation or one of its affiliates, such termination shall not constitute such Participant’s Employment Termination Date for purposes of Article VI but rather the termination of such Participant’s employment with PMA Foundation and its affiliates shall constitute such Participant’s Employment Termination Date. However, if such Participant’s employment with the Participating Companies terminates on or after his/her Normal Retirement Date, his/her termination of employment with the Participating Companies shall constitute his/her Employment Termination Date for purposes of Article VI even if such Participant is immediately thereafter employed by PMA Foundation or one of its affiliates.

        2.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific Section of ERISA shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section.

        2.19 Excess 401(k) Plan Account means the separate account established and maintained, solely as a bookkeeping entry, by the Plan Sponsor in the name of each Participant pursuant to, and in accordance with, Section 4.1.

        2.20 Excess Salary Reduction Agreement means the written salary reduction agreement entered into by a Participant and the Participating Company pursuant to this Plan and which is made on a form prescribed by the Administrator.

        2.21 Normal Retirement Date means “Normal Retirement Date” as such term is defined in the PMA Corporation Pension Plan or in the PMA Foundation Pension Plan, as applicable.

        2.22 Participant means an Eligible Employee who is participating in the Plan in accordance with the provisions of Article III.

        2.23 Participating Company means the Plan Sponsor and each of its Affiliated Employers which, upon the approval of the Board of Directors, has agreed to participate in this Plan in accordance with the provisions of Article X. Each Participating Company is listed on Appendix B.

        2.24 Payroll Period means the regular payroll period used by the Participating Company for the payment of wages and salaries to employees.

        2.25 Plan means the PMA Capital Corporation 401(k) Excess Plan, as set forth in this document and as amended from time to time.

        2.26 Plan Sponsor means PMA Capital Corporation (formerly known as Pennsylvania Manufacturers Corporation), a Pennsylvania corporation.

        2.27 Plan Year means the calendar year.

        2.28 Qualified Plan means the PMA Capital Corporation 401(k) Plan, as amended from time to time.

-3-

        2.29 Restatement Effective Date means January 1, 2000. The original effective date of the Plan was January 1, 1999.

        2.30 Total Disability means a medically determinable physical or mental condition of such severity and probable prolonged duration as to render the Participant, as determined by the Administrator, upon the advice of a licensed physician the Administrator may consult, unable to meet the requirements of his or her customary employment in a satisfactory manner. A Participant’s Total Disability shall be determined by the Administrator upon the basis of a medical examination and of such other evidence as the Administrator deems necessary and desirable. However, a Participant’s eligibility for disability benefits under Title II of the Federal Social Security Act or under the Plan Sponsor’s insured long term disability plan shall be conclusive proof of the Participant’s Total Disability.

        2.31 Valuation Date means each day on which the NYSE is open for business and such other date(s), if any, as the Administrator shall determine.

        2.32 Vanguard Funds means any of the mutual funds of The Vanguard Group of Investment Companies listed in Appendix A.

ARTICLE III - PARTICIPATION

        3.1 Eligibility to Participate. Any Eligible Employee who is participating in the Qualified Plan shall be eligible to become a Participant in this Plan.

        3.2 Procedure for and Effect of Admission. An Eligible Employee shall become a Participant once he/she has completed an Excess Salary Reduction Agreement and such other forms and provided such data as are reasonably required by the Administrator. By becoming a Participant, an Eligible Employee shall for all purposes be deemed conclusively to have assented to the provisions of this Plan and all amendments hereto.

ARTICLE IV —CREDITS TO EXCESS 401(K) PLAN ACCOUNTS

        4.1 Establishment of Plan Accounts. The Plan Sponsor shall establish and maintain on its books and records, solely as a bookkeeping entry, an Excess 401(k) Plan Account for each Participant. Each Excess 401(k) Plan Account will be used to record:

        (a) The Employee Pre-Tax Credits and Employer Matching Credits credited under this Plan on behalf of the Participant pursuant to Sections 4.3 and 4.5;

        (b) The credits or debits for investment earnings or losses under Section 4.6; and

        (c) The payments of benefits to the Participant or the Participant’s Beneficiary under Article VI.

        4.2 Investment Obligation of the Plan Sponsor.Benefits are payable as they become due irrespective of any actual investments the Plan Sponsor may make to meet its obligations. Neither the Plan Sponsor, nor any trustee (in the event the Plan Sponsor elects to use a grantor trust to accumulate funds) shall be obligated to purchase or maintain any asset, and any reference to investments or Vanguard Funds is solely for the purpose of computingthe value of benefits. To the extent a Participant or any person acquires a right to receive payments from the Plan Sponsor under this Plan, such right shall be no greater than the right of any unsecured creditor of the Plan Sponsor. Neither this Plan nor any action taken pursuant to the terms of this Plan shall be considered to create a fiduciary relationship between the Plan Sponsor and the Participants or any other persons or to establish a trust in which the assets are beyond the claims of any unsecured creditor of the Plan Sponsor.

-4-

        4.3 Employee Pre-Tax Credit.

        (a) Manner of Election. A Participant may elect, by completing an Excess Salary Reduction Agreement, to reduce the amount of Compensation that the Participant would otherwise receive from the Participating Companies and have the amount of such reduction credited to the Participant’s Excess 401(k) Plan Account as an Employee Pre-Tax Credit.

        (b) Condition Precedent to Employee Pre-Tax Credits under Plan. In order to be eligible to have the Plan Sponsor credit amounts as Employee Pre-Tax Credits to the Participant’s Excess 401(k) Plan Account under this Plan, the Participant must have elected to make the maximum Employee Pre-Tax Contributions (i.e., Basic Contributions) permitted by the Qualified Plan after taking into account any limitations imposed on such Employee Pre-Tax Contributions by Sections 401(a)(17), 401(k), 401(m), 402(g), or 415 of the Code or any other limitation imposed by the Qualified Plan. Further, in no event shall any Employee Pre-Tax Contributions (i.e., Basic Contributions) or Employer Matching Contributions contributed to the Qualified Plan on behalf of any Participant be transferred to this Plan from the Qualified Plan.

        (c) Participant Employed during Plan Year. For purposes of determining the Employee Pre-Tax Credit of a Participant who (1) was previously employed by an unrelated employer, (2) was covered by a qualified cash or deferred arrangement described in Section 401(k)(2) of the Code of such unrelated employer, and (3) is first employed by a Participating Company during a Plan Year, the maximum salary deferral that such Participant may have credited to his or her Excess 401(k) Plan Account for any Plan Year as an Employee Pre-Tax Credit under the Plan shall be the amount determined by multiplying his or her Compensation by the salary deferral percentage elected by the Participant under this Plan after taking into account (i) the Employee Pre-Tax Contributions for such Plan Year under the Qualified Plan, plus (ii) the elective deferrals made by such Participant under the unrelated employer’s qualified cash or deferred arrangement for such Plan Year.

        4.4 Salary Reduction Agreement. An Excess Salary Reduction Agreement for any Plan Year shall be made before the beginning of that Plan Year and shall remain in full force and effect for subsequent Plan Years unless revoked by the Participant. In the case of an Eligible Employee who is hired during a Plan Year or an employee who becomes an Eligible Employee during a Plan Year, such Eligible Employee may enter into an Excess Salary Reduction Agreement within sixty days after the date he/she becomes eligible. In the case of the Plan Year in which the Plan is first implemented, Eligible Employees may enter into an Excess Salary Reduction Agreement within two months prior to the Effective Date of the Plan.

        4.5 Employer Matching Credits. For each Payroll Period, the Plan Sponsor shall credit each Participant’s Excess 401(k) Plan Account with Employer Matching Credits in an amount equal to:

        (a) The lesser of: (1) 5% of the Eligible Employee’s Compensation for the Payroll Period; or (2) the sum of the Employee Pre-Tax Contributions and Employee Pre-Tax Credits on behalf of the Participant for the Payroll Period; minus

        (b) The amount of Employer Matching Contributions made to the Qualified Plan on behalf of the Participant for the Payroll Period.

        4.6 Allocation among Investment Options. A Participant may direct that the Employee Pre-Tax Credits and the Employer Matching Credits credited to his or her Excess 401(k) Plan Accounts be valued, in accordance with Section 4.8, as if the balance credited to the Excess 401(k) Plan Account were invested in one or more Vanguard Funds or other investments selected by the Participant. The Participant may select any of the investment options set forth in Appendix A in multiples of 5% (or such smaller percentage as the Administrator may determine). The designation of one or more investment options, whether a Vanguard Fund or otherwise, by a Participant under this Section 4.6 shall be used solely to measure the amounts of investment earnings or losses that will be credited or debited to the Participant’s Excess 401(k) Plan Account on the Plan Sponsor’s books and records, and the Plan Sponsor shall not be required under the Plan to establish any account in the Vanguard Funds or to purchase any Vanguard Fund shares or other investment on the Participant’s behalf. The designation by a Participant of any investment option under this Section 4.6 shall be made in accordance with the rules and procedures prescribed by the Administrator.

-5-

        4.7 Administration of Investments. The investment gain or loss with respect to Employee Pre-Tax Credits and the Employer Matching Credits credited to the Participant’s Excess 401(k) Plan Account on behalf of such Participant shall continue to be determined in the manner selected by the Participant pursuant to Section 4.6 until a new designation is filed with the Administrator or its appointee. If any Participant fails to file a designation, he or she shall be deemed to have elected to continue to follow the investment designation, if any, in effect for the immediately preceding Plan Year. A designation filed by a Participant changing his or her investment option selection shall apply to either future contributions, amounts already accumulated in his or her Excess 401(k) Plan Account, or both. A Participant may change his or her investment selection on any Valuation Date and such change shall be effected as soon as administratively practicable.

        4.8 Valuation of Excess 401(k) Plan Accounts. The Excess 401(k) Plan Account of each Participant shall be valued on each Valuation Date based upon the performance of the investment option or options selected by the Participant. Such valuation shall reflect the net asset value expressed per share of each designated investment option. Each Excess 401(k) Plan Account shall be valued separately. A valuation summary shall be prepared on each Determination Date and/or such other dates as may be determined by the Administrator.

ARTICLE V - VESTING

        5.1 Immediate Vesting. At all times, a Participant will be 100% vested in his or her Excess 401(k) Plan Account.

ARTICLE VI - PAYMENT OF BENEFITS

        6.1 Benefit upon Termination of Employment. Upon a Participant’s Employment Termination Date before attaining his or her Early Retirement Date, the Plan Sponsor shall pay to the Participant an amount equal to the balance in the Participant’s Excess 401(k) Plan Account in two installments:

        (a) The first installment, in an amount equal to 50% of the balance in the Excess 401(k) Plan Account, shall be paid within 60 days following his/her Employment Termination Date; and

        (b) The second installment, in an amount equal to the then remaining balance in the Excess 401(k) Plan Account, shall be paid during the first Annual Distribution Period following the date on which the first installment was paid.

        6.2 Payment of Benefits at Retirement. Upon a Participant’s actual retirement on or after attaining his/her Early Retirement Date while in the employment of a Participating Company or of PMA Foundation or an affiliate of PMA Foundation, as applicable, the Plan Sponsor shall pay such Participant a benefit either:

        (a)   In two installments, according to the provisions of Section 6.1 above; or

        (b)   If the Participant makes an irrevocable election at least 90 days prior to the Plan Year in which he or she retires on or after his/her Early Retirement Date, in the following five annual installments:

        (1)   During the first Annual Distribution Period following the Participant’s Employment Termination Date, a cash payment in an amount equal to 20% of the balance in the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made;

        (2)   During the second Annual Distribution Period following the Participant’s Employment Termination Date, a cash payment in an amount equal to 25% of the then balance in the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made;

-6-

        (3)   During the third Annual Distribution Period following the Participant’s Employment Termination Date, a cash payment in an amount equal to 33% of the then balance in the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made;

        (4)   During the fourth Annual Distribution Period following the Participant’s Employment Termination Date, a cash payment in an amount equal to 50% of the then balance in the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made; and

        (5)   During the fifth Annual Distribution Period following the Participant’s Employment Termination Date, a cash payment in an amount equal to the then remaining balance in the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made.

        6.3 Payment of Benefits Following Death. Upon a Participant’s date of death, the Administrator shall reduce the balance in the Participant’s Excess 401(k) Plan Account by the amount that the Participant has previously received or shall receive pursuant to Section 6.2. Thereafter, the Plan Sponsor shall pay to the Participant’s Beneficiary a single sum payment, in cash, equal to the balance credited to the Participant’s Excess 401(k) Plan Account on the Valuation Date coincident with, or next preceding, the date payment is made. Payment under this Section 6.3 shall be made as soon as practicable following the receipt by the Plan Sponsor of acceptable proof of the Participant’s death.

        6.4 Earnings where Installment Payments Are Made. Where any benefit is paid in annual installments, the undistributed balance credited to the Account during the period of the installment payments and ending on the date of the last installment payment shall be credited with investment earnings or debited with investment losses in accordance with Section 4.6.

        6.5 Form of Payment. All payments under this Plan shall be in cash only and no Participant or Beneficiary shall have any right to receive a distribution in any other form of payment.

        6.6 Change of Control where Installment Payments Are Made. In the event of a Change of Control of the Plan Sponsor, a terminated or retired Participant, who has not received his or her entire balance under Section 6.1 or 6.2, shall be paid by the Plan Sponsor any undistributed balance credited to the Participant’s Excess 401(k) Plan Account, in a single sum payment, in cash, as soon as practicable following such Change of Control.

        6.7 Reduced Benefit upon Request following a Change of Control. Within 60 days following a Change of Control, a Participant may elect in writing to receive an immediate distribution of a reduced benefit under the Plan. If the Participant makes such an election under this Section 6.7, the amount of the reduced benefit shall equal the balance credited to the Participant’s Excess 401(k) Plan Account, reduced by the lesser of 5% of the balance or $25,000.

        6.8 Total Disability. If a Participant incurs a Total Disability, he or she will be deemed to have incurred his or her Employment Termination Date on the date that is 26 weeks after the date he or she commenced receiving short term disability benefits under the Plan Sponsor’s Health and Welfare Plan and the provisions of Section 6.1 shall apply to such Participant.

ARTICLE VII - ADMINISTRATION OF THE PLAN

        7.1 Administrator. The Committee appointed by the President of the Plan Sponsor is hereby designated as the administrator of the Plan. If no Committee is appointed by the Plan Sponsor as the Administrator, the Plan Sponsor shall be the Administrator of the Plan. The Administrator shall have the authority to control and manage the operation and administration of the Plan. The President of the Plan Sponsor may appoint another person to be the Administrator at any time. The President of the Plan Sponsor may also remove an Administrator and fill any vacancy which may arise.

-7-

        7.2 Committee Action. If a Committee is appointed as Administrator, the following rules apply:

        (a) On all matters within the jurisdiction of the Committee, the decision of a majority of the members of the Committee shall govern and control. The Committee may take action either at a meeting or in writing without a meeting, provided that in the latter instance all members of the Committee shall have been advised of the action contemplated and that the written instrument evidencing the action shall be signed by a majority of the members.

        (b) The President of the Plan Sponsor shall appoint the Chair of the Committee. The Committee may appoint, either from among its members or otherwise, a secretary who shall keep a record of all meetings and actions taken by the Committee. Either the Chair of the Committee or any member of the Committee designated by the Chair shall execute any certificate, instrument or other written direction on behalf of the Committee. Any action taken on matters within the discretion of the Committee shall be final and conclusive as to the parties thereto and as to all Participants or beneficiaries claiming any right under the Plan.

        7.3 Powers and Duties of theAdministrator. The Administrator shall have all powers necessary to supervise the administration of the Plan and to control its operation in accordance with its terms, including, without limiting the generality of the foregoing, the power to:

        (a) Appoint, retain, and terminate such persons as it deems necessary or advisable to assist in the administration of the Plan or to render advice with respect to the responsibilities of the Administrator under the Plan, including accountants, attorneys and physicians;

        (b) Make use of the services of the employees of the Participating Company in administrative matters;

        (c) Obtain and act on the basis of all valuations, certificates, opinions and reports furnished by the persons described in (a) or (b) above;

        (d) Review the manner in which benefit claims and other aspects of the Plan administration have been handled by the employees of the Participating Company;

        (e) Determine all benefits and resolve all questions pertaining to the administration and interpretation of the Plan provisions, either by rules of general applicability or by particular decisions; to the maximum extent permitted by law, all interpretations of the Plan and other decisions of the Administrator shall be conclusive and binding on all parties;

        (f) Adopt such forms, rules and regulations as it shall deem necessary or appropriate for the administration of the Plan and the conduct of its affairs, provided that any such forms, rules and regulations shall not be inconsistent with the provisions of the Plan;

        (g) Remedy any inequity from incorrect information received or communicated or from administrative error;

        (h) Commence or defend any litigation arising from the operation of the Plan in any legal or administrative proceeding;

        (i) Determine all considerations affecting the eligibility of any Eligible Employee to become a Participant or remain a Participant in the Plan;

        (j) Determine the status and rights of Participants and their Beneficiaries;

        (k) Direct the Plan Sponsor to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; and

-8-

        (l) Be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable federal or state law.

        7.4 Decisions of Administrator. All decisions of the Administrator, and any action taken by it in respect of the Plan shall be conclusive and binding on all persons, subject to the claims and appeal procedure described in Section 7.10 hereof.

        7.5 Administrative Expenses. All expenses incident to the operation and administration of the Plan reasonably incurred, including, without limitation by way of specification, the fees and expenses of attorneys and advisors, and for such other professional, technical and clerical assistance as may be required, shall be paid by the Plan Sponsor.

        7.6 Eligibility to Participate. No member of the Administrator who is also an Eligible Employee shall be precluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Administrator, to act or pass upon any matters pertaining specifically to his or her own benefit under the Plan.

        7.7 Insurance and Indemnification for Liability. The rules relating to the insurance and indemnification for liability are as follows:

        (a) Insurance. The Plan Sponsor may, in its discretion, obtain, pay for, and keep current a policy or policies of insurance, insuring members of the Administrator and other employees to whom any responsibility with respect to administration of the Plan has been delegated against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable federal or state law.

        (b) Indemnity. If the Plan Sponsor does not obtain, pay for, and keep current the type of insurance policy or policies referred to in Section 7.7(a) above, or if such insurance is provided but any of the members of the Administrator or other employees referred to in Section 7.7(a) above incur any costs or expenses which are not covered under such policies, then, in either event, the Plan Sponsor shall, to the extent permitted by law, indemnify and hold harmless such parties against any and all costs, expenses and liabilities incurred by such parties in performing their duties and responsibilities under this Plan, provided such party or parties were acting in good faith within what was reasonably believed to have been in the best interests of the Plan and its Participants.

        7.8 Agent for Service of Legal Process. The name and address of the person designated as the agent for service of legal process are:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

        7.9 Delegation of Responsibility. The Administrator may designate a committee of one or more persons to carry out any of the responsibilities or functions assigned or allocated to the Administrator under the Plan. Each reference to the Administrator in this Plan shall include the Administrator as well as any person to whom the Administrator may have delegated the performance of a particular function or responsibility under this Section 7.9.

        7.10 Claims Procedure.

        (a) Claim for Benefits. All claims for benefits under the Plan shall be made in writing and shall be signed by the applicant. Claims shall be submitted to a representative designated by the Administrator and hereinafter referred to as the “Claims Coordinator”.

-9-

        (1)   Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim.

        (2)   In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the applicant in writing of the denial of the claim and notify such applicant of his or her right to a review of the Claims Coordinator’s decision by the Administrator. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan’s claims review procedure as set forth in this Section 7.10.

        (3)   If no action is taken by the Claims Coordinator on an applicant’s claim within 60 days after receipt by the Claim Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure.

        (b) Appeals Procedure. Any applicant whose claim for benefits is denied in whole or in part (“Claimant”) may appeal from such denial to the Administrator for a review of the decision by the Administrator. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above in Section 7.10(a). An appeal must be submitted in writing within such period and must:

        (1)   Request a review by the Administrator of the claim for benefits under the Plan;

        (2)   Set forth all of the grounds upon which the Claimant’s request for review is based and any facts in support thereof; and

        (3)   Set forth any issues or comments which the Claimant deems pertinent to the appeal.

        The Administrator shall regularly review appeals by Claimants. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant’s request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Administrator.

        The Administrator shall make a full and fair review of each appeal and any written materials submitted by the Claimant and/or the Participating Company in connection therewith. The Administrator may require the Claimant and/or the Participating Company to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal.

        On the basis of its review, the Administrator shall make an independent determination of the Claimant’s eligibility for benefits under the Plan. The decision of the Administrator on any claim for benefits shall be final and conclusive upon all parties thereto.

        In the event the Administrator denies an appeal, in whole or in part, the Administrator shall give written notice of the decision to the Claimant, which notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Administrator’s decision was based.

-10-

        (c) Compliance with Regulations. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR § 2560.503-1.

ARTICLE VIII - AMENDMENT AND TERMINATION

        8.1 Amendment or Termination.

        (a) Amendment. The Board of Directors shall have the right to alter, amend, modify, restate or terminate the Plan, or any part thereof, through the adoption of a written resolution when in its absolute discretion, it determines such action to be advisable; provided, however, that no such action by the Board of Directors shall reduce the amount credited to a Participant’s Excess 401(k) Plan Account at the time of the adoption of the amendment, modification or restatement and no such amendment, modification or restatement or termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. Each amendment shall be set forth in a written instrument.

        (b) Termination. In the event of termination, the Plan Sponsor, at its option, may pay each Participant an amount equal to the total amount credited to the Participant’s Excess 401(k) Plan Account in a single sum payment of cash or, in the alternative, pay such amount in accordance with the provisions of Article VI. Termination of the Plan shall not serve to reduce the amount credited to a Participant’s Excess 401(k) Plan Account on the date of termination. Moreover, no such termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control.

ARTICLE IX - MISCELLANEOUS

        9.1 Funding. Nothing contained in this Plan and no action taken pursuant to this Plan will create or be construed to create or require a funded arrangement or any kind of fiduciary duty between the Plan Sponsor and/or the Administrator and a Participant. Benefits payable under this Plan to a Participant or Beneficiary, if applicable, shall be paid directly by the Plan Sponsor from a grantor trust (the “Trust”) within the meaning of Section 671 of the Code, to the extent that such benefits are not paid from the general assets of the Plan Sponsor or other Participating Company. The Trust must be an irrevocable grantor trust, the assets of which are subject to the claims of the general creditors of the Plan Sponsor in the event of its insolvency, defined for the purposes of this provision as the Plan Sponsor’s inability to pay its debts as they become due or that the Plan Sponsor is subject to a pending proceeding under the United States Bankruptcy Code. Except as to any amounts paid or payable to the Trust, the Plan Sponsor shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations under this Plan, and the Participant and his or her Beneficiary shall not have any property interest in any specific assets of the Plan Sponsor other than an unsecured right to receive payments from the Plan Sponsor as provided herein. To the extent any person acquires a right hereunder, such right(s) shall be no greater than those of a general, unsecured creditor of the Plan Sponsor. In the event that the amounts accumulated in the Trust are not sufficient to pay the benefits payable under this Plan, such benefits shall be paid directly from the general assets of the Plan Sponsor or other Participating Company.

        9.2 Status of Employment. Neither the establishment or maintenance of the Plan, nor any action of the Plan Sponsor or any Participating Company or the Administrator shall be held or construed to confer upon any individual any right to be continued as an employee nor, upon dismissal, any right or interest in any assets of the Plan Sponsor or a Participating Company nor to affect any Participant’s right to terminate his/her employment at any time.

        9.3 Payments to Minors and Incompetents. If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor or is deemed by the Administrator or is adjudged to be legally incapable of giving a valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Administrator may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan.

-11-

        9.4 Inalienability of Benefits.

        (a) Benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, whether voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits under the Plan shall be void. The Plan Sponsor or other Participating Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan.

        (b) Notwithstanding Section 9.4(a), if a Participant is indebted to the Plan Sponsor or other Participating Company at any time when payments are to be made by the Plan Sponsor to the Participant under the provisions of the Plan, the Plan Sponsor shall have the right to reduce the amount of payment to be made to the Participant (or the Participant’s Beneficiary) to the extent of such indebtedness. Any election by the Plan Sponsor not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.

        9.5 Governing Law. Except to the extent preempted by federal law, the Plan shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

        9.6 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth.

        9.7 Required Information to Administrator. Each Participant will furnish to the Administrator such information as the Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant’s furnishing promptly such true, full and complete information as the Administrator may request. The Administrator, in its sole discretion, may request a Participant to submit proof of his/her age. The Administrator will, if such proof of age is not submitted when requested, use as conclusive evidence thereof such information as is deemed by it to be reliable, regardless of the lack of proof. Any notice or information which, according to the terms of the Plan or the rules of the Administrator, must be filed with the Administrator, shall be deemed so filed if addressed and either delivered in person or mailed to and received by the Administrator at the following address:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

Failure on the part of the Participant or Beneficiary to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits under the Plan until such information or proof is received by the Administrator.

        9.8 Income and Payroll Tax Withholding. To the extent required by the laws in effect at the time payments are made under this Plan, the Plan Sponsor shall withhold from such deferred compensation payments any taxes required to be withheld for federal, state or local tax purposes.

        9.9 Application of Plan. The Plan, as set forth herein, shall apply to any Participant terminating employment on or after the Restatement Effective Date.

        9.10 No Effect on Other Benefits. No amount credited under this Plan shall be deemed part of the total compensation for the purpose of computing benefits to which a Participant may be entitled under any pension plan or other supplemental compensation arrangement, unless such plan or arrangement specifically provides to the contrary. The amounts payable to the Participant hereunder will be in addition to any benefits paid or payable to the Participant under any other pension, disability, annuity or retirement plan or policy whatsoever. Nothing herein contained will in any manner modify, impair or affect any existing or future rights of the Participant to participate in any other employee benefits plan or receive benefits in accordance with such plan or to participate in any current or future pension plan of the Plan Sponsor or any supplemental arrangement which constitutes a part of the Plan Sponsor’s regular compensation structure.

-12-

        9.11 Inurement. The Plan shall be binding upon, and shall inure to, the benefit of the Participating Company and its successors and assigns, and the Participant and the Participant’s Beneficiaries, successors, heirs, executors and administrators.

        9.12 Notice. Any notices or elections required or permitted to be given or made under this Plan will be sufficient if in writing and if sent by first class, postage paid mail to the Participant’s last known address as shown on the Participating Company’s personnel records or to the principal office of the Participating Company, as the case may be. The date of such mailing shall be deemed the date of notice, consent or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.

        9.13 Captions. The captions contained in, and the table of contents prefixed to, the Plan are inserted only as a matter of convenience and for ease of reference in no way define, limit, enlarge or describe the scope or intent of this Plan or in any way affect the Plan or the construction of any provision thereof.

        9.14 Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his/her delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under Section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary has recognized or will recognize income for federal income tax purposes with respect to benefits that are or will be payable to the Participant under the Plan before they otherwise would be paid to the Participant or Beneficiary (as applicable), upon the request of the Participant or Beneficiary, the Administrator shall immediately make distribution to the Participant or Beneficiary of the amount so taxable.

        9.15 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Administrator shall:

        (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and

        (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of 29 CFR § 2520.104-23.

        This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both.

        9.16 Gender and Number. Whenever any words are used herein in any specific gender, they shall be construed as though they were used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form where applicable and viceversa.

-13-

ARTICLE X - ADOPTION BY AFFILIATED EMPLOYERS

        10.1 Adoption of Plan. The following rules shall apply with respect to the adoption of the Plan:

        (a) Adoption by Affiliated Employers. The terms of this Plan may be adopted by any Affiliated Employer, provided:

        (1) The Board of Directors consents to such adoption by an appropriate written resolution;

        (2) The board of directors of the Affiliated Employer adopts this Plan by an appropriate written resolution which defines the Eligible Employees; and

        (3) The Affiliated Employer executes a Plan Adoption Agreement in the form attached hereto as Plan Exhibit A, applicable to the Eligible Employees of such Affiliated Employer. The Affiliated Employer may elect in such Adoption Agreement to have special provisions apply with respect to the Eligible Employees of the Affiliated Employer which differ from the provisions of the Plan applicable to other Eligible Employees; and

        (4) The Affiliated Employer executes such other documents as may be required to make such Affiliated Employer a party to the Plan as a Participating Company.

        (b) Effect of Adoption. An Affiliated Employer that adopts the Plan is thereafter a Participating Company with respect to its Eligible Employees.

        10.2 Withdrawal from Plan. Any Participating Company may at any time withdraw from the Plan upon giving the Board of Directors at least 30 days prior written notice of its intention to withdraw.

        10.3 Application of Withdrawal Provisions. The withdrawal provisions contained in Section 10.2 shall be applicable only if the withdrawing Participating Company continues to cover its Participants under a plan similar to this Plan. Otherwise the termination provisions of the Plan shall apply.

        10.4 Plan Sponsor Appointed Agent of Participating Companies. As a condition precedent to the adoption of the Plan, each Affiliated Employer must appoint the Board of Directors as its agent to exercise on its behalf all of the power and authority conferred upon the Plan Sponsor by the Plan, including, without limitation, the power to amend or to terminate the Plan.

-14-

APPENDIX A - INVESTMENT OPTIONS AVAILABLE FOR MEASUREMENT OF INVESTMENT
EARNINGS OR LOSSES UNDER PLAN

        (a) Morgan Growth Fund

        (b) Total Bond Market Index Fund

        (c) 500 Index Fund

        (d) Treasury Money Market Fund

        (e) STAR Fund

        (f) Windsor II Fund

        (g) International Growth Fund

        (h) Explorer Fund

        (i) Extended Market Index Fund

        (j) Total International Stock Index Fund

        (k) Any other investment option selected by the Administrator

-15-

EX-10

PMA CAPITAL CORPORATION EXECUTIVE
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 2000)

TABLE OF CONTENTS

                                                                                                               PAGE

PREAMBLE..........................................................................................................1

ARTICLE I - DEFINITIONS...........................................................................................1
   1.1    Administrator...........................................................................................1
   1.2    Affiliated Employer.....................................................................................1
   1.3    Annual Distribution Period..............................................................................1
   1.4    Beneficiary.............................................................................................2
   1.5    Board of Directors......................................................................................2
   1.6    Change of Control.......................................................................................2
   1.7    Code....................................................................................................2
   1.8    Compensation............................................................................................2
   1.9    Credit..................................................................................................2
   1.10   Deferral Agreement......................................................................................2
   1.11   Deferred Benefit Account................................................................................2
   1.12   Determination Date......................................................................................2
   1.13   Early Retirement Date...................................................................................2
   1.14   Education Account.......................................................................................2
   1.15   Eligible Dependent......................................................................................3
   1.16   Eligible Employee.......................................................................................3
   1.17   Employment Termination Date.............................................................................3
   1.18   Enrollment Period.......................................................................................3
   1.19   ERISA...................................................................................................3
   1.20   Executive Deferral Contribution.........................................................................3
   1.21   Fixed Period Benefit Account............................................................................3
   1.22   Investment Fund or Fund.................................................................................3
   1.23   Matching Contribution...................................................................................3
   1.24   Normal Retirement Date..................................................................................3
   1.25   Participant.............................................................................................3
   1.26   Participating Company...................................................................................3
   1.27   Plan....................................................................................................3
   1.28   Plan Sponsor............................................................................................4
   1.29   Plan Year...............................................................................................4
   1.30   Restatement Effective Date..............................................................................4
   1.31   Retirement Account......................................................................................4
   1.32   Unforeseen Financial Emergency..........................................................................4
   1.33   Vested..................................................................................................4

ARTICLE II - PARTICIPATION........................................................................................4
   2.1    Commencement of Participation...........................................................................4
   2.2    Procedure for and Effect of Admission...................................................................4

ARTICLE III - PLAN CONTRIBUTIONS..................................................................................4
   3.1    Executive Deferral Contribution.........................................................................4
   3.2    Rules Governing Executive Deferral Contributions........................................................5
   3.3    No Matching Contribution................................................................................5

ARTICLE IV - PARTICIPANTS' ACCOUNTS...............................................................................5
   4.1    Establishment of Accounts...............................................................................5
   4.2    Executive Benefit Allocation............................................................................5
   4.3    Irrevocable Allocation..................................................................................5
   4.4    Allocation among Investment Funds.......................................................................6
   4.5    Administration of Investments...........................................................................6
   4.6    Valuation of Deferred Benefit Accounts..................................................................6
   4.7    Suballocation within Deferred Benefit Accounts..........................................................6
   4.8    Investment Obligation of the Plan Sponsor...............................................................6

ARTICLE V - VESTING...............................................................................................7
   5.1    Vesting Schedule........................................................................................7

ARTICLE VI - BENEFITS.............................................................................................7
   6.1    Normal Payment of Benefits..............................................................................7
   6.2    Special Payment of Benefits.............................................................................9
   6.3    Reduction of Amount of Benefit Payment in Certain Cases.................................................9

ARTICLE VII - ADMINISTRATION OF THE PLAN.........................................................................10
   7.1    Administrator..........................................................................................10
   7.2    Committee Action.......................................................................................10
   7.3    Powers and Duties of the Administrator.................................................................11
   7.4    Decisions of Administrator.............................................................................12
   7.5    Expenses...............................................................................................12
   7.6    Eligibility to Participate.............................................................................12
   7.7    Insurance and Indemnification for Liability............................................................12
   7.8    Agent for Service of Legal Process.....................................................................12
   7.9    Delegation of Responsibility...........................................................................12
   7.10   Claims Procedure.......................................................................................12

ARTICLE VIII - AMENDMENT AND TERMINATION.........................................................................14
   8.1    Amendment or Termination...............................................................................14

ARTICLE IX - MISCELLANEOUS.......................................................................................14
   9.1    Funding................................................................................................14
   9.2    Status of Employment...................................................................................14
   9.2    Payments to Minors and Incompetents....................................................................14
   9.4    Inalienability of Benefits.............................................................................14
   9.5    Governing Law..........................................................................................15
   9.6    Severability...........................................................................................15
   9.7    Required Information to Administrator..................................................................15
   9.8    Income and Payroll Tax Withholding.....................................................................15
   9.9    Application of Plan....................................................................................15
   9.10   No Effect on Other Benefits............................................................................15
   9.11   Inurement..............................................................................................15
   9.12   Notice.................................................................................................16
   9.13   Captions...............................................................................................16
   9.14   Acceleration of Payments...............................................................................16
   9.15   Reporting and Disclosure Requirements..................................................................16
   9.16   Gender and Number......................................................................................16

ARTICLE X - ADOPTION BY AFFILIATED EMPLOYERS.....................................................................16
   10.1   Adoption of Plan.......................................................................................16
   10.2   Withdrawal from Plan...................................................................................17
   10.3   Application of Withdrawal Provisions...................................................................17
   10.4   Plan Sponsor Appointed Agent of Participating Companies................................................17

APPENDIX A - LIST OF PARTICIPATING COMPANIES.....................................................................18

PLAN EXHIBIT A - PLAN ADOPTION AGREEMENT.........................................................................19

PLAN ADOPTION AGREEMENT - PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY

PLAN ADOPTION AGREEMENT - PMA CAPITAL INSURANCE COMPANY

PLAN ADOPTION AGREEMENT - CALIBER ONE INDEMNITY COMPANY

PLAN ADOPTION AGREEMENT - CALIBER ONE MANAGEMENT COMPANY, INC.

PLAN ADOPTION AGREEMENT - PMA MANAGEMENT CORP.

PLAN ADOPTION AGREEMENT - PMA RE MANAGEMENT COMPANY

PMA CAPITAL CORPORATION EXECUTIVE
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 2000)

PREAMBLE

        WHEREAS, PMA CAPITAL CORPORATION, a Pennsylvania corporation (the “Plan Sponsor”) (then known as the Pennsylvania Manufacturers Corporation) and certain of its affiliated employers adopted the PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (the “Plan”) (then known as the PMC Executive Deferred Compensation Plan) originally effective February 1, 1988, to permit their eligible executives to defer receipt of a portion of their annual compensation, provided such executives are members of a select group of management and highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

        WHEREAS, the Plan Sponsor’s Board of Directors has reserved the right, in Article VIII of the Plan, to amend the Plan, provided that no amendment may reduce a participant’s benefit accrued as of the date of the amendment and further provided that written notice of such amendment is given to each participant and the beneficiary of any deceased participant; and

        WHEREAS, the Plan has been amended and restated several times, most recently effective January 1 1999; and

        WHEREAS, the Plan Sponsor desires to provide that the termination of a participant’s employment by a Participating Company before his/her normal retirement date shall not constitute a participant’s Employment Termination Date for purposes of Article VI of the Plan if such participant is immediately thereafter employed by PMA Foundation or by one of its affiliates;

        NOW THEREFORE, the Plan Sponsor hereby amends and restates the Plan, effective January 1, 2000, as follows:

ARTICLE I - DEFINITIONS

        The following words and phrases shall have the following meanings unless a different meaning is clearly required by the context:

        1.1 Administrator means the committee (hereinafter referred to as “Committee”) appointed by the President of the Plan Sponsor to serve as the Administrator of the Plan. If no such committee is appointed, the Plan Sponsor shall be the Administrator of the Plan.

        1.2 Affiliated Employer means a member of a group of employers, of which the Plan Sponsor is a member and which group constitutes:

        (a) A controlled group of corporations (as defined in Section 414(b) of the Code);

        (b) Trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code);

        (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in Section 414(m) of the Code); or

        (d) Any other entity required to be aggregated with the Plan Sponsor pursuant to Section 414(o) of the Code and the Treasury regulations thereunder.

        1.3 Annual Distribution Period means the first 60 days of a Plan Year.

-1-

        1.4 Beneficiary means the individual, trust or other entity, designated in writing by a Participant, on a form filed with the Administrator, to receive payments in the event of the Participant’s death. In the event there is no designated beneficiary under the Plan, the beneficiary shall be (a) the Participant’s surviving spouse, or (b) if there is no surviving spouse, the Participant’s beneficiary under the Plan Sponsor’s group term life insurance program, or (c) if neither (a) nor (b) is applicable, the executors and/or administrators of the Participant’s estate.

        1.5 Board of Directors means the Board of Directors of the Plan Sponsor, as from time to time constituted, or any committee thereof which is authorized to act on behalf of the Board of Directors.

        1.6 Change of Control means a change of control of the Plan Sponsor of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Item 1(a) of a Current Report on Form 8-K or any successor rule, whether or not the Plan Sponsor is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to have occurred if:

        (a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or first becomes the “beneficial owner” (as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly, in a transaction or series of transactions, of securities of the Plan Sponsor representing more than 50% of the voting power of the Plan Sponsor’s voting capital stock (the “Voting Stock”); or

        (b) The consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Plan Sponsor; or

        (c) At any time individuals who were either nominated for election by the Plan Sponsor’s Board of Directors or were elected by the Plan Sponsor’s Board of Directors cease for any reason to constitute at least a majority of the Plan Sponsor’s Board of Directors.

        1.7 Code means the Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section.

        1.8 Compensation means a Participant’s salary and any incentive pay, before reduction for employee contributions under this or any other nonqualified savings plan, a savings plan qualified under Section 401(k) of the Code or a cafeteria plan qualified under Section 125 of the Code and before reduction for qualified transportation fringes described in Prop. Treas. Reg. § 1.132-9, Q and A-11 etseq.

        1.9 Credit means additions to a Deferred Benefit Account.

        1.10 Deferral Agreement means a written agreement between a Participant and the Participating Company that employs him/her, whereby the Participant agrees to defer a portion of his/her Compensation and the Participating Company agrees to provide benefits under the Plan.

        1.11 Deferred Benefit Account means a bookkeeping account that is credited with a Participant’s Executive Deferral Contributions and, for Plan Years before January 1, 1999, Matching Contributions.

        1.12 Determination Date means March 31, June 30, September 30 and December 31 of each Plan Year.

        1.13 Early Retirement Date means “Early Retirement Date” as such term is defined in the Pension Plan or in the PMA Foundation Pension Plan, as applicable.

        1.14 Education Account means a Deferred Benefit Account established for an Eligible Dependent of a Participant pursuant to Section 4.1.

-2-

        1.15 Eligible Dependent means a dependent of a Participant for federal income tax purposes who is less than 16 years old at the time that an Education Account is first established for him/her hereunder. An Eligible Dependent for whom an Education Account is established shall remain an Eligible Dependent until he/she attains age 18.

        1.16 Eligible Employee means an officer of a Participating Company, provided such officer is a member of a select group of management and highly compensated employees within the meaning of Section 201(2) of ERISA.

        1.17 Employment Termination Date means the date on which the Participant’s status as an employee of any Participating Company and, if such Participant terminates employment with the Participating Companies before his/her Normal Retirement Date and is immediately thereafter employed by PMA Foundation or one of its affiliates, the Participant’s Employment Termination Date means, solely for purposes of Article VI, the date on which the Participant’s status as an employee of PMA Foundation or any of its affiliates terminates. The intent of the foregoing is that, if a Participant terminates employment with the Participating Companies before his/her Normal Retirement Date and is immediately thereafter employed by PMA Foundation or one of its affiliates, such termination shall not constitute such Participant’s Employment Termination Date for purposes of Article VI but rather the termination of such Participant’s employment with PMA Foundation and its affiliates shall constitute such Participant’s Employment Termination Date. However, if such Participant’s employment with the Participating Companies terminates on or after his/her Normal Retirement Date, his/her termination of employment with the Participating Companies shall constitute his/her Employment Termination Date for purposes of Article VI even if such Participant is immediately thereafter employed by PMA Foundation or one of its affiliates.

        1.18 Enrollment Period means, for a calendar year, the 60 day period ending on the December 14th immediately preceding such calendar year.

        1.19 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific Section of ERISA shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section.

        1.20 Executive Deferral Contribution means the Plan contribution described in Section 3.1.

        1.21 Fixed Period Benefit Account means a Deferred Benefit Account established pursuant to Section 4.1.

        1.22 Investment Fundor Fund means any of the mutual funds which comprise The Vanguard Group of Investment Companies, other than a fund offered only to participants in tax-qualified retirement plans or a tax-advantaged fund except as otherwise restricted by the Administrator.

        1.23 Matching Contribution means a Participating Company’s contribution to the Plan for a Plan Year before 1999.

        1.24 Normal Retirement Date means “Normal Retirement Date” as such term is defined in the Pension Plan or in the PMA Foundation Pension Plan, as applicable.

        1.25 Participant means an Eligible Employee who has met the conditions for participation contained in Article II. An individual who ceases to be an Eligible Employee shall nonetheless remain a Participant for purposes of benefit payments only, until all amounts due him/her under the Plan have been paid.

        1.26 Participating Company means the Plan Sponsor and each of its Affiliated Employers which, upon the approval of the Board of Directors, has agreed to participate in this Plan in accordance with the provisions of Article X. Each Participating Company is listed on Appendix A.

        1.27 Plan means the PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN, as set forth in this document and as it may be amended from time to time.

-3-

        1.28 Plan Sponsor means PMA Capital Corporation, a Pennsylvania corporation.

        1.29 Plan Year means the calendar year.

        1.30 Restatement Effective Date means January 1, 2000. The original effective date of the Plan was February 1, 1988.

        1.31 Retirement Account means a Deferred Benefit Account established pursuant to Section 4.1.

        1.32 Unforeseen Financial Emergency means a Participant’s severe financial hardship due to an unforeseeable emergency resulting from a sudden and unexpected illness or accident of the Participant, or, a sudden and unexpected illness or accident of a dependent (as defined by Section 152(a) of the Code) of the Participant, or loss of the Participant’s property due to casualty, or other similar and extraordinary unforeseeable circumstances arising as a result of events beyond the control of the Participant. A need to send the Participant’s child to college or a desire to purchase a home is not an unforeseeable emergency. No Unforeseen Financial Emergency shall be deemed to exist to the extent that the financial hardship is or may be relieved (a) through reimbursement or compensation by insurance or otherwise, (b) by borrowing from commercial sources on reasonable commercial terms to the extent that this borrowing would not itself cause a severe financial hardship, (c) by cessation of deferrals under the Plan, or (d) by liquidation of the Participant’s other assets (including assets of the Participant’s spouse and minor children that are reasonably available to the Participant) to the extent that this liquidation would not itself cause severe financial hardship. For the purposes of the preceding sentence, the Participant’s resources shall be deemed to include those assets of his or her spouse and minor children that are reasonably available to the Participant; however, property held for the Participant’s child under an irrevocable trust or under a Uniform Gifts to Minors Act custodianship or Uniform Transfers to Minors Act custodianship shall not be treated as a resource of the Participant. The Administrator shall determine whether the circumstances of the Participant constitute an unforeseeable emergency and thus an Unforeseen Financial Emergency within the meaning of this Section. Following a uniform procedure, the Administrator’s determination shall consider any facts or conditions deemed necessary or advisable by the Administrator, and the Participant shall be required to submit any evidence of the Participant’s circumstances that the Administrator requires. The determination as to whether the Participant’s circumstances are a case of an Unforeseen Financial Emergency shall be based on the facts of each case; provided however, that all determinations as to an Unforeseen Financial Emergency shall be uniformly and consistently made according to the provisions of this Section for all Participants in similar circumstances.

        1.33 Vested means the balance in a Participant’s Deferred Benefit Accounts to which the Participant has a nonforfeitable right, as determined under Section 5.1.

ARTICLE II - PARTICIPATION

        2.1 Commencement of Participation. Each employee who is a Participant in the Plan on January 1, 2000, shall remain a Participant. Each other employee shall become eligible to participate in the Plan when he/she becomes an Eligible Employee.

        2.2 Procedure for and Effect of Admission. An Eligible Employee shall become a Participant once he/she has completed such forms and provided such data as are reasonably required by the Administrator. By becoming a Participant, an Eligible Employee shall for all purposes be deemed conclusively to have assented to the provisions of this Plan and all amendments hereto.

ARTICLE III - PLAN CONTRIBUTIONS

        3.1 Executive Deferral Contribution. Subject to the provisions of Section 3.2, a Participant may authorize the Participating Company that employs him/her to reduce his/her Compensation by any fixed dollar amount and to have a corresponding amount credited to his/her Deferred Benefit Accounts, in accordance with Section 4.2. Such deferral election shall be made prior to the date on which the Participant performs services with respect to which the Compensation is earned. A Participant may make a separate election to reduce the amount of incentive pay paid to him/her by any percent of such incentive pay awarded.

-4-

        3.2 Rules Governing Executive Deferral Contributions.

        (a) The minimum amount of salary that a Participant may elect to defer for a Plan Year is $1,000.

        (b) A Participant may elect any Annual Distribution Period with respect to a Fixed Period Benefit Account, which is at least twenty-four months after the Enrollment Period in which the Annual Distribution Period is elected. Notwithstanding the prior sentence, an individual who first becomes a Participant after the first day of a Plan Year may make an election under Section 3.1 effective as of the payroll period coincident with or next following the date such election is received by the Administrator and may further elect any Annual Distribution Period that is at least the second Annual Distribution Period following the date on which the individual became a Participant.

        (c) The amount of Compensation that a Participant elects to defer shall be credited to the Participant’s Deferred Benefit Accounts on or about the date on which the Participant is paid the nondeferred portion of the Compensation which is the source of the deferral.

        (d) A Participant’s election to defer Compensation is irrevocable once the Enrollment Period ends and shall remain in effect until the earlier of the Participant’s Employment Termination Date, or the end of the Plan Year for which the deferral is effective; provided, however, that once during the Plan Year the Participant may modify his/her election to change the amount of Compensation he/she elects to defer for the remainder of the Plan Year, such change to be effective for the pay period which is at least two months after the date it is received by the Plan Administrator.

        (e) Notwithstanding any provision to the contrary, once payments commence to be made pursuant to Section 6.1(b), a Participant may not allocate credits to the Education Account with respect to which such payments are made.

        3.3 No Matching Contribution. No Participating Company shall make a Matching Contribution to the Plan for any Plan Year beginning after 1998.

ARTICLE IV - PARTICIPANTS’ ACCOUNTS

        4.1 Establishment of Accounts. One or more of the following Deferred Benefit Accounts shall be established with respect to each Participant:

        (a) Retirement Account;

        (b) Education Account; and

        (c) Fixed Period Benefit Account.

        All contributions on behalf of a Participant shall be credited to the appropriate Deferred Benefit Accounts, in accordance with Section 4.2.

        4.2 Executive Benefit Allocation. A Participant's Deferral Agreement shall contain a written statement specifying the allocation of his/her anticipated Credits.

        4.3 Irrevocable Allocation. A Participant’s election to allocate anticipated Credits shall remain in effect until the earlier of his/her Employment Termination Date or the end of the Plan Year for which the election is effective; provided, however, that a Participant may modify his/her election to allocate Credits at any time he/she would be permitted to change the amount of Compensation he/she elects to defer for subsequent calendar quarters pursuant to Section 3.2(d) and subject to the limitations provided in Section 3.2(d).

-5-

        4.4 Allocation among Investment Funds.

        (a) General. Except as provided in Section 4.4(b), a Participant may direct that the Credits be valued, in accordance with Section 4.6, as if the balance credited to the account were invested in one or more Investment Funds. The Participant may select up to six (or such greater number as the Administrator may determine) Investment Funds in multiples of one percent (or such other percentage as the Administrator may determine). A Participant may make a separate selection with respect to each of his/her Deferred Benefit Accounts, but overall the Participant may not have investments in more than six (or such greater number as the Administrator may determine) Investment Funds.

        (b) Deferred Incentive Pay. A Participant’s election regarding the allocation among investment options for valuation purposes in connection with a deferral of incentive pay under the PMA Capital Corporation Annual Incentive Plan shall be irrevocable, shall remain in effect until payment of the deferred incentive pay and may not at any time be modified. This provision shall be administered in accordance with Section 162(m) of the Code and Treas. Reg. § 1.162-27(e)(2)(iii)(B).

        4.5 Administration of Investments. The investment gain or loss with respect to Credits on behalf of a Participant shall continue to be determined in the manner selected by the Participant pursuant to Section 4.4. If any Participant fails to file a designation, under either Section 4.4(a) or 4.4(b), he/she shall be deemed to have elected to continue to follow the investment designation, if any, in effect for the immediately preceding Plan Year as to all amounts deferred under this Plan. A designation filed by a Participant changing his/her Investment Funds, to the extent permitted under Section 4.4(a), shall apply to either future contributions, amounts already accumulated in his/her Deferred Benefit Accounts, or both. A Participant may change his/her investment selection under Section 4.4(a) no more than once each calendar quarter.

        4.6 Valuation of Deferred Benefit Accounts. The Deferred Benefit Accounts of each Participant shall be valued daily based upon the performance of the Investment Fund or Funds selected by the Participant. Such valuation shall reflect the net asset value expressed per share of each designated Investment Fund. The fair market value of an Investment Fund shall be determined by the Administrator. Each Deferred Benefit Account shall be valued separately. A valuation summary shall be prepared on each Determination Date.

        4.7 Suballocation within Deferred Benefit Accounts.

        (a) In the event a Participant allocates a portion of his/her anticipated Credits to an Education Account, the Participant may further allocate among subaccounts on behalf of any Eligible Dependent. In the absence of such suballocation, all Credits to the Participant’s Education Account shall be equally allocated among the Participant’s Eligible Dependents.

        (b) In the event a Participant allocates a portion of his/her anticipated Credits to a Fixed Period Benefit Account, the Participant may further allocate among subaccounts differentiated by benefit distribution dates.

        (c) Notwithstanding the foregoing, at any point in time a Participant may not have more than a total of five Accounts and subaccounts.

        4.8 Investment Obligation of the Plan Sponsor. Benefits are payable as they become due irrespective of any actual investments the Plan Sponsor may make to meet its obligations. Neither the Plan Sponsor, nor any trustee (in the event the Plan Sponsor elects to use a grantor trust to accumulate funds) shall be obligated to purchase or maintain any asset, and any reference to investments or Investment Funds is solely for the purpose of computing the value of benefits. To the extent a Participant or any person acquires a right to receive payments from the Plan Sponsor under this Plan, such right shall be no greater than the right of any unsecured creditor of the Plan Sponsor. Neither this Plan nor any action taken pursuant to the terms of this Plan shall be considered to create a fiduciary relationship between the Plan Sponsor and the Participants or any other persons or to establish a trust in which the assets are beyond the claims of any unsecured creditor of the Plan Sponsor.

-6-

ARTICLE V - VESTING

        5.1 Vesting Schedule. A Participant shall, subject to Section 6.2(b), at all times have a fully Vested interest with respect to the Executive Deferral Contributions to his/her Deferred Benefit Accounts. A Participant shall also have shall, subject to Section 6.2(b), a fully Vested interest in the Matching Contributions previously made to his/her Deferred Benefit Accounts as of January 1, 1999.

ARTICLE VI - BENEFITS

        6.1 Normal Payment of Benefits. Except as provided in Section 6.2, a Participant's benefits shall be paid as follows:

        (a) Retirement Account. Upon a Participant’s Employment Termination Date on or after attaining his/her Early Retirement Date while in the employment of a Participating Company or of PMA Foundation or an affiliate of PMA Foundation, as applicable, the Plan Sponsor shall pay such Participant a benefit either:

        (1) In an amount equal to the balance in the Participant’s Retirement Account in two installments:

        (i) The first installment, in an amount equal to 50% of the balance in the Retirement Account, shall be paid within 60 days following his/her Employment Termination Date; and

        (ii) The second installment, in an amount equal to the remaining balance in the Retirement Account, shall be paid during the first Annual Distribution Period following the date on which the first installment was paid; or

        (2) If the Participant makes an irrevocable election at least 90 days prior to the Plan Year in which his/her Employment Termination Date occurs, in the following five annual installments:

        (i) During the first Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 20% of the balance in the Participant’s Retirement Account;

        (ii) During the second Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 25% of the then balance in the Participant’s Retirement Account;

        (iii) During the third Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 33% of the then balance in the Participant’s Retirement Account;

        (iv) During the fourth Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 50% of the then balance in the Participant’s Retirement Account; and

        (v) During the fifth Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to the then remaining balance in the Participant’s Retirement Account.

        (b) Education Account. If a Participant who has established a subaccount in his/her Education Account for an Eligible Dependent remains continuously employed by a Participating Company or by PMA Foundation or one of its affiliates until January 1st of the year in which the Eligible Dependent reaches an age set forth below, the Plan Sponsor shall pay to the Participant during the Annual Distribution Period for that year a benefit determined as follows:

-7-

Age Eligible Dependent Will Attain During Year	Percent of Eligible Dependent’s Subaccount
18	25 %
19	33 %
20	50 %
21	remainder

        In the event an Eligible Dependent, with respect to whom an Education Account is maintained, dies prior to the payment of the balance to the credit of such Education Account, then the Plan Sponsor shall pay an amount equal to the remaining balance to the credit of such Education Account to the Participant within a reasonable time following receipt of proof of such death.

        (c) Fixed Period Benefit Account. As long as the Participant remains continuously employed by the Participating Company or by PMA Foundation or one of its affiliates, the Plan Sponsor shall pay to the Participant an amount equal to the balance in the Participant’s Fixed Period Benefit Account in accordance with the pre-existing distribution schedule applicable thereto.

        (d) Benefit upon Termination of Employment or Following Death.

        (1) Benefit upon Termination of Employment. Upon a Participant’s Employment Termination Date other than as set forth above in Section 6.1(a), the Plan Sponsor shall pay to the Participant an amount equal to the balance in the Participant’s Deferred Benefit Accounts in two installments:

        (i)   The first installment, in an amount equal to 50% of the balance in the Deferred Benefit Accounts, shall be paid within 60 days following his/her Employment Termination Date; and

        (ii)   The second installment, in an amount equal to the then remaining balance in the Deferred Benefit Accounts, shall be paid during the first Annual Distribution Period following the date on which the first installment was paid.

        For purposes of this Section 6.1(d)(1), a Participant who has been out of work for twenty-six weeks due to short-term disability shall be deemed to have terminated his or her employment on the last day of the twenty-six week period and such last day shall be deemed to be such Participant’s Employment Termination Date.

        (2) Benefit Following Death. Upon a Participant’s date of death, the Administrator shall reduce the balance in the Participant’s Retirement Account by the amount that the Participant has previously received or shall receive pursuant to Section 6.1(a). Thereafter, the Plan Sponsor shall pay to the Participant’s Beneficiary a single sum payment, in cash, equal to the remaining balance in the Participant’s Deferred Benefit Accounts. Payment under this Section 6.1(d)(2) shall be made as soon as practicable following the receipt by the Plan Sponsor of acceptable proof of the Participant’s death.

        (e) Earnings where Installment Payments Are Made. Where any benefit is paid in annual installments, the undistributed balance credited to the Account during the period of the installment payments and ending on the date of the last installment payment shall be credited with investment earnings or debited with investment losses in accordance with Section 4.6.

-8-

        6.2 Special Payment of Benefits.

        (a)Payment in Event of Unforeseen Financial Emergency. A Participant may request an accelerated payment of some or all of his/her benefit under the Plan to meet an Unforeseen Financial Emergency.

        (1) The request must be made in writing and filed with the Administrator and must be supported by evidence of the Unforeseen Financial Emergency. It must also specify the Deferred Benefit Accounts from which the benefit is to be paid.

        (2) The Administrator shall have sole and absolute discretion to grant or deny the Participant’s request. If the request is granted, the accelerated payment shall not be more than the amount deemed necessary by the Administrator to meet the Unforeseen Financial Emergency.

        (3) Payments under this Section 6.2(a) shall reduce the remaining benefits to, or related to, the Participant under this Plan.

        (b)Reduced Benefit upon Request. A Participant may elect in writing at any time to receive an immediate distribution of a reduced benefit under the Plan. The Participant shall specify in his/her election the Deferred Benefit Accounts from which the benefit shall be paid.

        (1) Except as otherwise provided in Section 6.2(b)(2), the amount of the benefit shall equal the amount requested by the Participant, reduced by the lesser of 10% of the amount the Participant requested or $50,000.

        (2) If the Participant’s election under this Section 6.2(b) is made within 60 days following a Change of Control, the amount of the benefit shall equal the amount requested by the Participant, reduced by the lesser of 5% of the amount the Participant requested or $25,000.

        (3) Upon receipt of a Participant’s election, the Administrator shall (i) reduce the balance of the Participant’s Deferred Benefit Accounts by the full amount that the Participant has requested, and (ii) direct the Plan Sponsor to pay the Participant the reduced benefit. The amount by which the benefit is reduced shall be automatically forfeited without any further action or consent of the Participant.

        (c)Change of Control where Installment Payments Being Made. In the event installment payments are being made to a Participant under Section 6.1 and a Change of Control of the Plan Sponsor occurs prior to the Participant’s receiving all installment payments under Section 6.1, any undistributed balance credited to the Participant’s Deferred Benefit Accounts shall be paid by the Plan Sponsor in a single sum payment, in cash, to the Participant as soon as practicable following the Change of Control.

        6.3 Reduction of Amount of Benefit Payment in Certain Cases.

        (a) Reduction of Benefit Payments. Notwithstanding any provision of the Plan to the contrary, the Administrator shall cause any payment under this Plan to a Participant who is a “Covered Employee,” as defined below, to be reduced to the extent that such Participant’s scheduled distribution under the Plan, when added to such Participant’s estimated “Applicable Employee Remuneration,” as defined below, from the Plan Sponsor and any other Participating Company for the taxable year would exceed the “Code Section 162(m) Deduction Limitation,” as defined below. The amount of any scheduled distribution, which is not paid to the Participant under this Section 6.3(a) shall be transferred to the Participant’s Retirement Account and distributed in accordance with Section 6.1(a).

-9-

        (b) Definitions.

        (1) Covered Employee. The term “Covered Employee” means an executive officer of the Plan Sponsor or other Participating Company designated by the Plan Administrator to be a “Covered Employee”.

        (2) Code Section 162(m) Deduction Limitation. The term “Code Section 162(m) Deduction Limitation” means the Applicable Employee Remuneration of any Covered Employee for the taxable year that exceeds $1,000,000 or any comparable limit specified in any future legislation amending, supplementing or superseding Code Section 162(m).

        (3) Applicable Employee Remuneration. The term “Applicable Employee Remuneration,” except as otherwise provided below, means, with respect to any Covered Employee for any taxable year, the aggregate amount allowable as a deduction under Chapter 1 of Subtitle A of the Code for such taxable year (determined without regard to section 162(m) of the Code) for “Remuneration,” as defined below, for services performed by such Covered Employee (whether or not during the taxable year). The term “Applicable Employee Remuneration” shall not include:

        (i)   Any Remuneration payable on a commission basis solely on account of income generated directly by the individual performance of the individual to whom such Remuneration is payable.

        (ii)   Any Remuneration that is “qualified performance based compensation” under Code Section 162(m).

        (iii)   Any Remuneration payable under a written binding contract which was in effect on February 17, 1993, and which was not modified thereafter in any material respect before such Remuneration is paid.

        (4) Remuneration. The term “Remuneration” includes any remuneration (including benefits) in any medium other than cash, but shall not include –

        (i)   Any payment referred to in so much of Code section 3121(a)(5) as precedes subparagraph (E) thereof, and

        (ii)   Any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under Chapter 1 of Subtitle A of the Code.

        For purposes of (i) above, Code section 3121(a)(5) shall be applied without regard to Code section 3121(v)(1).

ARTICLE VII - ADMINISTRATION OF THE PLAN

        7.1 Administrator. The Committee appointed by the President of the Plan Sponsor is hereby designated as the administrator of the Plan. If no Committee is appointed by the Plan Sponsor as the Administrator, the Plan Sponsor shall be the Administrator of the Plan. The Administrator shall have the authority to control and manage the operation and administration of the Plan. The President of the Plan Sponsor may appoint another person to be the Administrator at any time. The President of the Plan Sponsor may also remove an Administrator and fill any vacancy which may arise.

        7.2 Committee Action. If a Committee is appointed as Administrator, the following rules apply:

-10-

        (a) On all matters within the jurisdiction of the Committee, the decision of a majority of the members of the Committee shall govern and control. The Committee may take action either at a meeting or in writing without a meeting, provided that in the latter instance all members of the Committee shall have been advised of the action contemplated and that the written instrument evidencing the action shall be signed by a majority of the members.

        (b) The President of the Plan Sponsor shall appoint the Chair of the Committee. The Committee may appoint, either from among its members or otherwise, a secretary who shall keep a record of all meetings and actions taken by the Committee. Either the Chair of the Committee or any member of the Committee designated by the Chair shall execute any certificate, instrument or other written direction on behalf of the Committee. Any action taken on matters within the discretion of the Committee shall be final and conclusive as to the parties thereto and as to all Participants or Beneficiaries claiming any right under the Plan.

        7.3 Powers and Duties of the Administrator. The Administrator shall have all powers necessary to supervise the administration of the Plan and to control its operation in accordance with its terms, including, without limiting the generality of the foregoing, the power to:

        (a) Appoint, retain, and terminate such persons as it deems necessary or advisable to assist in the administration of the Plan or to render advice with respect to the responsibilities of the Administrator under the Plan, including accountants, attorneys and physicians;

        (b) Make use of the services of the employees of the Participating Company in administrative matters;

        (c) Obtain and act on the basis of all valuations, certificates, opinions and reports furnished by the persons described in (a) or (b) above;

        (d) Review the manner in which benefit claims and other aspects of the Plan administration have been handled by the employees of the Participating Company;

        (e) Determine all benefits and resolve all questions pertaining to the administration and interpretation of the Plan provisions, either by rules of general applicability or by particular decisions; to the maximum extent permitted by law, all interpretations of the Plan and other decisions of the Administrator shall be conclusive and binding on all parties;

        (f) Adopt such forms, rules and regulations as it shall deem necessary or appropriate for the administration of the Plan and the conduct of its affairs, provided that any such forms, rules and regulations shall not be inconsistent with the provisions of the Plan;

        (g) Remedy any inequity from incorrect information received or communicated or from administrative error;

        (h) Commence or defend any litigation arising from the operation of the Plan in any legal or administrative proceeding;

        (i) To determine all considerations affecting the eligibility of any Eligible Employee to become a Participant or remain a Participant in the Plan;

        (j) To determine the status and rights of Participants and their Eligible Dependents and Beneficiaries:

        (k) Direct the Plan Sponsor to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; and

-11-

        (l) Be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable federal or state law.

        7.4 Decisions of Administrator. All decisions of the Administrator, and any action taken by it in respect of the Plan shall be conclusive and binding on all persons, subject to the claims and appeal procedure described in Section 7.10 hereof.

        7.5 Expenses. All expenses incident to the operation and administration of the Plan reasonably incurred, including, without limitation by way of specification, the fees and expenses of attorneys and advisors, and for such other professional, technical and clerical assistance as may be required, shall be paid by the Plan Sponsor.

        7.6 Eligibility to Participate. No member of the Administrator who is also an officer shall be precluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Administrator, to act or pass upon any matters pertaining specifically to his or her own benefit under the Plan.

        7.7 Insurance and Indemnification for Liability. The rules relating to the insurance and indemnification for liability are as follows:

        (a) Insurance. The Plan Sponsor may, in its discretion, obtain, pay for, and keep current a policy or policies of insurance, insuring members of the Administrator and other employees to whom any responsibility with respect to administration of the Plan has been delegated against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable Federal or state law.

        (b) Indemnity. If the Plan Sponsor does not obtain, pay for, and keep current the type of insurance policy or policies referred to in Section 7.7(a) above, or if such insurance is provided but any of the members of the Administrator or other employees referred to in Section 7.7(a) above incur any costs or expenses which are not covered under such policies, then, in either event, the Plan Sponsor shall, to the extent permitted by law, indemnify and hold harmless such parties against any and all costs, expenses and liabilities incurred by such parties in performing their duties and responsibilities under this Plan, provided such party or parties were acting in good faith within what was reasonably believed to have been in the best interests of the Plan and its Participants.

        7.8 Agent for Service of Legal Process. The name and address of the person designated as the agent for service of legal process are:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

        7.9 Delegation of Responsibility. The Administrator may designate a committee of one or more persons to carry out any of the responsibilities or functions assigned or allocated to the Administrator under the Plan. Each reference to the Administrator in this Plan shall include the Administrator as well as any person to whom the Administrator may have delegated the performance of a particular function or responsibility under this Section 7.9.

        7.10 Claims Procedure.

        (a) Claim for Benefits. All claims for benefits under the Plan shall be made in writing and shall be signed by the applicant. Claims shall be submitted to a representative designated by the Administrator and hereinafter referred to as the “Claims Coordinator”.

        Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim.

-12-

        In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the applicant in writing of the denial of the claim and notify such applicant of his or her right to a review of the Claims Coordinator’s decision by the Administrator. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan’s claims review procedure as set forth in this Section 7.10.

        If no action is taken by the Claims Coordinator on an applicant’s claim within 60 days after receipt by the Claim Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure.

        (b) Appeals Procedure. Any applicant whose claim for benefits is denied in whole or in part (“Claimant”) may appeal from such denial to the Administrator for a review of the decision by the Administrator. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above in Section 7.10(a). An appeal must be submitted in writing within such period and must:

        (1)   Request a review by the Administrator of the claim for benefits under the Plan;

        (2)   Set forth all of the grounds upon which the Claimant’s request for review is based and any facts in support thereof; and

        (3)   Set forth any issues or comments which the Claimant deems pertinent to the appeal.

        The Administrator shall regularly review appeals by Claimants. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant’s request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Administrator.

        The Administrator shall make a full and fair review of each appeal and any written materials submitted by the Claimant and/or the Participating Company in connection therewith. The Administrator may require the Claimant and/or the Participating Company to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal.

        On the basis of its review, the Administrator shall make an independent determination of the Claimant’s eligibility for benefits under the Plan. The decision of the Administrator on any claim for benefits shall be final and conclusive upon all parties thereto.

        In the event the Administrator denies an appeal, in whole or in part, the Administrator shall give written notice of the decision to the Claimant, which notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Administrator’s decision was based.

        (c) Compliance with Regulations. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR § 2560.503-1.

-13-

ARTICLE VIII - AMENDMENT AND TERMINATION

        8.1 Amendment or Termination.

        (a) The Board of Directors shall have the right to alter, amend, modify, restate or terminate the Plan, or any part thereof, through the adoption of a written resolution when in its absolute discretion, it determines such action to be advisable; provided, however, that no such action by the Board of Directors shall reduce the amount credited to any Account at the time of the adoption of the amendment, modification or restatement and no such amendment, modification or restatement or termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. Each amendment shall be set forth in a written instrument.

        (b) In the event of termination, the Plan Sponsor, at its option, may pay each Participant an amount equal to the total amount credited to the Participant’s Accounts in a single sum payment of cash or, in the alternative, pay such amount in accordance with the provisions of Article VI. Termination of the Plan shall not serve to reduce the amount credited to a Participant’s Accounts on the date of termination. Moreover, no such termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control.

ARTICLE IX - MISCELLANEOUS

        9.1 Funding. Nothing contained in this Plan and no action taken pursuant to this Plan will create or be construed to create or require a funded arrangement or any kind of fiduciary duty between the Plan Sponsor and/or the Administrator and a Participant. Benefits payable under this Plan to a Participant or Beneficiary, if applicable, shall be paid directly by each Plan Sponsor from a grantor trust (the “Trust”) within the meaning of Section 671 of the Code, to the extent that such benefits are not paid from the general assets of the Plan Sponsor. The Trust must be an irrevocable grantor trust, the assets of which are subject to the claims of the general creditors of the Plan Sponsor in the event of its insolvency, defined for the purposes of this provision as the Plan Sponsor’s inability to pay its debts as they become due or that the Plan Sponsor is subject to a pending proceeding under the United States Bankruptcy Code. Except as to any amounts paid or payable to the Trust, the Plan Sponsor shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations under this Plan, and the Participant and his or her Beneficiary shall not have any property interest in any specific assets of the Plan Sponsor other than an unsecured right to receive payments from the Plan Sponsor as provided herein. To the extent any person acquires a right hereunder, such right(s) shall be no greater than those of a general, unsecured creditor of the Plan Sponsor. In the event that the amounts accumulated in the Trust are not sufficient to pay the benefits payable under this Plan, such benefits shall be paid directly from the general assets of the Plan Sponsor.

        9.2 Status of Employment. Neither the establishment or maintenance of the Plan, nor any action of the Plan Sponsor or any Participating Company or the Administrator shall be held or construed to confer upon any individual any right to be continued as an officer or other employee nor, upon dismissal, any right or interest in any assets of the Plan Sponsor or a Participating Company nor to affect any Participant’s right to terminate his/her employment at any time.

        9.3 Payments to Minors and Incompetents. If a Participant or Beneficiary or Eligible Dependent entitled to receive any benefits hereunder is a minor or is deemed by the Administrator or is adjudged to be legally incapable of giving a valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Administrator may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan.

        9.4 Inalienability of Benefits.

        (a) Benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, whether voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits under the Plan shall be void. Neither the Plan Sponsor nor any other Participating Company shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan.

-14-

        (b) Notwithstanding Section 9.4(a), if a Participant is indebted to the Plan Sponsor or any other Participating Company at any time when payments are to be made by the Plan Sponsor to the Participant under the provisions of the Plan, the Plan Sponsor shall have the right to reduce the amount of payment to be made to the Participant (or the Participant’s Beneficiary or Eligible Dependent) to the extent of such indebtedness. Any election by the Plan Sponsor not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.

        9.5 Governing Law. Except to the extent preempted by Federal law, the Plan shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

        9.6 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth.

        9.7 Required Information to Administrator. Each Participant will furnish to the Administrator such information as the Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant’s furnishing promptly such true, full and complete information as the Administrator may request. The Administrator, in its sole discretion, may request a Participant to submit proof of his/her age. The Administrator will, if such proof of age is not submitted when requested, use as conclusive evidence thereof such information as is deemed by it to be reliable, regardless of the lack of proof. Any notice or information which, according to the terms of the Plan or the rules of the Administrator, must be filed with the Administrator, shall be deemed so filed if addressed and either delivered in person or mailed to and received by the Administrator at the following address:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

Failure on the part of the Participant or Beneficiary or Eligible Dependent to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits under the Plan until such information or proof is received by the Administrator.

        9.8 Income and Payroll Tax Withholding. To the extent required by the laws in effect at the time payments are made under this Plan, the Plan Sponsor shall withhold from such deferred compensation payments any taxes required to be withheld for federal, state or local tax purposes.

        9.9 Application of Plan. The Plan, as set forth herein, shall apply to any Participant terminating employment on or after the Restatement Effective Date.

        9.10 No Effect on Other Benefits. No amount credited under this Plan shall be deemed part of the total compensation for the purpose of computing benefits to which a Participant may be entitled under any pension plan or other supplemental compensation arrangement, unless such plan or arrangement specifically provides to the contrary. The amounts payable to the Participant hereunder will be in addition to any benefits paid or payable to the Participant under any other pension, disability, annuity or retirement plan or policy whatsoever. Nothing herein contained will in any manner modify, impair or affect any existing or future rights of the Participant to participate in any other employee benefits plan or receive benefits in accordance with such plan or to participate in any current or future pension plan of a Participating Company or any supplemental arrangement which constitutes a part of the Participating Company’s regular compensation structure.

        9.11 Inurement. The Plan shall be binding upon, and shall inure to, the benefit of the Participating Company and its successors and assigns, and the Participant and the Participant’s Beneficiaries, Eligible Dependents, successors, heirs, executors and administrators.

-15-

        9.12 Notice. Any notices or elections required or permitted to be given or made under this Plan will be sufficient if in writing and if sent by first class, postage paid mail to the Participant’s last known address as shown on the Participating Company’s personnel records or to the principal office of the Participating Company, as the case may be. The date of such mailing shall be deemed the date of notice, consent or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.

        9.13 Captions. The captions contained in and the table of contents prefixed to the Plan are inserted only as a matter of convenience and for ease of reference in no way define, limit, enlarge or describe the scope or intent of this Plan or in any way affect the Plan or the construction of any provision thereof.

        9.14 Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his/her delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under Section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary or Eligible Dependent has recognized or will recognize income for federal income tax purposes with respect to benefits that are or will be payable to the Participant under the Plan before they otherwise would be paid to the Participant or the Beneficiary or Eligible Dependent (as applicable), upon the request of the Participant or Beneficiary or Eligible Dependent, the Administrator shall immediately make distribution to the Participant or Beneficiary or Eligible Dependent of the amount so taxable.

        9.15 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Administrator shall:

        (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and

        (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of 29 CFR § 2520.104-23.

        This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both.

        9.16 Gender and Number. Whenever any words are used herein in any specific gender, they shall be construed as though they were used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form where applicable and viceversa.

ARTICLE X - ADOPTION BY AFFILIATED EMPLOYERS

        10.1 Adoption of Plan. The following rules shall apply with respect to the adoption of the Plan:

        (a) Adoption by Affiliated Employers. The terms of this Plan may be adopted by any Affiliated Employer, provided:

        (1) The Board of Directors consents to such adoption by an appropriate written resolution;

-16-

        (2) The board of directors of the Affiliated Employer adopts this Plan by an appropriate written resolution which defines the Eligible Employees;

        (3) The Affiliated Employer executes a Plan Adoption Agreement in the form attached hereto as Plan Exhibit A, applicable to the Eligible Employees of such Affiliated Employer. The Affiliated Employer may elect in such Adoption Agreement to have special provisions apply with respect to the Eligible Employees of the Affiliated Employer which differ from the provisions of the Plan applicable to other Eligible Employees; and

        (4) The Affiliated Employer executes such other documents as may be required to make such Affiliated Employer a party to the Plan as a Participating Company.

        (b)Effect of Adoption. An Affiliated Employer which adopts the Plan and the Trust Agreement is thereafter a Participating Company with respect to its Eligible Employees.

        10.2 Withdrawal from Plan. Any Participating Company may at any time withdraw from the Plan upon giving the Board of Directors at least 30 days prior written notice of its intention to withdraw.

        10.3 Application of Withdrawal Provisions. The withdrawal provisions contained in Section 10.2 shall be applicable only if the withdrawing Participating Company continues to cover its Participants under a plan similar to this Plan. Otherwise, the termination provisions of the Plan shall apply.

        10.4 Plan Sponsor Appointed Agent of Participating Companies. As a condition precedent to the adoption of the Plan, each Affiliated Employer must appoint the Board of Directors as its agent to exercise on its behalf all of the power and authority conferred upon the Plan Sponsor by the Plan, including, without limitation, the power to amend or to terminate the Plan.

-17-

EX-10

PMA CAPITAL CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)

TABLE OF CONTENTS

                                                                                                          PAGE


ARTICLE I - DEFINITIONS...........................................................................................1

   1.1   Actuarial Equivalent.....................................................................................1
   1.2   Administrator............................................................................................1
   1.3   Affiliated Employer......................................................................................1
   1.4   Board of Directors.......................................................................................2
   1.5   Cause....................................................................................................2
   1.6   Change of Control........................................................................................2
   1.7   Code.....................................................................................................2
   1.8   Effective Date...........................................................................................3
   1.9   Early Retirement Date....................................................................................3
   1.10   Eligible Officer........................................................................................3
   1.11   Excess Retirement Benefit...............................................................................3
   1.12   Good Reason.............................................................................................3
   1.13   Grandfathered Early Retirement Benefit..................................................................4
   1.14   Grandfathered Normal Retirement Benefit.................................................................4
   1.15   Grandfathered Separation from Service Benefit...........................................................4
   1.16   Limited Benefit Assumptions.............................................................................4
   1.17   Limited Early Retirement Benefit........................................................................4
   1.18   Limited Normal Retirement Benefit.......................................................................4
   1.19   Limited Separation from Service Benefit.................................................................4
   1.20   New Early Retirement Benefit............................................................................4
   1.21   New Normal Retirement Benefit...........................................................................4
   1.22   New Separation from Service Benefit.....................................................................5
   1.23   Normal Retirement Date..................................................................................5
   1.24   Participant.............................................................................................5
   1.25   Participating Company...................................................................................5
   1.26   Pension Plan............................................................................................5
   1.27   Plan....................................................................................................5
   1.28   Plan Sponsor............................................................................................5
   1.29   Plan Year...............................................................................................5
   1.30   Section 401(a)(17) Limitation...........................................................................5
   1.31   Section 415 Limitation..................................................................................5
   1.32   Spouse..................................................................................................5
   1.33   Termination of Employment...............................................................................5
   1.34   Unlimited Benefit Assumptions...........................................................................5
   1.35   Unlimited Early Retirement Benefit......................................................................6
   1.36   Unlimited Normal Retirement Benefit.....................................................................6
   1.37   Unlimited Separation from Service Benefit...............................................................6

ARTICLE II - EXCESS RETIREMENT BENEFITS...........................................................................6

   2.1   Excess Retirement Benefit................................................................................6
   2.2   Reemployment.............................................................................................7

ARTICLE III - VESTING OF EXCESS RETIREMENT BENEFITS...............................................................7

   3.1   Full Vesting.............................................................................................7
   3.2   Forfeitures..............................................................................................7

ARTICLE IV- FORM OF PAYMENT OF EXCESS RETIREMENT BENEFITS.........................................................7

   4.1   Payment of Excess Retirement Benefit.....................................................................7
   4.2   Form of Payment..........................................................................................7
   4.3   Change of Control during Employment......................................................................7
   4.4   Change of Control During Retirement......................................................................8
   4.5   Failure to Assume Plan upon Change of Control............................................................8
   4.6   Actuarial Equivalent.....................................................................................8

ARTICLE V- DEATH BENEFIT..........................................................................................8

   5.1   Death Benefit............................................................................................8
   5.2   Simultaneous Death.......................................................................................8

ARTICLE VI- ADMINISTRATION OF THE PLAN............................................................................9

   6.1   Administrator............................................................................................9
   6.2   Committee Action.........................................................................................9
   6.3   Powers of Administrator..................................................................................9
   6.4   Decisions of Administrator..............................................................................10
   6.5   Administrative Expenses.................................................................................10
   6.6   Eligibility to Participate..............................................................................10
   6.7   Insurance and Indemnification for Liability.............................................................10
   6.8   Agent for Service of Legal Process......................................................................10
   6.9   Delegation of Responsibility............................................................................10
   6.10   Claims Procedure.......................................................................................11

ARTICLE VII- MISCELLANEOUS.......................................................................................12

   7.1   Funding.................................................................................................12
   7.2   Amendment or Termination................................................................................12
   7.3   Status of Employment....................................................................................12
   7.4   Payments to Minors and Incompetents.....................................................................13
   7.5   Inalienability of Benefits..............................................................................13
   7.6   Governing Law...........................................................................................13
   7.7   Severability............................................................................................13
   7.8   Required Information to Administrator...................................................................13
   7.9   Income and Payroll Tax Withholding......................................................................13
   7.10   Application of Plan....................................................................................14
   7.11   No Effect on Other Benefits............................................................................14
   7.12   Inurement..............................................................................................14
   7.13   Notice.................................................................................................14
   7.14   Captions...............................................................................................14
   7.15   Acceleration of Payments...............................................................................14
   7.16   Reporting and Disclosure Requirements..................................................................14
   7.17   Gender and Number......................................................................................15

ARTICLE VIII- ADOPTION BY AFFILIATED EMPLOYERS...................................................................15

   8.1   Adoption of Plan........................................................................................15
   8.2   Withdrawal from Plan....................................................................................15
   8.3   Application of Withdrawal Provisions....................................................................15
   8.4   Plan Sponsor Appointed Agent of Participating Companies.................................................15

APPENDIX A - LIST OF PARTICIPATING COMPANIES.....................................................................16


PLAN EXHIBIT A - PLAN ADOPTION AGREEMENT.........................................................................17


PLAN ADOPTION AGREEMENT - PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - PMA CAPITAL INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE INDEMNITY COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE MANAGEMENT COMPANY, INC.


PLAN ADOPTION AGREEMENT - PMA MANAGEMENT CORP.


PLAN ADOPTION AGREEMENT - PMA RE MANAGEMENT COMPANY

PMA CAPITAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)

        WHEREAS, Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended, place limitations (the “Sections 401(a)(17) and 415 Limitations”) on the retirement benefits which can be paid to participants in the PMA Capital Corporation Pension Plan (formerly known as The PMC Pension Plan) (the “Pension Plan”); and

        WHEREAS, some executives hired in mid-career by PMA Capital Corporation (formerly known as the Pennsylvania Manufacturers Corporation) (the “Plan Sponsor”) are not able to be credited with the maximum number of years of Benefit Service allowable under the Pension Plan (“Short Service Reduction”); and

        WHEREAS, the Plan Sponsor established the PMA Capital Corporation Supplemental Executive Retirement Plan (formerly known as The PMC Supplemental Executive Retirement Plan) (the “Plan”) to provide supplemental executive retirement benefits for the purposes of offsetting the Sections 401(a)(17) and 415 Limitations and the Short Service Reduction to a select group of management and highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

        WHEREAS, the Plan Sponsor established a separate plan, the PMA Capital Corporation Executive Management Pension Plan, effective January 1, 1999, to provide to a select group of management and highly compensated employees within the meaning of Section 201(2) of ERISA the Short Service Reduction benefits previously provided under the Plan; and

        WHEREAS, the Plan Sponsor now desires to amend and restate the Plan to, among other things, provide that the termination of a Plan participant’s employment with a Participating Company will not constitute a termination of employment for purposes of the Plan if the participant is immediately thereafter employed by PMA Foundation or one of its affiliates;

        NOW THEREFORE, the Plan Sponsor does hereby amend and restate the Plan, as of January 1, 2000, as hereinafter set forth.

ARTICLE I - - DEFINITIONS

        The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:

        1.1 Actuarial Equivalent. An amount or benefit of equivalent present value to the amount or benefit which otherwise would have been provided to, or on account of, a Participant determined on the basis of the actuarial assumptions then in effect under the Pension Plan.

        1.2 Administrator. The committee (hereinafter referred to as “Committee”) appointed by the President of the Plan Sponsor to serve as the Administrator of the Plan. If no such Committee is appointed, the Plan Sponsor shall be the Administrator of the Plan.

        1.3 Affiliated Employer. A member of a group of employers, of which the Plan Sponsor is a member and which group constitutes:

        (a) A controlled group of corporations (as defined in Section 414(b) of the Code);

-1-

        (b) Trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code);

        (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in Section 414(m) of the Code); or

        (d) Any other entity required to be aggregated with the Plan Sponsor pursuant to Section 414(o) of the Code and the Treasury regulations thereunder.

        1.4 Board of Directors. The Board of Directors of the Plan Sponsor, as from time to time constituted, or any committee thereof which is authorized to act on behalf of the Board of Directors.

        1.5 Cause. Termination by a Participating Company of employment with the Participating Company for “Cause” shall mean termination upon the willful engaging by the Participant in misconduct which is materially injurious to the Participating Company or any Affiliated Employer. No act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that such action or omission was in the best interest of the Participating Company or its Affiliated Employers. Notwithstanding the foregoing, a Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a written determination by the Administrator (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant’s counsel, to be heard before the Administrator), finding that in the good faith opinion of the Administrator the Participant was guilty of misconduct as set forth above in this Section and specifying the particulars thereof in detail. If the Administrator consists of more than one individual, the Administrator’s determination shall be made by written resolution duly adopted by the affirmative vote of a majority of the entire membership of the Administrator at a meeting of the Administrator called and held for the purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant’s counsel, to be heard before the Administrator), finding that in the good faith opinion of the Administrator the Participant was guilty of misconduct as set forth above in this Section and specifying the particulars thereof in detail.

        1.6 Change of Control. A change of control of the Plan Sponsor of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Item 1(a) of a Current Report on Form 8-K or any successor rule, whether or not the Plan Sponsor is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to occur if:

        (a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or first becomes the “beneficial owner” (as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly, in a transaction or series of transactions, of securities of the Plan Sponsor representing more than 50% of the voting power of the Plan Sponsor’s voting capital stock (the “Voting Stock”); or

        (b) The consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Plan Sponsor; or

        (c) At any time individuals who were either nominated for election by the Plan Sponsor’s Board of Directors or were elected by the Plan Sponsor’s Board of Directors cease for any reason to constitute at least a majority of the Plan Sponsor’s Board of Directors.

        1.7 Code. Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section.

-2-

        1.8 Effective Date. As amended and restated herein, January 1, 2000. The original effective date was January 1, 1993.

        1.9 Early Retirement Date. A Participant's Early Retirement Date under the Pension Plan.

        1.10 Eligible Officer. Any officer of a Participating Company who is:

        (a) Engaged in rendering personal services under the direction or control of the Participating Company on or after January 1, 1998; and

        (b) A Participant in the Pension Plan.

        1.11 Excess Retirement Benefit. A Participant’s excess retirement benefit under this Plan determined in accordance with Section 2.1 hereof.

        1.12 Good Reason. For purposes of this Plan, “Good Reason” shall mean any of the following events which occurs, following a Change of Control, without the Participant’s express written consent:

        (a) The assignment to the Participant of any duties materially inconsistent with the Participant’s status, position, duties, and responsibilities with the Participating Company immediately prior to such Change of Control or a substantial alteration in the nature or status of the Participant’s responsibilities from those in effect immediately prior to such Change of Control;

        (b) A reduction by the Participating Company in the Participant’s annual base salary as in effect on the Effective Date or thereafter, as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all executives of the Participating Company and of any organization in control of the Participating Company;

        (c) The Participating Company’s requiring the Participant to be based anywhere other than the Participant’s office prior to the Change of Control, except for required travel on the Participating Company’s business to an extent substantially consistent with the Participant’s prior travel obligations;

        (d) The failure by the Participating Company to continue in effect any compensation plan of the Participating Company in which the Participant participates, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan in connection with such Change of Control, or the failure by the Participating Company to continue the Participant’s participation therein;

        (e) The failure by the Participating Company to continue to provide the Participant with benefits substantially similar to those provided under the Plan Sponsor’s 401(k) Plan or any of the pension, life insurance, medical, health and accident, or disability plans of the Participating Company in which the Participant was participating at the time of such Change of Control, or the taking of any action by the Participating Company which would directly or indirectly materially reduce any of such benefits or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of such Change of Control, or the failure by the Participating Company or its subsidiaries to provide the number of paid vacation days to which the Participant was entitled on the basis of years of service with the Participating Company in accordance with the normal vacation policy of the Participating Company as in effect at the time of such Change of Control;

        (f) Any purported termination of a Participant’s employment which is not effected pursuant to a written notice setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment; and for purposes of this Plan, no such purported termination shall be effective.

-3-

        1.13 Grandfathered Early Retirement Benefit. The amount determined using the formula in the Pension Plan, as in effect before June 1, 1999, but after December 31, 1992, for determining the benefit thereunder on or after a Participant’s retirement on or after his/her Early Retirement Date (as defined in Article I of the Pension Plan) but before his/her Normal Retirement Date (as defined in Article I of the Pension Plan).

        1.14 Grandfathered Normal Retirement Benefit. The amount determined using the formula in the Pension Plan, as in effect before June 1, 1999, but after December 31, 1992, for determining the benefit thereunder upon a Participant’s retirement on or after his/her Normal Retirement Date (as defined in Article I of the Pension Plan).

        1.15 Grandfathered Separation from Service Benefit.The amount determined using the formula in the Pension Plan, as in effect before June 1, 1999, for determining the benefit thereunder upon a Participant’s separation from service before his/her Early Retirement Date (as defined in Article I of the Pension Plan).

        1.16 Limited Benefit Assumptions. The Limited Benefit Assumptions are that Compensation (as defined in Article I of the Pension Plan) is subject to the Section 401(a)(17) Limitation and the annual benefit is subject to the Section 415 Limitation.

        1.17 Limited Early Retirement Benefit. The greater of:

        (a) The Grandfathered Early Retirement Benefit determined using the Limited Benefit Assumptions; or

        (b) The New Early Retirement Benefit determined using the Limited Benefit Assumptions.

        1.18 Limited Normal Retirement Benefit. The greater of:

        (a) The Grandfathered Normal Retirement Benefit determined using the Limited Benefit Assumptions; or

        (b) The New Normal Retirement Benefit determined using the Limited Benefit Assumptions.

        1.19 Limited Separation from Service Benefit. The greater of:

        (a) The Grandfathered Separation from Service Benefit determined using the Limited Benefit Assumptions; or

        (b) The New Separation from Service Benefit determined using the Limited Benefit Assumptions.

        1.20 New Early Retirement Benefit. The amount determined using the formula in the Pension Plan, as in effect on and after June 1, 1999, for determining the benefit thereunder upon a Participant’s retirement on or after his/her Early Retirement Date (as defined in Article I of the Pension Plan) but before his/her Normal Retirement Date (as defined in Article I of the Pension Plan).

        1.21 New Normal Retirement Benefit. The amount determined using the formula in the Pension Plan, as in effect on and after June 1, 1999, for determining the benefit thereunder upon a Participant’s retirement on or after his/her Normal Retirement Date (as defined in Article I of the Pension Plan).

-4-

        1.22 New Separation from Service Benefit. The amount determined using the formula in the Pension Plan, as in effect on and after June 1, 1999, for determining the benefit thereunder upon a Participant’s separation from service before his/her Early Retirement Date (as defined in Article I of the Pension Plan).

        1.23 Normal Retirement Date. A Participant's Normal Retirement Date under the Pension Plan.

        1.24 Participant. An Eligible Officer or a former Eligible Officer who is accruing, or who has accrued, benefits under this Plan.

        1.25 Participating Company. The Plan Sponsor and each of its Affiliated Employers which, upon the approval of the Board of Directors, has agreed to participate in this Plan in accordance with the provisions of Article VIII. Each Participating Company is listed on Appendix A.

        1.26 Pension Plan. The PMA Capital Corporation Pension Plan as in effect on the Effective Date and as such plan may be further amended and/or restated from time to time and each successor or replacement tax-qualified pension plan. In addition, the Pension Plan shall also include such other retirement plans of the Plan Sponsor or of such other affiliates, subsidiaries or divisions of the Plan Sponsor as the Administrator may expressly include from time to time.

        1.27 Plan. The PMA Capital Corporation Supplemental Executive Retirement Plan, as set forth herein and as it may be amended and/or restated from time to time.

        1.28 Plan Sponsor. PMA Capital Corporation, a Pennsylvania corporation.

        1.29 Plan Year. Each calendar year beginning on January 1 and ending on the following December 31.

        1.30 Section 401(a)(17) Limitation. The limitation on compensation taken into account under the Pension Plan pursuant to Section 401(a)(17) of the Code.

        1.31 Section 415 Limitation. The limitation on benefits payable from the Pension Plan imposed by Section 415 of the Code.

        1.32 Spouse. A person who is married to a Participant and who is recognized as the Participant's Spouse for purposes of the Pension Plan.

        1.33 Termination of Employment. A termination of the employer — employee relationship under circumstances which give rise to a “Separation from Service” under the Pension Plan or if the Participant terminates employment with the Participating Companies and immediately thereafter becomes an employee of PMA Foundation or of one of its affiliates, a termination of the employer-employee relationship under circumstances which give rise to a “Separation from Service” under the PMA Foundation Pension Plan. For purposes of the Plan, a Participant’s termination of employment with the Participating Companies and his/her immediate employment by PMA Foundation or by one of its affiliates shall not constitute a Termination of Employment or a “Separation from Service” under the Pension Plan.

        1.34 Unlimited Benefit Assumptions. The Unlimited Benefit Assumptions are:

        (a) The Participant shall be deemed to receive Compensation (as such term is defined in Article I of the Pension Plan) without taking into account the Section 401(a)(17) Limitation and without taking into account any salary reduction contributions by such Participant to the PMA Capital Corporation 401(k) Excess Plan or to the PMA Capital Corporation Executive Deferred Compensation Plan; and

-5-

        (b) The Section 415 Limitations contained in Article XI of the Pension Plan shall not be taken into account.

        1.35 Unlimited Early Retirement Benefit. The greater of:

        (a) The Grandfathered Early Retirement Benefit determined using the Unlimited Benefit Assumptions; or

        (b) The New Early Retirement Benefit determined using the Unlimited Benefit Assumptions.

        1.36 Unlimited Normal Retirement Benefit. The greater of:

        (a) The Grandfathered Normal Retirement Benefit determined using the Unlimited Benefit Assumptions; or

        (b) The New Normal Retirement Benefit determined using the Unlimited Benefit Assumptions.

        1.37 Unlimited Separation from Service Benefit. The greater of:

        (a) The Grandfathered Separation from Service Benefit determined using the Unlimited Benefit Assumptions; or

        (b) The New Separation from Service Benefit determined using the Unlimited Benefit Assumptions.

ARTICLE II - EXCESS RETIREMENT BENEFITS

        2.1 Excess Retirement Benefit. Subject to Sections 2.2 and 7.2 hereof, the Excess Retirement Benefit of a Participant who is an Eligible Officer shall be determined as follows:

        (a) Normal Retirement Benefit. A Participant’s Excess Retirement Benefit at his or her Normal Retirement Date shall be the benefit equal to:

        (1) The Participant’s Unlimited Normal Retirement Benefit, less

        (2) The Participant’s Limited Normal Retirement Benefit.

        (b) Early Retirement Benefit. A Participant’s Excess Retirement Benefit at his or her Early Retirement Date shall be the benefit equal to:

        (1) The Participant’s Unlimited Early Retirement Benefit, less

        (2) The Participant’s Limited Early Retirement Benefit.

        (c) Separation from Service Benefit. A Participant’s Excess Retirement Benefit on his or her Termination of Employment date shall be the benefit equal to:

        (1) The Participant’s Unlimited Separation from Service Benefit, less

        (2) The Participant’s Limited Separation from Service Benefit.

-6-

        2.2 Reemployment. If a Participant whose employment with the Participating Company was terminated at a time when such Participant had an Excess Retirement Benefit and whose benefit had commenced to be paid under this Plan becomes reemployed by the Participating Company, payment of such Excess Retirement Benefit shall be suspended until such individual again ceases to be employed by the Participating Company. Thereupon, payment of such Excess Retirement Benefit shall recommence, but after taking into account any additional Benefit Service (as such term is defined in Article I of the Pension Plan) earned during such period of reemployment.

ARTICLE III - VESTING OF EXCESS RETIREMENT BENEFITS

        3.1 Full Vesting. Except as otherwise provided in this Section 3.1 and in Section 7.2 hereof, a Participant shall have a fully (100%) vested and nonforfeitable interest in his/her Excess Retirement Benefit, if any, once he/she has satisfied the requirements for a fully vested and nonforfeitable benefit under the Pension Plan. Notwithstanding the foregoing, a Participant shall forfeit his/her vested interest, if any, in his/her Excess Retirement Benefit if his/her employment is terminated for Cause.

        3.2 Forfeitures. Any amount forfeited hereunder by a Participant who has not become vested in a Excess Retirement Benefit under this Plan shall constitute a reduction of the Participating Company’s liability under the Plan and shall not be allocated to the remaining Participants.

ARTICLE IV - FORM OF PAYMENT OF EXCESS RETIREMENT BENEFITS

        4.1 Payment of Excess Retirement Benefit. Except as otherwise provided in Sections 4.3 and 7.2 hereof, a Participant’s vested Excess Retirement Benefit, if any, shall commence to be paid at the time retirement income payments commence being made to the Participant under the Pension Plan.

        4.2 Form of Payment. The normal form of payment of a Participant’s Excess Retirement Benefit shall be the same as that provided under the Pension Plan. Subject to Section 4.5 hereof, a Participant’s Excess Retirement Benefit shall be paid, however, in the same form which the Participant has elected, or is deemed to have elected, pursuant to the Pension Plan. The Participant’s election under the Pension Plan (with the valid consent of his/her Spouse where required under the Pension Plan) shall also be applicable to the payment of his/her Excess Retirement Benefit. Notwithstanding the foregoing, any Participant who elects a Social Security level income option to augment his/her benefit under the Pension Plan on account of his/her retirement before he/she is eligible for retirement benefits under the Federal Social Security system (as such optional form is described in Section 7.2 of the Pension Plan) shall receive his/her Excess Retirement Benefit in the form of a single life annuity. The Administrator shall have the sole and absolute discretion and authority to approve or reject a Participant’s request for a different method of payment than specified herein.

        4.3 Change of Control during Employment. Upon a Change of Control, or within two years thereafter, regardless of whether or not the Plan has been terminated during such period, if the Participating Company (or any successor corporation) shall terminate the Participant’s employment for other than Cause, or if the Participant shall terminate employment for Good Reason or retirement, death, or total disability (as defined in the Pension Plan), then the Participant shall become eligible for, and entitled to receive, the Participant’s Excess Retirement Benefit determined as of the date Participant’s employment terminated, i.e., if the termination date is on or after the Normal Retirement Date then the Excess Retirement Benefit will be determined under Section 2.1(a), if the termination date is on or after the Early Retirement Date but before the Normal Retirement Date, then under Section 2.1(b) and if prior to the Early Retirement Date, then under Section 2.1(c). The Participant’s Excess Retirement Benefit under this provision shall be paid to the Participant in a lump sum upon such termination of employment by the Participating Company (or any successor corporation) in cash within ninety days following the date of termination. Such amount will be calculated as the Actuarial Equivalent of the Participant’s Excess Retirement Benefit using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for determining lump sum distributions. Any Participant who remains employed by the Participating Company (or any successor corporation) for two or more years after a Change of Control shall receive the Excess Retirement Benefit in accordance with Sections 4.1 and 4.2 hereof.

-7-

        4.4 Change of Control During Retirement. In the event of a Change of Control of the Plan Sponsor, any Participant who has previously retired from the Participating Company and is receiving payment of the Participant’s Excess Retirement Benefit shall receive, within ninety days following such Change of Control, a single payment in cash which is the Actuarial Equivalent of the Participant’s remaining benefit under this Plan using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for determining lump sum distributions.

        4.5 Failure to Assume Plan upon Change of Control. In the event the Plan is not assumed by a successor upon a Change of Control of the Plan Sponsor, then all Participants shall become eligible for, and entitled to receive, their Excess Retirement Benefit determined in the manner described in Section 4.3. Such Excess Retirement Benefit shall be paid out in a lump sum upon such failure to assume the Plan. Such benefit shall be paid by the Participating Company (or any successor corporation) to the Participant in a lump sum, in cash, within ninety days following the date of the failure to assume the Plan. Such amount will be calculated as the Actuarial Equivalent of the Participant’s Excess Retirement Benefit using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for determining lump sum distributions.

        4.6 Actuarial Equivalent. An Excess Retirement Benefit which is payable in any form other than the normal form under the Pension Plan, i.e., a straight life annuity over the lifetime of the Participant, or which commences at any time prior to the Participant’s Normal Retirement Date, shall be the Actuarial Equivalent of the Excess Retirement Benefit payable hereunder using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for making a comparable determination.

ARTICLE V - DEATH BENEFIT

        5.1 Death Benefit. Except as otherwise provided herein, a death benefit shall be payable:

        (a) To the surviving Spouse of a Participant who dies before commencement of his/her Excess Retirement Benefit, if the Spouse is entitled to a qualified pre-retirement survivor annuity under Section 6.1 of the Pension Plan. The amount of the death benefit hereunder shall be based on the amount of the Participant’s Excess Retirement Benefit determined using the date of death as the date of retirement or separation from service and calculated using the rules contained in Section 6.1 of the Pension Plan. The death benefit shall be administered and distributed in accordance with the provisions of Sections 6.1 and 6.2 of the Pension Plan.

        (b) In the event of a Change of Control of the Plan Sponsor, any surviving Spouse who is receiving payment of a death benefit pursuant to this Section 5.1 shall receive a single lump sum payment which is the Actuarial Equivalent of the surviving Spouse’s remaining death benefit. Such benefit shall be paid by the Participating Company (or any successor corporation) to the surviving Spouse within ninety days following the date of the Change of Control.

        5.2 Simultaneous Death. In the event of the simultaneous death of a Participant eligible for a death benefit under this Article V and his/her Spouse so that it is not possible to determine which one was the survivor, it shall be presumed for purposes of this Article V that the Spouse predeceased the Participant.

-8-

ARTICLE VI - ADMINISTRATION OF THE PLAN

        6.1 Administrator. The Committee appointed by the President of the Plan Sponsor is hereby designated as the administrator of the Plan (within the meaning of Section 3(16)(A) of ERISA). If no Committee is appointed by the Plan Sponsor as the Administrator, the Plan Sponsor shall be the Administrator of the Plan. The Administrator shall have the authority to control and manage the operation and administration of the Plan as the named fiduciary under Section 402(a)(1) of ERISA. The President of the Plan Sponsor may appoint another person to be the Administrator at any time. The President of the Plan Sponsor may also remove a Administrator and fill any vacancy which may arise.

        6.2 Committee Action. If a Committee is appointed as Administrator, the following rules apply:

        (a) On all matters within the jurisdiction of the Committee, the decision of a majority of the members of the Committee shall govern and control. The Committee may take action either at a meeting or in writing without a meeting, provided that in the latter instance all members of the Committee shall have been advised of the action contemplated and that the written instrument evidencing the action shall be signed by a majority of the members.

        (b) The President of the Plan Sponsor shall appoint the Chair of the Committee. The Committee may appoint, either from among its members or otherwise, a secretary who shall keep a record of all meetings and actions taken by the Committee. Either the Chair of the Committee or any member of the Committee designated by the Chair shall execute any certificate, instrument or other written direction on behalf of the Committee. Any action taken on matters within the discretion of the Committee shall be final and conclusive as to the parties thereto and as to all Participants or beneficiaries claiming any right under the Plan.

        6.3 Powers of Administrator. The Administrator shall have all powers necessary to supervise the administration of the Plan and to control its operation in accordance with its terms, including, but not by way of limitation, the following powers:

        (a) Appoint, retain, and terminate such persons as it deems necessary or advisable to assist in the administration of the Plan or to render advice with respect to the responsibilities of the Administrator under the Plan, including accountants, actuaries, administrators, attorneys and physicians.

        (b) Make use of the services of the employees of the Participating Company in administrative matters.

        (c) Obtain and act on the basis of all tables, valuations, certificates, opinions, and reports furnished by the persons described in paragraph (a) or (b) above. Any determination of Actuarially Equivalent benefits by the actuary selected by the Administrator shall be conclusive and binding on the Participating Company, the Administrator and all Participants.

        (d) Review the manner in which benefit claims and other aspects of the Plan administration have been handled by the employees of the Participating Company.

        (e) Determine all benefits and resolve all questions pertaining to the administration and interpretation of the Plan provisions, either by rules of general applicability or by particular decisions. To the maximum extent permitted by law, all interpretations of the Plan and other decisions of the Administrator shall be conclusive and binding on all parties.

-9-

        (f) Adopt such forms, rules and regulations as it shall deem necessary or appropriate for the administration of the Plan and the conduct of its affairs, provided that any such forms, rules and regulations shall not be inconsistent with the provisions of the Plan.

        (g) Remedy any inequity from incorrect information received or communicated or from administrative error.

        (h) Commence or defend any litigation arising from the operation of the Plan in any legal or administrative proceeding.

        (i) To determine all considerations affecting the eligibility of any Employee to become a Participant or remain a Participant in the Plan;

        (j) To determine the status and rights of Participants and their Spouses, beneficiaries or estates;

        6.4 Decisions of Administrator. All decisions of the Administrator, and any action taken by it in respect of the Plan and within the powers granted to it under the Plan, shall be conclusive and binding on all persons, subject to the claims and appeal procedure described in Section 6.10 hereof.

        6.5 Administrative Expenses. All expenses incident to the operation and administration of the Plan reasonably incurred, including, without limitation by way of specification, the fees and expenses of attorneys and advisors, and for such other professional, technical and clerical assistance as may be required, shall be paid by the Participating Company.

        6.6 Eligibility to Participate. No member of the Administrator who is also an Eligible Officer shall be precluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Administrator, to act or pass upon any matters pertaining specifically to his or her own benefit under the Plan.

        6.7 Insurance and Indemnification for Liability. The rules relating to the insurance and indemnification for liability are as follows:

        (a) Insurance. The Plan Sponsor may, in its discretion, obtain, pay for, and keep current a policy or policies or insurance, insuring members of the Administrator and other employees to whom any fiduciary responsibility with respect to administration of the Plan has been delegated against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable Federal or state law.

        (b) Indemnity. If the Plan Sponsor does not obtain, pay for, and keep current the type of insurance policy or policies referred to in Section 6.7(a) above, or if such insurance is provided but any of the members of the Administrator or other employees referred to in Section 6.7(a) above incur any costs or expenses which are not covered under such policies, then, in either event, the Plan Sponsor shall, to the extent permitted by law, indemnify and hold harmless such parties against any and all costs, expenses and liabilities incurred by such parties in performing their duties and responsibilities under this Plan, provided such party or parties were acting in good faith within what was reasonably believed to have been in the best interests of the Plan and its Participants.

        6.8 Agent for Service of Legal Process. The Administrator shall be the designated agent for the service of legal process with respect to any matter concerning the Plan.

        6.9 Delegation of Responsibility. The Administrator may designate a committee of one or more persons to carry out any of the responsibilities or functions assigned or allocated to the Administrator under the Plan. Each reference to the Administrator in this Plan shall include the Administrator as well as any person to whom the Administrator may have delegated the performance of a particular function or responsibility under this Section 6.9.

-10-

        6.10 Claims Procedure.

        (a) Claim for Benefits. All claims for benefits under the Plan shall be made in writing and shall be signed by the applicant. Claims shall be submitted to a representative designated by the Administrator and hereinafter referred to as the “Claims Coordinator”.

        Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim.

        In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the applicant in writing of the denial of the claim and notify such applicant of his or her right to a review of the Claims Coordinator’s decision by the Administrator. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan’s claims review procedure as set forth in this Section 6.10.

        If no action is taken by the Claims Coordinator on an applicant’s claim within 60 days after receipt by the Claim Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure.

        (b)  Appeals Procedure. Any applicant whose claim for benefits is denied in whole or in part (“Claimant”) may appeal from such denial to the Administrator for a review of the decision by the Administrator. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above in Section 6.10(a). An appeal must be submitted in writing within such period and must:

        (1)   Request a review by the Administrator of the claim for benefits under the Plan;

        (2)   Set forth all of the grounds upon which the Claimant’s request for review is based and any facts in support thereof; and

        (3)   Set forth any issues or comments which the Claimant deems pertinent to the appeal.

        The Administrator shall regularly review appeals by Claimants. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant’s request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Administrator.

        The Administrator shall make a full and fair review of each appeal and any written materials submitted by the Claimant and/or the Participating Company in connection therewith. The Administrator may require the Claimant and/or the Participating Company to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal.

-11-

        On the basis of its review, the Administrator shall make an independent determination of the Claimant’s eligibility for benefits under the Plan. The decision of the Administrator on any claim for benefits shall be final and conclusive upon all parties thereto.

        In the event the Administrator denies an appeal, in whole or in part, the Administrator shall give written notice of the decision to the Claimant, which notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Administrator’s decision was based.

        (c) Compliance with Regulations. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR § 2560.503-1.

ARTICLE VII - MISCELLANEOUS

        7.1 Funding. Nothing contained in this Plan and no action taken pursuant to this Plan will create or be construed to create or require a funded arrangement or any kind of fiduciary duty between the Participating Company and/or the Administrator and a Participant. Benefits payable under this Plan shall be paid directly from the general assets of each Participating Company. The Participating Company shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations under this Plan. The Participating Company’s obligation hereunder will be an unfunded and unsecured promise to make payments in the future. A Participant and his/her Spouse shall not have any property interest, claim or legal or equitable right in or to any specific assets of the Participating Company other than the unsecured right to receive payments from the Participating Company as provided herein. To the extent any person acquires a right hereunder, such right(s) will be no greater than those of a general, unsecured creditor of the Participating Company.

        7.2 Amendment or Termination.

        (a) The Board of Directors reserves the right to alter, amend or terminate the Plan, or any part thereof, through the adoption of a written resolution; provided, however, that no such action by the Board of Directors shall reduce a Participant’s Excess Retirement Benefit accrued as of the time thereof and no such amendment or termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. Each amendment shall be set forth in a written instrument.

        (b) If the Plan is terminated, a determination shall be made of each Participant’s Excess Retirement Benefit as of the Plan termination date. The amount of a Participant’s benefit or benefits shall be payable to the Participant at the time it would have been payable under Article IV hereof if the Plan had not been terminated. If a Participant dies after termination of the Plan, but prior to his/her Termination of Employment, his/her surviving Spouse shall receive a distribution of his/her death benefit, determined in accordance with Article V hereof, but based on the Participant’s Excess Retirement Benefit as of the Plan termination date.

        7.3 Status of Employment. Neither the establishment or maintenance of the Plan, nor any action of the Plan Sponsor or any Participating Company or the Administrator shall be held or construed to confer upon any individual any right to be continued as an Employee nor, upon dismissal, any right or interest in any assets of the Plan Sponsor or a Participating Company nor to affect any Participant’s right to terminate his/her employment at any time.

-12-

        7.4 Payments to Minors and Incompetents. If a Participant or surviving Spouse entitled to receive any benefits hereunder is a minor or is deemed by the Administrator or is adjudged to be legally incapable of giving a valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Administrator may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan.

        7.5 Inalienability of Benefits.

        (a) Benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, whether voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits under the Plan shall be void. The Participating Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan.

        (b) Notwithstanding Section 7.5(a), if a Participant is indebted to the Participating Company at any time when payments are to be made by the Participating Company to the Participant under the provisions of the Plan, the Participating Company shall have the right to reduce the amount of payment to be made to the Participant (or the Participant’s surviving Spouse) to the extent of such indebtedness. Any election by the Participating Company not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.

        7.6 Governing Law. Except to the extent preempted by federal law, the Plan shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

        7.7 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth.

        7.8 Required Information to Administrator. Each Participant will furnish to the Administrator such information as the Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant’s furnishing promptly such true, full and complete information as the Administrator may request. The Administrator, in its sole discretion, may request a Participant to submit proof of his/her age. The Administrator will, if such proof of age is not submitted when requested, use as conclusive evidence thereof such information as is deemed by it to be reliable, regardless of the lack of proof. Any notice or information which, according to the terms of the Plan or the rules of the Administrator, must be filed with the Administrator, shall be deemed so filed if addressed and either delivered in person or mailed to and received by the Administrator at the following address:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

        Failure on the part of the Participant or Spouse to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits under the Plan until such information or proof is received by the Administrator.

        7.9 Income and Payroll Tax Withholding. To the extent required by the laws in effect at the time payments are made under this Plan, the Plan Sponsor shall withhold from such deferred compensation payments any taxes required to be withheld for federal, state or local tax purposes.

-13-

        7.10 Application of Plan. The Plan, as set forth herein, shall apply to any Participant terminating employment on or after the Effective Date. The Plan, as in effect on a Participant’s Termination of Employment date, shall apply to any such Participant terminating employment before the Effective Date.

        7.11 No Effect on Other Benefits. No amount credited under this Plan shall be deemed part of the total compensation for the purpose of computing benefits to which a Participant may be entitled under any pension plan or other supplemental compensation arrangement, unless such plan or arrangement specifically provides to the contrary. The amounts payable to the Participant hereunder will be in addition to any benefits paid or payable to the Participant under any other pension, disability, annuity or retirement plan or policy whatsoever. Nothing herein contained will in any manner modify, impair or affect any existing or future rights of the Participant to participate in any other employee benefits plan or receive benefits in accordance with such plan or to participate in any current or future pension plan of a Participating Company or any supplemental arrangement which constitutes a part of the Participating Company’s regular compensation structure.

        7.12 Inurement. The Plan shall be binding upon and inure to the benefit of the Participating Company and its successors and assigns, and the Participant and the Participant’s beneficiaries, successors, heirs, executors and administrators.

        7.13 Notice. Any notices or elections required or permitted to be given or made under this Plan will be sufficient if in writing and if sent by first class, postage paid mail to the Participant’s last known address as shown on the Participating Company’s personnel records or to the principal office of the Participating Company, as the case may be. The date of such mailing shall be deemed the date of notice, consent or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.

        7.14 Captions. The captions contained in and the table of contents prefixed to the Plan are inserted only as a matter of convenience and for ease of reference in no way define, limit, enlarge or describe the scope or intent of this Plan or in any way affect the Plan or the construction of any provision thereof.

        7.15 Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his/her delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under Section 7121 of the Code that is approved by the Commissioner, that such Participant or Spouse has recognized or will recognize income for federal income tax purposes with respect to benefits that are or will be payable to the Participant under the Plan before they otherwise would be paid to the Participant or the Spouse (as applicable), upon the request of the Participant or Spouse, the Administrator shall immediately make distribution to the Participant or Spouse of the amount so taxable.

        7.16 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Administrator shall:

        (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and

        (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of DOL Reg. § 2520.104-23.

-14-

        This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both.

        7.17 Gender and Number. Whenever any words are used herein in any specific gender, they shall be construed as though they were used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form where applicable and viceversa.

ARTICLE VIII - ADOPTION BY AFFILIATED EMPLOYERS

        8.1 Adoption of Plan. The following rules shall apply with respect to the adoption of the Plan:

        (a) Adoption by Affiliated Employers. The terms of this Plan may be adopted by any Affiliated Employer, provided:

        (1) The Board of Directors consents to such adoption by an appropriate written resolution;

        (2) The board of directors of the Affiliated Employer adopts this Plan by an appropriate written resolution which identifies the Eligible Officers;

        (3) The Affiliated Employer executes a Plan Adoption Agreement in the form attached hereto as Plan Exhibit A, applicable to the Eligible Officers of such Affiliated Employer. The Affiliated Employer may elect in such Adoption Agreement to have special provisions apply with respect to the Eligible Officers of the Affiliated Employer which differ from the provisions of the Plan applicable to other Eligible Officers; and

        (4) The Affiliated Employer executes such other documents as may be required to make such Affiliated Employer a party to the Plan as a Participating Company.

        (b) Effect of Adoption. An Affiliated Employer that adopts the Plan is thereafter a Participating Company with respect to its Eligible Officers.

        8.2 Withdrawal from Plan. Any Participating Company may at any time withdraw from the Plan upon giving the Board of Directors at least 30 days prior written notice of its intention to withdraw.

        8.3 Application of Withdrawal Provisions. The withdrawal provisions contained in Section 8.2 shall be applicable only if the withdrawing Participating Company continues to cover its Participants under a plan similar to this Plan. Otherwise the termination provisions of the Plan shall apply.

        8.4 Plan Sponsor Appointed Agent of Participating Companies. As a condition precedent to the adoption of the Plan, each participating Affiliated Employer appoints the Board of Directors as its agent to exercise on its behalf all of the power and authority conferred upon the Plan Sponsor by the Plan, including, without limitation, the power to amend or to terminate the Plan.

-15-

EX-10

PMA CAPITAL CORPORATION

EXECUTIVE MANAGEMENT PENSION PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)

TABLE OF CONTENTS

                                                                                                          Page


ARTICLE I - DEFINITIONS...........................................................................................1

   1.1   Actuarial Equivalent.....................................................................................1
   1.2   Administrator............................................................................................1
   1.3   Affiliated Employer......................................................................................1
   1.4   Board of Directors.......................................................................................2
   1.5   Cause....................................................................................................2
   1.6   Change of Control........................................................................................2
   1.7   Code.....................................................................................................2
   1.8   Eligible Executive.......................................................................................3
   1.9   Good Reason..............................................................................................3
   1.10  Participant..............................................................................................3
   1.11  Participating Company....................................................................................3
   1.12  Past Service Credit......................................................................................3
   1.13  Past Service Retirement Benefit..........................................................................4
   1.14  Pension Plan.............................................................................................4
   1.15  Plan.....................................................................................................4
   1.16  Plan Sponsor.............................................................................................4
   1.17  Plan Year................................................................................................4
   1.18  PMA SERP.................................................................................................4
   1.19  Restatement Effective Date...............................................................................4
   1.20  Section 401(a)(17) Limitation............................................................................4
   1.21  Section 415 Limitation...................................................................................4
   1.22  Spouse...................................................................................................4
   1.23  Termination of Employment................................................................................4

ARTICLE II- PAST SERVICE RETIREMENT BENEFITS......................................................................4

   2.1   Past Service Credit......................................................................................4
   2.2   Past Service Retirement Benefit..........................................................................5
   2.3   Reemployment.............................................................................................5

ARTICLE III - VESTING OF PAST SERVICE RETIREMENT BENEFITS.........................................................5

   3.1   Full Vesting.............................................................................................5
   3.2   Forfeitures..............................................................................................5

ARTICLE IV - FORM OF PAYMENT OF PAST SERVICE RETIREMENT BENEFITS..................................................5

   4.1   Payment of Past Service Retirement Benefit...............................................................5
   4.2   Form of Payment..........................................................................................6
   4.3   Change of Control during Employment......................................................................6
   4.4   Change of Control during Retirement......................................................................6
   4.5   Failure to Assume Plan upon Change of Control............................................................6
   4.6   Actuarial Equivalent.....................................................................................6

ARTICLE V- DEATH BENEFIT..........................................................................................7

   5.1   Death Benefit............................................................................................7
   5.2   Simultaneous Death.......................................................................................7

ARTICLE VI - ADMINISTRATION OF THE PLAN...........................................................................7

   6.1   Administrator............................................................................................7
   6.2   Committee Action.........................................................................................7
   6.3   Powers of Administrator..................................................................................7
   6.4   Decisions of Administrator...............................................................................8
   6.5   Administrative Expenses..................................................................................8
   6.6   Eligibility to Participate...............................................................................8
   6.7   Insurance and Indemnification for Liability..............................................................8
   6.8   Agent for Service of Legal Process.......................................................................9
   6.9   Delegation of Responsibility.............................................................................9
   6.10  Claims Procedure.........................................................................................9

ARTICLE VII - MISCELLANEOUS......................................................................................10

   7.1   Funding.................................................................................................10
   7.2   Amendment or Termination................................................................................11
   7.3   Status of Employment....................................................................................11
   7.4   Payments to Minors and Incompetents.....................................................................11
   7.5   Inalienability of Benefits..............................................................................11
   7.6   Governing Law...........................................................................................11
   7.7   Severability............................................................................................11
   7.8   Required Information to Administrator...................................................................12
   7.9   Income and Payroll Tax Withholding......................................................................12
   7.10  Application of Plan.....................................................................................12
   7.11  No Effect on Other Benefits.............................................................................12
   7.12  Inurement...............................................................................................12
   7.13  Notice..................................................................................................12
   7.14  Captions................................................................................................12
   7.15  Acceleration of Payments................................................................................12
   7.16  Reporting and Disclosure Requirements...................................................................13
   7.17  Gender and Number.......................................................................................13

ARTICLE VIII - ADOPTION BY AFFILIATED EMPLOYERS..................................................................13

   8.1   Adoption of Plan........................................................................................13
   8.2   Withdrawal from Plan....................................................................................14
   8.3   Application of Withdrawal Provisions....................................................................14
   8.4   Plan Sponsor Appointed Agent of Participating Companies.................................................14

APPENDIX A - LIST OF PARTICIPATING COMPANIES.....................................................................15


PLAN EXHIBIT A - PLAN ADOPTION AGREEMENT.........................................................................16


PLAN ADOPTION AGREEMENT - PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - PMA CAPITAL INSURANCE COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE INDEMNITY COMPANY


PLAN ADOPTION AGREEMENT - CALIBER ONE MANAGEMENT COMPANY, INC.


PLAN ADOPTION AGREEMENT - PMA MANAGEMENT CORP.


PLAN ADOPTION AGREEMENT - PMA RE MANAGEMENT COMPANY

PMA CAPITAL CORPORATION
EXECUTIVE MANAGEMENT PENSION PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)

        WHEREAS, some executives hired in mid-career by the PMA Capital Corporation (formerly known as the Pennsylvania Manufacturers Corporation) (the “Plan Sponsor”) are not able to be credited with the maximum number of years of Benefit Service allowable under the PMA Capital Corporation Pension Plan (formerly known as The PMC Pension Plan (the “Pension Plan”)), due to the age of the executive when hired (“Short Service Reduction”); and

        WHEREAS, Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the “Code”) place limitations (the “Sections 401(a)(17) and 415 Limitations”) on the retirement benefits which can be paid to participants in the Pension Plan; and

        WHEREAS, the Plan Sponsor established the PMA Capital Corporation Supplemental Executive Retirement Plan (formerly known as The PMC Supplemental Executive Retirement Plan) (the “PMA SERP”), effective January 1, 1993, to provide supplemental executive retirement benefits for the purposes of offsetting the Short Service Reduction and the Sections 401(a)(17) and 415 Limitations to a select group of management and highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

        WHEREAS, the Plan Sponsor established, as a separate plan, the PMA Capital Corporation Executive Management Pension Plan (the “Plan”), effective January 1, 1999, in order to provide to a select group of management and highly compensated employees within the meaning of Section 201(2) of ERISA the Short Service Reduction benefits previously provided under the PMA SERP; and

        WHEREAS, the Plan Sponsor desires to provide that the termination of a Plan participant’s employment with a Participating Company will not constitute a termination of employment for purposes of the Plan if the participant is immediately thereafter employed by PMA Foundation or one of its affiliates; and

        WHEREAS, the Plan Sponsor desires to amend and restate the Plan in order to effect the foregoing;

        NOW THEREFORE, the Plan Sponsor does hereby amend and restate the Plan, effective January 1, 2000, as follows:

ARTICLE I - DEFINITIONS

        The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:

        1.1 Actuarial Equivalent. An amount or benefit of equivalent present value to the amount or benefit which otherwise would have been provided to, or on account of, a Participant determined on the basis of the actuarial assumptions then in effect under the Pension Plan.

        1.2 Administrator. The committee (hereinafter referred to as "Committee") appointed by the President of the Plan Sponsor to serve as the Administrator of the Plan. If no such Committee is appointed, the Plan Sponsor shall be the Administrator of the Plan.

        1.3 Affiliated Employer. A member of a group of employers, of which the Plan Sponsor is a member and which group constitutes:

        (a)   A controlled group of corporations (as defined in Section 414(b) of the Code);

-1-

        (b)   Trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code);

        (c)   Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in Section 414(m) of the Code); or

        (d)   Any other entity required to be aggregated with the Plan Sponsor pursuant to Section 414(o) of the Code and the Treasury regulations thereunder.

        1.4 Board of Directors. The Board of Directors of the Plan Sponsor, as from time to time constituted, or any committee thereof which is authorized to act on behalf of the Board of Directors.

        1.5 Cause. Termination by a Participating Company of employment with the Participating Company for “Cause” shall mean termination upon the willful engaging by the Participant in misconduct which is materially injurious to the Participating Company or any Affiliated Employer. No act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that such action or omission was in the best interest of the Participating Company or its Affiliated Employers. Notwithstanding the foregoing, a Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a written determination by the Administrator (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant’s counsel, to be heard before the Administrator), finding that in the good faith opinion of the Administrator the Participant was guilty of misconduct as set forth above in this Section and specifying the particulars thereof in detail. If the Administrator consists of more than one individual, the Administrator’s determination shall be made by written resolution duly adopted by the affirmative vote of a majority of the entire membership of the Administrator at a meeting of the Administrator called and held for the purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant’s counsel, to be heard before the Administrator), finding that in the good faith opinion of the Administrator the Participant was guilty of misconduct as set forth above in this Section and specifying the particulars thereof in detail.

        1.6 Change of Control. A change of control of the Plan Sponsor of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Item 1(a) of a Current Report on Form 8-K or any successor rule, whether or not the Plan Sponsor is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to occur if:

        (a)   Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or first becomes the “beneficial owner” (as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly, in a transaction or series of transactions, of securities of the Plan Sponsor representing more than 50% of the voting power of the Plan Sponsor’s voting capital stock (the “Voting Stock”); or

        (b)   The consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Plan Sponsor; or

        (c)   At any time individuals who were either nominated for election by the Plan Sponsor’s Board of Directors or were elected by the Plan Sponsor’s Board of Directors cease for any reason to constitute at least a majority of the Plan Sponsor’s Board of Directors.

        1.7 Code. Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section.

-2-

        1.8 Eligible Executive. Any executive of a Participating Company who is hired as a Vice President or as a more senior officer on or after January 1, 1990.

        1.9 Good Reason. For purposes of this Plan, "Good Reason" shall mean any of the following events which occurs, following a Change of Control, without the Participant's express written consent:

        (a)   The assignment to the Participant of any duties materially inconsistent with the Participant’s status, position, duties, and responsibilities with the Participating Company immediately prior to such Change of Control or a substantial alteration in the nature or status of the Participant’s responsibilities from those in effect immediately prior to such Change of Control;

        (b)   A reduction by the Participating Company in the Participant’s annual base salary as in effect on the Effective Date or thereafter, as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all executives of the Participating Company and of any organization in control of the Participating Company;

        (c)   The Participating Company’s requiring the Participant to be based anywhere other than the Participant’s office prior to the Change of Control except for required travel on the Participating Company’s business to an extent substantially consistent with the Participant’s prior travel obligations;

        (d)   The failure by the Participating Company to continue in effect any compensation plan of the Participating Company in which the Participant participates, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan in connection with such Change of Control, or the failure by the Participating Company to continue the Participant’s participation therein;

        (e)   The failure by the Participating Company to continue to provide the Participant with benefits substantially similar to those provided under the Plan Sponsor’s 401(k) Plan or any of the pension, life insurance, medical, health and accident, or disability plans of the Participating Company in which the Participant was participating at the time of such Change of Control, or the taking of any action by the Participating Company which would directly or indirectly materially reduce any of such benefits or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of such Change of Control, or the failure by the Participating Company or its subsidiaries to provide the number of paid vacation days to which the Participant was entitled on the basis of years of service with the Participating Company in accordance with the normal vacation policy of the Participating Company as in effect at the time of such Change of Control;

        (f)   Any purported termination of a Participant’s employment which is not effected pursuant to a written notice setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment; and for purposes of this Plan, no such purported termination shall be effective.

        1.10 Participant. An Eligible Executive or former Eligible Executive who accrues, or who has accrued, benefits under this Plan on and after January 1, 1999.

        1.11 Participating Company. The Plan Sponsor and each of its Affiliated Employers which, upon the approval of the Board of Directors, has agreed to participate in this Plan in accordance with the provisions of Article VIII. Each Participating Company is listed on Appendix A.

        1.12 Past Service Credit. A Participant's past service credit under this Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999, both as determined in accordance with Section 2.1 hereof.

-3-

        1.13 Past Service Retirement Benefit. A Participant's past service retirement benefit under this Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999, both as determined in accordance with Section 2.2 hereof.

        1.14 Pension Plan. The PMA Capital Corporation Pension Plan (formerly known as The PMC Pension Plan) as in effect on the Restatement Effective Date and as such plan may be further amended and/or restated from time to time and each successor or replacement tax-qualified pension plan. In addition, the Pension Plan shall also include such other retirement plans of the Plan Sponsor, or of such other affiliates, subsidiaries or divisions of the Plan Sponsor as the Administrator may expressly include from time to time.

        1.15 Plan. The PMA Capital Corporation Executive Management Pension Plan as set forth herein and as it may be amended and/or restated from time to time.

        1.16 Plan Sponsor. PMA Capital Corporation, a Pennsylvania corporation.

        1.17 Plan Year. Each calendar year beginning on January 1 and ending on the following December 31.

        1.18 PMA SERP. The PMA Capital Corporation Supplemental Executive Retirement Plan, as in effect before January 1, 1999.

        1.19 Restatement Effective Date. January 1, 2000. The original effective date of the Plan was January 1, 1999.

        1.20 Section 401(a)(17) Limitation. The limitation on compensation taken into account under the Pension Plan pursuant to Section 401(a)(17) of the Code.

        1.21 Section 415 Limitation. The limitation on benefits payable from the Pension Plan imposed by Section 415 of the Code.

        1.22 Spouse. A person who is married to a Participant and who is recognized as the Participant's Spouse for purposes of the Pension Plan.

        1.23 Termination of Employment. A termination of the employer — employee relationship under circumstances which give rise to a “Separation from Service” under the Pension Plan or if the Participant terminates employment with the Participating Companies and immediately thereafter becomes an employee of PMA Foundation or of one of its affiliates, a termination of the employer — employee relationship under circumstances which give rise to a “Separation from Service” under the PMA Foundation Pension Plan. For purposes of the Plan, a Participant’s termination of employment with the Participating Companies and his/her immediate employment by PMA Foundation or by one of its affiliates shall not constitute a Termination of Employment or a “Separation from Service” under the Pension Plan.

ARTICLE II - PAST SERVICE RETIREMENT BENEFITS

        2.1 Past Service Credit. A Participant’s Past Service Credit under the Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999, shall be determined as follows. A Participant who is or was an Eligible Executive shall be credited with one additional year of Benefit Service (as such term is defined in Article I of the Pension Plan) under this Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999, for each year of Benefit Service credited under the Pension Plan until the sum of the Participant’s years of Benefit Service credited under this Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999 (i.e., the Participant’s Past Service Credit under the Plan on and after January 1, 1999, and under the PMA SERP before January 1, 1999) and the Participant’s years of Benefit Service credited under the Pension Plan equal twenty-five (25) years of Benefit Service. If the sum of a Participant’s Past Service Credit under the Plan on and after January 1, 1999, the PMA SERP before January 1, 1999, and such Participant’s years of Benefit Service

-4-

under the Pension Plan is greater than twenty-five (25), such Participant’s Past Service Credit under the Plan and under the PMA SERP shall be reduced first so that said sum does not exceed twenty-five (25). Any such reduction shall be made first under the PMA SERP and then under the Plan. (All references in this Plan to Articles, Sections or specific paragraphs of the Pension Plan shall include any successor Article, Section or paragraph or any amendment thereto.)

        2.2 Past Service Retirement Benefit. Subject to Sections 2.3 and 7.2 hereof, a Participant’s Past Service Retirement Benefit, if any, shall be an amount equal to the amount that would be payable under the benefit formula actually used in determining such Participant’s benefit under Article V of the Pension Plan at the time such benefit becomes payable but using only the Participant’s Past Service Credit determined under Section 2.1 as his/her Years of Benefit Service (as defined in Article I of the Pension Plan) under the Pension Plan and the following additional assumptions:

        (a)   The Participant shall be deemed to receive Compensation (as such term is defined in Article I of the Pension Plan) during each year of past service equal to such Participant’s annual rate of pay as in effect on the Participant’s Employment Commencement Date (as such term is defined in Article I of the Pension Plan) without taking into account the Section 401(a)(17) Limitation or any salary reduction contributions by such Participant to the PMA Capital Corporation 401(k) Excess Plan or to the PMA Capital Corporation Executive Deferred Compensation Plan; and

        (b)   The Section 415 Limitation contained in Article XI of the Pension Plan shall not be taken into account.

        2.3 Reemployment. If a Participant whose employment with a Participating Company was terminated at a time when such Participant had a Past Service Retirement Benefit and whose benefit had commenced to be paid under this Plan or under the PMA SERP becomes reemployed by the Participating Company, payment of such Past Service Retirement Benefit shall be suspended until such individual again ceases to be employed by the Participating Company. Thereupon, payment of such Past Service Retirement Benefit shall recommence, but only if such Participant is still entitled, after taking into account the additional Benefit Service earned by such Participant during his or her period of reemployment, under the terms of Sections 2.1 and 2.2 to a Past Service Retirement Benefit under the Plan or PMA SERP.

ARTICLE III - VESTING OF PAST SERVICE RETIREMENT BENEFITS

        3.1 Full Vesting. Except as otherwise provided in this Section 3.1 and in Section 7.2 hereof, a Participant shall have a fully (100%) vested and nonforfeitable interest in his/her Past Service Retirement Benefit, if any, once he/she has satisfied the age and service requirements for early or normal retirement under the Pension Plan, as amended effective June 1, 1999, whichever occurs first. Notwithstanding the foregoing, a Participant shall forfeit his/her vested interest, if any, in his/her Past Service Retirement Benefit if his/her employment is terminated for Cause.

        3.2 Forfeitures. Any amount forfeited hereunder by a Participant pursuant to Section 3.1 shall constitute a reduction of the Participating Company's liability under the Plan and/or PMA SERP and shall not be allocated to the remaining Participants.

ARTICLE IV - FORM OF PAYMENT OF PAST SERVICE RETIREMENT BENEFITS

        4.1 Payment of Past Service Retirement Benefit. Except as otherwise provided in Sections 4.3 and 7.2 hereof, a Participant’s vested Past Service Retirement Benefit, if any, shall commence to be paid at the time retirement income payments commence being made to the Participant under the Pension Plan. If a Participant elects early retirement under the Pension Plan then the Participant’s Past Service Retirement Benefit shall commence at the same time as payments from the Pension Plan and shall be reduced by the same early retirement reduction factors, if any, applicable to his/her retirement income from the Pension Plan, as amended effective June 1, 1999.

-5-

        4.2 Form of Payment. The normal form of payment of a Participant’s Past Service Retirement Benefit shall be the same as that provided under the Pension Plan. Subject to Section 4.5 hereof, a Participant’s Past Service Retirement Benefit shall be paid, however, in the same form which the Participant has elected, or is deemed to have elected, pursuant to the Pension Plan. The Participant’s election under the Pension Plan (with the valid consent of his/her Spouse where required under the Pension Plan) shall also be applicable to the payment of his/her Past Service Retirement Benefit. Notwithstanding the foregoing, any Participant who elects a Social Security level income option to augment his/her benefit under the Pension Plan, on account of his/her retirement before he/she is eligible for retirement benefits under the Federal Social Security system (as such optional form is described in Section 7.2 of the Pension Plan) shall receive his/her Past Service Retirement Benefit in the form of a single life annuity, as reduced, if necessary, in the manner set forth in Section 4.1 hereof. The Administrator shall have the sole and absolute discretion and authority to approve or reject a Participant’s request for a different method of payment than specified herein.

        4.3 Change of Control during Employment. Upon a Change of Control, or within two years thereafter, regardless of whether or not the Plan has been terminated during such period, if the Participating Company (or any successor corporation) shall terminate the Participant’s employment for other than Cause or if the Participant shall terminate employment for Good Reason or retirement, death, or total disability (as defined in the Pension Plan), then the Participant shall become eligible for, and entitled to receive, the Participant’s Past Service Retirement Benefit. The Participant’s Past Service Retirement Benefit under this provision shall be paid out in a lump sum upon such termination of employment. Such benefit shall be paid by the Participating Company (or any successor corporation) to the Participant in a lump sum, in cash, within ninety days following the date of termination. Such amount will be calculated as the Actuarial Equivalent of the Participant’s Past Service Retirement Benefit using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for determining lump sum distributions. Any Participant who remains employed by the Participating Company (or any successor corporation) for two or more years after a Change of Control shall receive the Past Service Retirement Benefit in accordance with Sections 4.1 and 4.2 hereof.

        4.4 Change of Control during Retirement. In the event of a Change of Control of the Plan Sponsor, any Participant who has previously retired from the Participating Company and is receiving payment of the Participant’s Past Service Retirement Benefit shall receive, within ninety days following such Change of Control, a single payment in cash which is the Actuarial Equivalent of the Participant’s remaining benefit under this Plan using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for determining lump sum distributions.

        4.5 Failure to Assume Plan upon Change of Control. In the event the Plan is not assumed by a successor upon a Change of Control of the Plan Sponsor, then all Participants shall become eligible for, and entitled to receive, their Past Service Retirement Benefit. Such Past Service Retirement Benefit shall be paid out in a lump sum upon such failure to assume the Plan. Such benefit shall be paid by the Participating Company (or any successor corporation) to the Participant in a lump sum, in cash, within ninety days following the date of the failure to assume the Plan. Such amount will be calculated as the Actuarial Equivalent of the Participant’s Past Service Retirement Benefit.

        4.6 Actuarial Equivalent. A Past Service Retirement Benefit which is payable in any form other than the normal form under the Pension Plan, i.e., a straight life annuity over the lifetime of the Participant, or which commences at any time prior to the Participant’s Normal Retirement Date, shall be the Actuarial Equivalent of the Past Service Retirement Benefit payable hereunder using the assumptions for determining Actuarial Equivalence provided under the Pension Plan for making a comparable determination.

-6-

ARTICLE V - - DEATH BENEFIT

        5.1 Death Benefit. Except as otherwise provided herein, a death benefit shall be payable to the surviving Spouse of a Participant who dies before commencement of his/her Past Service Retirement Benefit, if the Spouse is entitled to a qualified pre-retirement survivor annuity under Article VI of the Pension Plan. The amount of the death benefit hereunder shall be based on the amount of the Participant’s Past Service Retirement Benefit determined using the date of death as the date of retirement or separation from service and, for purposes of converting the Past Service Retirement Benefit to a spousal survivor death benefit, using the rules contained in Article VI of the Pension Plan. The death benefit shall be administered and distributed in accordance with the provisions of Article VI of the Pension Plan.

        In the event of a Change of Control of the Plan Sponsor, any surviving Spouse who is receiving payment of a death benefit pursuant to this Section 5.1 shall receive a single lump sum cash payment which is the Actuarial Equivalent of the surviving Spouse’s remaining death benefit. Such benefit shall be paid by the Participating Company (or any successor corporation) to the surviving Spouse within ninety days following the date of the Change of Control.

        5.2 Simultaneous Death. In the event of the simultaneous death of a Participant eligible for a death benefit under this Article V and his/her Spouse so that it is not possible to determine which one was the survivor, it shall be presumed for purposes of this Article V that the Spouse predeceased the Participant.

ARTICLE VI - - ADMINISTRATION OF THE PLAN

        6.1 Administrator. The Committee appointed by the President of the Plan Sponsor is hereby designated as the administrator of the Plan. If no Committee is appointed by the Plan Sponsor as the Administrator, the Plan Sponsor shall be the Administrator of the Plan. The Administrator shall have the authority to control and manage the operation and administration of the Plan. The President of the Plan Sponsor may appoint another person to be the Administrator at any time. The President of the Plan Sponsor may also remove an Administrator and fill any vacancy which may arise.

        6.2 Committee Action. If a Committee is appointed as Administrator, the following rules apply:

        (a)   On all matters within the jurisdiction of the Committee, the decision of a majority of the members of the Committee shall govern and control. The Committee may take action either at a meeting or in writing without a meeting, provided that in the latter instance all members of the Committee shall have been advised of the action contemplated and that the written instrument evidencing the action shall be signed by a majority of the members.

        (b)   The President of the Plan Sponsor shall appoint the Chair of the Committee. The Committee may appoint, either from among its members or otherwise, a secretary who shall keep a record of all meetings and actions taken by the Committee. Either the Chair of the Committee or any member of the Committee designated by the Chair shall execute any certificate, instrument or other written direction on behalf of the Committee. Any action taken on matters within the discretion of the Committee shall be final and conclusive as to the parties thereto and as to all Participants or beneficiaries claiming any right under the Plan.

        6.3 Powers of Administrator. The Administrator shall have all powers necessary to supervise the administration of the Plan and to control its operation in accordance with its terms, including, but not by way of limitation, the following powers:

-7-

        (a)  Appoint, retain, and terminate such persons as it deems necessary or advisable to assist in the administration of the Plan or to render advice with respect to the responsibilities of the Administrator under the Plan, including accountants, actuaries, administrators, attorneys and physicians.

        (b)  Make use of the services of the employees of the Participating Company in administrative matters.

        (c)  Obtain and act on the basis of all tables, valuations, certificates, opinions, and reports furnished by the persons described in paragraph (a) or (b) above. Any determination of Actuarially Equivalent benefits by the actuary selected by the Administrator shall be conclusive and binding on the Participating Company, the Administrator and all Participants.

        (d)  Review the manner in which benefit claims and other aspects of the Plan administration have been handled by the employees of the Participating Company.

        (e)  Determine all benefits and resolve all questions pertaining to the administration and interpretation of the Plan provisions, either by rules of general applicability or by particular decisions. To the maximum extent permitted by law, all interpretations of the Plan and other decisions of the Administrator shall be conclusive and binding on all parties.

        (f)  Adopt such forms, rules and regulations as it shall deem necessary or appropriate for the administration of the Plan and the conduct of its affairs, provided that any such forms, rules and regulations shall not be inconsistent with the provisions of the Plan.

        (a)  Remedy any inequity from incorrect information received or communicated or from administrative error.

        (b)  Commence or defend any litigation arising from the operation of the Plan in any legal or administrative proceeding.

        (c)  To determine all considerations affecting the eligibility of any Employee to become a Participant or remain a Participant in the Plan;

        (d)  To determine the status and rights of Participants and their Spouses, beneficiaries or estates;

        6.4 Decisions of Administrator. All decisions of the Administrator, and any action taken by it in respect of the Plan and within the powers granted to it under the Plan, shall be conclusive and binding on all persons, subject to the claims and appeal procedure described in Section 6.10 hereof.

        6.5 Administrative Expenses. All expenses incident to the operation and administration of the Plan reasonably incurred, including, without limitation by way of specification, the fees and expenses of attorneys and advisors, and for such other professional, technical and clerical assistance as may be required, shall be paid by the Participating Company.

        6.6 Eligibility to Participate. No member of the Administrator who is also an Eligible Officer shall be precluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Administrator, to act or pass upon any matters pertaining specifically to his or her own benefit under the Plan.

        6.7 Insurance and Indemnification for Liability. The rules relating to the insurance and indemnification for liability are as follows:

-8-

         (a) Insurance. The Plan Sponsor may, in its discretion, obtain, pay for, and keep current a policy or policies or insurance, insuring members of the Administrator and other employees to whom any responsibility with respect to administration of the Plan has been delegated against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable Federal or state law.

         (b) Indemnity. If the Plan Sponsor does not obtain, pay for, and keep current the type of insurance policy or policies referred to in Section 6.7(a) above, or if such insurance is provided but any of the members of the Administrator or other employees referred to in Section 6.7(a) above incur any costs or expenses which are not covered under such policies, then, in either event, the Plan Sponsor shall, to the extent permitted by law, indemnify and hold harmless such parties against any and all costs, expenses and liabilities incurred by such parties in performing their duties and responsibilities under this Plan, provided such party or parties were acting in good faith within what was reasonably believed to have been in the best interests of the Plan and its Participants.

        6.8 Agent for Service of Legal Process. The Administrator shall be the designated agent for the service of legal process with respect to any matter concerning the Plan.

        6.9 Delegation of Responsibility. The Administrator may designate a committee of one or more persons to carry out any of the responsibilities or functions assigned or allocated to the Administrator under the Plan. Each reference to the Administrator in this Plan shall include the Administrator as well as any person to whom the Administrator may have delegated the performance of a particular function or responsibility under this Section 6.9.

        6.10 Claims Procedure.

        (a) Claim for Benefits. All claims for benefits under the Plan shall be made in writing and shall be signed by the applicant. Claims shall be submitted to a representative designated by the Administrator and hereinafter referred to as the “Claims Coordinator”.

        Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim.

        In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the applicant in writing of the denial of the claim and notify such applicant of his or her right to a review of the Claims Coordinator’s decision by the Administrator. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan’s claims review procedure as set forth in this Section 6.10.

        If no action is taken by the Claims Coordinator on an applicant’s claim within 60 days after receipt by the Claim Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure.

        (b) Appeals Procedure. Any applicant whose claim for benefits is denied in whole or in part (“Claimant”) may appeal from such denial to the Administrator for a review of the decision by the Administrator. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above in Section 6.10(a). An appeal must be submitted in writing within such period and must:

-9-

        (i)   Request a review by the Administrator of the claim for benefits under the Plan;

        (ii)   Set forth all of the grounds upon which the Claimant’s request for review is based and any facts in support thereof; and

        (iii)   Set forth any issues or comments which the Claimant deems pertinent to the appeal.

        The Administrator shall regularly review appeals by Claimants. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant’s request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Administrator.

        The Administrator shall make a full and fair review of each appeal and any written materials submitted by the Claimant and/or the Participating Company in connection therewith. The Administrator may require the Claimant and/or the Participating Company to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal.

        On the basis of its review, the Administrator shall make an independent determination of the Claimant’s eligibility for benefits under the Plan. The decision of the Administrator on any claim for benefits shall be final and conclusive upon all parties thereto.

        In the event the Administrator denies an appeal, in whole or in part, the Administrator shall give written notice of the decision to the Claimant, which notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Administrator’s decision was based.

        (c) Compliance with Regulations. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR § 2560.503-1.

ARTICLE VII - - MISCELLANEOUS

        7.1 Funding. Nothing contained in this Plan and no action taken pursuant to this Plan will create or be construed to create or require a funded arrangement or any kind of fiduciary duty between the Participating Company and/or the Administrator and a Participant. Benefits payable under this Plan shall be paid directly from the general assets of each Participating Company. The Participating Company shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations under this Plan. The Participating Company’s obligation hereunder will be an unfunded and unsecured promise to make payments in the future. A Participant and his/her Spouse shall not have any property interest, claim or legal or equitable right in or to any specific assets of the Participating Company other than the unsecured right to receive payments from the Participating Company as provided herein. To the extent any person acquires a right hereunder, such right(s) will be no greater than those of a general, unsecured creditor of the Participating Company.

-10-

        7.2 Amendment or Termination.

        (a)   The Board of Directors reserves the right to alter, amend or terminate the Plan, or any part thereof, through the adoption of a written resolution; provided, however, that no such action by the Board of Directors shall reduce a Participant’s Past Service Retirement Benefit accrued as of the time thereof and no such amendment or termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. Each amendment shall be set forth in a written instrument.

        (b)   If the Plan is terminated, a determination shall be made of each Participant’s Past Service Retirement Benefit as of the Plan termination date. The amount of a Participant’s benefit or benefits shall be payable to the Participant at the time it would have been payable under Article IV hereof if the Plan had not been terminated. If a Participant dies after termination of the Plan, but prior to his/her Termination of Employment, his/her surviving Spouse shall receive a distribution of his/her death benefit, determined in accordance with Article V hereof, but based on the Participant’s Past Service Retirement Benefit as of the Plan termination date.

        7.3 Status of Employment. Neither the establishment or maintenance of the Plan, nor any action of the Plan Sponsor or any Participating Company or the Administrator shall be held or construed to confer upon any individual any right to be continued as an Employee nor, upon dismissal, any right or interest in any assets of the Plan Sponsor or a Participating Company nor to affect any Participant’s right to terminate his/her employment at any time.

        7.4 Payments to Minors and Incompetents. If a Participant or surviving Spouse entitled to receive any benefits hereunder is a minor or is deemed by the Administrator or is adjudged to be legally incapable of giving a valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Administrator may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan.

        7.5 Inalienability of Benefits.

        (a)   Benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, whether voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits under the Plan shall be void. The Participating Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan.

        (b)   Notwithstanding Section 7.5(a), if a Participant is indebted to the Participating Company at any time when payments are to be made by the Participating Company to the Participant under the provisions of the Plan, the Participating Company shall have the right to reduce the amount of payment to be made to the Participant (or the Participant’s surviving Spouse) to the extent of such indebtedness. Any election by the Participating Company not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.

        7.6 Governing Law. Except to the extent preempted by federal law, the Plan shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.

        7.7 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth.

-11-

        7.8 Required Information to Administrator. Each Participant will furnish to the Administrator such information as the Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant’s furnishing promptly such true, full and complete information as the Administrator may request. The Administrator, in its sole discretion, may request a Participant to submit proof of his/her age. The Administrator will, if such proof of age is not submitted when requested, use as conclusive evidence thereof such information as is deemed by it to be reliable, regardless of the lack of proof. Any notice or information which, according to the terms of the Plan or the rules of the Administrator, must be filed with the Administrator, shall be deemed so filed if addressed and either delivered in person or mailed to and received by the Administrator at the following address:

Plan Administrator
PMA Capital Corporation
1735 Market Street, 27th Floor
Philadelphia, PA 19103

Failure on the part of the Participant or Spouse to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits under the Plan until such information or proof is received by the Administrator.

        7.9 Income and Payroll Tax Withholding. To the extent required by the laws in effect at the time payments are made under this Plan, the Plan Sponsor or other Participating Company shall withhold from such deferred compensation payments any taxes required to be withheld for federal, state or local tax purposes.

        7.10 Application of Plan. The Plan, as set forth herein, shall apply to any Participant terminating employment on or after the Restatement Effective Date.

        7.11 No Effect on Other Benefits. No amount credited under this Plan shall be deemed part of the total compensation for the purpose of computing benefits to which a Participant may be entitled under any pension plan or other supplemental compensation arrangement, unless such plan or arrangement specifically provides to the contrary. The amounts payable to the Participant hereunder will be in addition to any benefits paid or payable to the Participant under any other pension, disability, annuity or retirement plan or policy whatsoever. Nothing herein contained will in any manner modify, impair or affect any existing or future rights of the Participant to participate in any other employee benefits plan or receive benefits in accordance with such plan or to participate in any current or future pension plan of a Participating Company or any supplemental arrangement which constitutes a part of the Participating Company’s regular compensation structure.

        7.12 Inurement. The Plan shall be binding upon, and shall inure to, the benefit of the Participating Company and its successors and assigns, and the Participant and the Participant’s Spouse, beneficiaries, successors, heirs, executors and administrators.

        7.13 Notice. Any notices or elections required or permitted to be given or made under this Plan will be sufficient if in writing and if sent by first class, postage paid mail to the Participant’s last known address as shown on the Participating Company’s personnel records or to the principal office of the Participating Company, as the case may be. The date of such mailing shall be deemed the date of notice, consent or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.

        7.14 Captions. The captions contained in and the table of contents prefixed to the Plan are inserted only as a matter of convenience and for ease of reference in no way define, limit, enlarge or describe the scope or intent of this Plan or in any way affect the Plan or the construction of any provision thereof.

        7.15 Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his/her delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement

-12-

involving a Participant made under Section 7121 of the Code that is approved by the Commissioner, that such Participant or Spouse has recognized or will recognize income for federal income tax purposes with respect to benefits that are or will be payable to the Participant under the Plan before they otherwise would be paid to the Participant or the Spouse (as applicable), upon the request of the Participant or Spouse, the Administrator shall immediately make distribution to the Participant or Spouse of the amount so taxable.

        7.16 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Administrator shall:

        (a)   File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and

        (b)   Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of DOL Reg. § 2520.104-23.

        This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both.

        7.17 Gender and Number. Whenever any words are used herein in any specific gender, they shall be construed as though they were used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form where applicable and viceversa.

ARTICLE VIII - - ADOPTION BY AFFILIATED EMPLOYERS

        8.1 Adoption of Plan. The following rules shall apply with respect to the adoption of the Plan:

        (a) Adoption by Affiliated Employers. The terms of this Plan may be adopted by any Affiliated Employer, provided:

        (i)   The Board of Directors consents to such adoption by an appropriate written resolution;

        (ii)   The board of directors of the Affiliated Employer adopts this Plan by an appropriate written resolution which identifies the Eligible Executives;

        (iii)   The Affiliated Employer executes a Plan Adoption Agreement in the form attached hereto as Plan Exhibit A, applicable to the Eligible Executives of such Affiliated Employer. The Affiliated Employer may elect in such Adoption Agreement to have special provisions apply with respect to the Eligible Executives of the Affiliated Employer which differ from the provisions of the Plan applicable to other Eligible Executives; and

        (iv)   The Affiliated Employer executes such other documents as may be required to make such Affiliated Employer a party to the Plan as a Participating Company.

        (b) Effect of Adoption. An Affiliated Employer that adopts the Plan is thereafter a Participating Company with respect to its Eligible Executives.

-13

        8.2 Withdrawal from Plan. Any Participating Company may at any time withdraw from the Plan upon giving the Board of Directors at least 30 days prior written notice of its intention to withdraw.

        8.3 Application of Withdrawal Provisions. The withdrawal provisions contained in Section 8.2 shall be applicable only if the withdrawing Participating Company continues to cover its Participants under a plan similar to this Plan. Otherwise the termination provisions of the Plan shall apply.

        8.4 Plan Sponsor Appointed Agent of Participating Companies. As a condition precedent to the adoption of the Plan, each participating Affiliated Employer appoints the Board of Directors as its agent to exercise on its behalf all of the power and authority conferred upon the Plan Sponsor by the Plan, including, without limitation, the power to amend or to terminate the Plan.

-14-

EX-10

EXHIBIT 10.10

EMPLOYMENT AGREEMENT

        THIS AGREEMENT, made as of the first day Of May, 1995, by and between PENNSYLVANIA MANUFACTURERS CORPORATION, a Pennsylvania corporation, whose principal office is located at Blue Bell, Pennsylvania (hereinafter “PMC”) and JOHN W. SMITHSON of Newtown, Pennsylvania (hereinafter “Smithson”) to set forth the terms and conditions upon which PMC shall employ Smithson.

        JOHN W. SMITHSON of Newtown, Pennsylvania (hereinafter "Smithson") to set forth the terms and conditions upon which PMC shall employ Smithson.

        1. The Employment Term.

        During the period beginning April 1, 1995 and ending March 31, 1998 (hereinafter “Employment Term”) PMC shall employ Smithson as its chief operating officer and Smithson agrees to be so employed. If, at the annual organizational meeting of the Board of Directors of PMC held in 1996 and in any subsequent year, Smithson is elected President of PMC, the Employment Term shall be automatically extended for a further period of one year without the need for further action by the Board of Directors of PMC or the execution of a formal amendment to this Agreement.

        2. Duties During the Employment Term.

        During the Employment Term, Smithson shall serve as the chief operating officer of PMC, and, if so elected by the Board of Directors, shall serve as President of PMC. Smithson shall at all times throughout the Employment Term devote his full time and his best efforts to the business of PMC and its subsidiaries and affiliates.

        3. Salary During the Employment Term.

        During the Employment Term, PMC shall pay Smithson on a bi-weekly basis a salary of not less than $670,000 per year. Smithson’s annual salary may be increased but not decreased by PMC in its discretion at any time and from time to time. In addition, Smithson shall be entitled to receive such bonus compensation, if any, as he may be awarded from time to time by PMC.

        4. Inability to Perform.

        If for any reason during the Employment Term, Smithson shall at any time or from time to time be unable to perform the services required of him pursuant to Paragraph 2 hereof, he shall nevertheless be entitled to receive the salary payments and other benefits provided by this Agreement until the end of the Employment Term or until the date of his death, whichever first occurs.

        5. Total Disability.

        If Smithson becomes totally disabled during the Employment Term, commencing upon the expiration of the Employment Term and for a period of 180 months thereafter, or until the termination of his total disability or the date of his death, whichever first occurs (the “Disability Period”), PMC shall pay to Smithson on a monthly basis an amount equal to 25% of Smithson’s monthly salary as of the date such total disability commenced without reduction for any amounts that may be paid to Smithson pursuant to any disability or other insured benefit program or programs in effect for executives of PMC at the time such total disability commenced. For purposes of this Agreement, the term “totally disabled”shall mean a mental

2

or physical condition which in the reasonable opinion of the Board of Directors Of PMC renders Smithson unable or incompetent to carry out the job responsibilities he held at the time the disability was incurred.

        6. Death.

        If Smithson shall die at any time during the Employment Term or during the Disability Period described in Paragraph 5 hereof, PMC shall each month thereafter for 180 consecutive months, reduced by the number of months during the Disability Period in which Smith,,, received salary payments in accordance with Paragraph 5 hereof, pay an amount equal to 25% of Smithson’s monthly salary as of the date of his death to:

               (a) Smithson’s spouse at the time of his death if she survives him and for as long as she survives him, but if Smithson shall die leaving no surviving spouse or if Smithson’s surviving spouse shall die during the aforesaid 180 month period, as reduced, then to

               (b) Smithson’s surviving natural or adopted children in equal shares. Upon the death of Smithson’s surviving spouse and any surviving natural or adopted children, PMC shall have no further obligation to make any payments pursuant to this Paragraph.

        7. Expenses.

        PMC shall pay the ordinary and necessary business expenses incurred by Smithson in connection with the performance of his duties on behalf of PMC.

3

        8. Restrictive Covenant.

        Smithson shall not during the Employment Term, directly or indirectly, either as a principal, agent, employee, director, officer or in any other capacity, engage in or have a material financial interest in any business which competes with the business of PMC or any of its affiliates as then conducted.

        9. Employee Benefit Plans.

        No provision of this Agreement shall in any way abrogate or impair any rights or privileges of Smithson as an employee of PMC under any qualified or unqualified retirement, pension, profit sharing, disability, life insurance, hospitalization or other employee plan or plans which are now in effect or which may hereafter be adopted by PMC.

        10. Provision for Life Insurance.

        In accordance with Smithson’s Employment Agreement with PMA Reinsurance Corporation (“PMA Re”), a wholly owned subsidiary of PMC, dated April 1, 1992, PMA Re and the trustee named by Smithson (the “trustee”) has secured from The Metropolitan Life Insurance Company (the “Insurer”), a life insurance policy in the face amount of $1,000,000 on the life of Smithson. In furtherance thereof, the trustee has entered into a split-Dollar Life insurance Agreement with PMA Re (the “Split-Dollar Agreement”) which requires PMA Re to pay the annual premiums due on such policy through Smithson’s lifetime and which provides for the eventual recovery by PMA Re of its interest in the policy, which is as follows:

               (a) if the Policy matures as a death claim, PMA Re shall receive an amount equal to the total premiums paid by PMA Re during Smithson’s lifetime

4

less an amount equal to that portion of the premiums paid by PMA Re during Smithson’s lifetime which conferred an economic benefit upon Smithson which shall be determined by the use of the lesser of (i) the one-year term life insurance rates published by the Insurer or (ii) the uniform One-Year Term Premiums Table published by the U.S. Treasury Department known as the “P.S. 58 cost”; and

               (b) if the Policy is surrendered, PMA Re shall receive an amount equal to the lesser of (i) the total cash surrender value of the Policy or (ii) the cumulative total of the premiums on the Policy that PMA RE has paid less an amount equal to that portion of the premiums paid by PMA Re during Smithson’s lifetime which conferred an economic benefit upon Smithson which shall be determined by the use of the lesser of (A) the one-year term life insurance rates published by the Insurer or (B) the Uniform One-Year Term Premiums Table published by the U.S. Treasury Department known as the “P.S. 58 cost”.

        The trustee and PMA Re have entered into a Collateral Assignment Agreement with respect to the Policy in order to secure PMA Re’s interest in the Policy.

               The rights and undertakings of PMA Re and Smithson in connection with the Split-Dollar Agreement and related documentation, as originally set forth in the Employment Agreement between PMA Re and Smithson dated April 1, 1992, shall continue in full force and effect, but, as soon as may be practicable, PMC shall be substituted for PMA Re and shall assume its obligations and become entitled to PMA Re’s rights in connection with the Split-Dollar Agreement and the Collateral Assignment Agreement.

5

        11. Successors and Assigns; Replacement of Prior Agreement.

        This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns, and shall supersede and replace the Employment Agreement between PMA Re and Smithson dated as of April 1, 1993, as amended by an Amendment and Supplement dated as of April 1, 1994, which Agreement and the Amendment thereto shall have no further force or effect.

        IN WITNESS WHEREOF, PMC and Smithson have executed this Agreement the day and year first above written, and PMA Re has approved the provisions of Paragraph 10 which apply to it.

	PENNSYLVANIA MANUFACTURERS CORPORATION
ATTEST:
/s/ Robert Pratter	By /s/ Frederick W. Anton
Secretary	Chairman of the Board of Directors
	/s/ John W. Smithson
APPROVED AS TO PARAGRAPH 10: PMA REINSURANCE CORPORATION
By: /s/ John W. Smithson

6

EX-10

EXHIBIT 10.13

PENNSYLVANIA MANUFACTURERS CORPORATION

AMENDED AND RESTATED

1991 EQUITY INCENTIVE PLAN

        1. Purpose.

        The purpose of the Pennsylvania Manufacturers Corporation 1991 Equity Incentive Plan (the “Plan”) is to enhance the ability of Pennsylvania Manufacturers Corporation (the “Company”) and any subsidiaries to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such personnel and to promote the success of the Company. To accomplish these purposes, the Plan provides a means whereby employees of the Company and its subsidiaries may receive stock options to purchase the Company’s Class A Common Stock (“Options”).

        2. Administration.

        (a) Composition of the Committee. The Plan shall be administered by a committee of at least two directors (the “Committee”) appointed by the Company’s Board of Directors. No member of the Committee shall have been, or shall be, granted Options under the Plan, or options or other awards under any other plan of the Company or any of its affiliates, in the year preceding his appointment or while serving on the Committee, except for participation in any plan in which participation would be permitted in accordance with the applicable rules of the Securities and Ex change Commission relating to disinterested administration under the Securities Exchange Act of 1934 (the “Exchange Act”). Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee and thereafter directly administer the Plan.

        (b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made and the amount, size and terms of each such award; to determine the time when awards shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

        3. Stock Subject to the Plan.

        Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 150,000 shares of Class A Common Stock of the Company (the “Class A Stock”). Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for

        any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

        4. Eligibility To Receive Options.

        Persons eligible to receive stock options under the Plan shall be limited to those officers and other employees of the Company and any subsidiary (as defined in Section 425 of the Internal Revenue Code of 1986 (the “Code”) or any amendment or substitute thereto), who may also be directors, who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company and/or a subsidiary. Directors of the Company who are not also officers or employees of the Company or any subsidiary shall not be eligible to participate in the Plan.

        5. Types of Options.

        Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Class A Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto (“Incentive Stock Options”) or Options that are not intended to so qualify (“Nonqualified Stock Options”).

        6. Stock Options.

        Options for the purchase of Class A Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each Option agreement shall contain in substance the following terms and conditions:

        (a) Type of Option. Each Option agreement shall identify the Options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

        (b) Option Price. Each Option agreement shall set forth the purchase price of the Class A Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase price of the Class A Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Class A Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall mean the closing price of the Class A Stock, as reported in The Wall Street Journal (or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System), or if the Class A Stock is not reported by NASDAQ, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code.

-2-

        (c) Exercise Term. Each Option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, which shall be such a period or periods of time as may be determined by the Committee, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

        (d) Incentive Stock Options. In the case of an Incentive Stock Option, each Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor:

               (i) The aggregate fair market value (determined as of the date the Option is granted) of the Class A Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000.

               (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or its subsidiaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant.

               (iii) No Incentive Stock Options shall be exercisable more than three months (or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor) after termination of employment.

        (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

-3-

        7. Date of Grant.

        The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee’s authorization of the Option or such later date as may be determined by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

        8. Exercise and Payment for Shares.

        Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Class A Stock at fair market value, or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose.

        9. Rights upon Termination of Employment.

        In the event that an optionee ceases to be an employee of the Company or any subsidiary for any reason other than death, retirement, as hereinafter defined, or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, “retirement”means a termination of employment by reason of an optionee’s retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer’s regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more than three months after termination of employment due to retirement, as provided in this Section 9, but in that event, the Option shall lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

        10. General Restrictions.

        Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Class A Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Class A Stock is necessary

-4-

or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Class A Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

        11. Rights of a Shareholder.

        The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a shareholder unless and until a certificate for shares of Class A Stock is issued and delivered to him.

        12. Right to Terminate Employment.

        Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary or affect any right that the Company or any subsidiary may have to terminate the employment of such optionee.

        13. Withholding.

        Whenever the Company proposes or is required to issue or transfer shares of Class A Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Class A Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Class A Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to the disapproval of the Committee at any time. Any securities so withheld or tendered will be valued by the Committee as of the date of exercise.

        14. Non-Assignability.

        No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee may approve, unless such means would be prohibited by Rule 16b-3 under the Exchange Act. During the life of the recipient such Option shall be exercisable only by such person or by such person’s guardian or legal representative.

-5-

        15. Non-Uniform Determinations.

        The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

        16. Adjustments.

        (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Class A Stock covered by each outstanding Option and the number of shares of Class A Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Class A Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Class A Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Class A Stock, or any other increase or decrease in the number of issued shares of Class A Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Class A Stock subject to an Option.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

        (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but, not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

-6-

        17. Amendment.

        The Committee may terminate or amend the Plan at any time, except that without sharehold er approval the Committee may not (i) materially increase the maximum number of shares that may be issued under the Plan (other than increases pursuant to Section 16 hereof), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted.

        18. Conditions upon Issuance of Shares.

        (a) Compliance with Securities Laws. Shares of the Company’s Class A Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock of the Company may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Class A Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

        19. Reservation of Shares.

        The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

        20. Effect on Other Plans.

        Participation in the Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary unless specifically provided.

-7-

        21. Duration of the Plan.

        The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Company’s Board of Directors or is approved by the Company’s shareholders.

        22. Forfeiture for Dishonesty.

        Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary that damaged the Company or any subsidiary or that the optionee has disclosed trade secrets of the Company or any subsidiary, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee, however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary in any manner.

        23. No Prohibition on Corporate Action.

        No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or director to be appropriate or in the Company’s best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee’s estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

        24. Indemnification.

        With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee and the Board of Directors, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee and the Board of Directors (i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the perfor mance of his duty as such member of the Committee or the Board of Directors; or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved

-8-

by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee and the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee and the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

        25. Miscellaneous Provisions.

               (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Class A Stock reserved for issuance under the Plan or any Option until a written Option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met.

               (b) Approval of Counsel. In the discretion of the Committee, no shares of Class A Stock, other securities or property of the Company, or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

               (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act shall apply to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

               (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

               (e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors and/or the Committee or its delegates.

               (f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

-9-

        26. Shareholder Approval.

        The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the votes present or represented, and entitled to be cast, at a duly held meeting of the shareholders of the Company.

Date of Adoption by Board of Directors —December 14, 1991.

Date of Approval by Shareholders — May 4, 1992.

Date of Amendment by Compensation and Stock Option Committee —April 12, 1995.

N.B. As the result of a stock dividend of four shares of Class A Stock for each share of Class A Stock theretofore outstanding effected in May 1992, the number of shares reserved for issuance under the Plan, as set forth in Section 3 of the Plan, was increased to 750,000 shares in accordance with the adjustment provisions set forth in Section 16(a) of the Plan.

EX-10

EXHIBIT 10.15

PENNSYLVANIA MANUFACTURERS CORPORATION

AMENDED AND RESTATED

1993 EQUITY INCENTIVE PLAN

        1. Purpose.

        The purpose of the Pennsylvania Manufacturers Corporation 1993 Equity Incentive Plan (the “Plan”) is to enhance the ability of Pennsylvania Manufacturers Corporation (the “Company”) and any subsidiaries to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such personnel and to promote the success of the Company. To accomplish these purposes, the Plan provides a means whereby employees of the Company and its subsidiaries may receive stock options to purchase the Company’s Class A Common Stock (“Options”).

        2. Administration.

        (a) Composition of the Committee. The Plan shall be administered by a committee of at least two directors (the “Committee”) appointed by the Company’s Board of Directors. No member of the Committee shall have been, or shall be, granted Options under the Plan, or options or other awards under any other plan of the Company or any of its affiliates, in the year preceding his appointment or while serving on the Committee, except for participation in any plan in which participation would be permitted in accordance with the applicable rules of the Securities and Exchange Commission relating to disinterested administration under the Securities Exchange Act of 1934 (the “Exchange Act”). Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee and thereafter directly administer the Plan.

        (b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made and the amount, size and terms of each such award; to determine the time when awards shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

        3. Stock Subject to the Plan.

        Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 750,000 shares of Class A Common Stock of the Company (the “Class A Stock”). Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for

any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

        4. Eligibility To Receive Options.

        Persons eligible to receive stock options under the Plan shall be limited to those officers and other employees of the Company and any subsidiary (as defined in Section 425 of the Internal Revenue Code of 1986 (the “Code”) or any amendment or substitute thereto), who may also be directors, who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company and/or a subsidiary. Directors of the Company who are not also officers or employees of the Company or any subsidiary shall not be eligible to participate in the Plan.

        5. Types of Options.

        Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Class A Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto (“Incentive Stock Options”) or Options that are not intended to so qualify (“Nonqualified Stock Options”).

        6. Stock Options.

        Options for the purchase of Class A Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each Option agreement shall contain in substance the following terms and conditions:

        (a) Type of Option. Each Option agreement shall identify the Options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

        (b) Option Price. Each Option agreement shall set forth the purchase price of the Class A Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase price of the Class A Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Class A Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall mean the closing price of the Class A Stock, as reported in The Wall Street Journal (or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System), or if the Class A Stock is not reported by NASDAQ, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code.

-2-

        (c) Exercise Term. Each Option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, which shall be such a period or periods of time as may be determined by the Committee, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

        (d) Incentive Stock Options. In the case of an Incentive Stock Option, each Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor:

               (i) The aggregate fair market value (determined as of the date the Option is granted) of the Class A Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000.

               (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or its subsid iaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant.

               (iii) No Incentive Stock Options shall be exercisable more than three months (or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor) after termination of employment.

        (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

-3-

        7. Date of Grant.

        The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee’s authorization of the Option or such later date as may be determined by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

        8. Exercise and Payment for Shares.

        Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Class A Stock at fair market value, or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose.

        9. Rights upon Termination of Employment.

        In the event that an optionee ceases to be an employee of the Company or any subsidiary for any reason other than death, retirement, as hereinafter defined, or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, “retirement”means a termination of employment by reason of an optionee’s retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer’s regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more than three months after termination of employment due to retirement, as provided in this Section 9, but in that event, the Option shall lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

        10. General Restrictions.

        Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Class A Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Class A Stock is necessary

-4-

or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Class A Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

        11. Rights of a Shareholder.

        The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a shareholder unless and until a certificate for shares of Class A Stock is issued and delivered to him.

        12. Right to Terminate Employment.

        Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsid iary or affect any right that the Company or any subsidiary may have to terminate the employment of such optionee.

        13. Withholding.

        Whenever the Company proposes or is required to issue or transfer shares of Class A Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Class A Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Class A Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option from amounts payable to such optionee. Any such election shall be irrevocable and shall be subject to the disapproval of the Committee at any time. Any securities so withheld or tendered will be valued by the Committee as of the date of exercise.

        14. Non-Assignability.

        No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee may approve, unless such means would be prohibited by Rule 16b-3 under the Exchange Act. During the life of the recipient such Option shall be exercisable only by such person or by such person’s guardian or legal representative.

-5-

        15. Non-Uniform Determinations.

        The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

        16. Adjustments.

        (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Class A Stock covered by each outstanding Option and the number of shares of Class A Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Class A Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Class A Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Class A Stock, or any other increase or decrease in the number of issued shares of Class A Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Class A Stock subject to an Option.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

        (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but, not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

-6-

        17. Amendment.

        The Committee may terminate or amend the Plan at any time, except that without sharehold er approval the Committee may not (i) materially increase the maximum number of shares that may be issued under the Plan (other than increases pursuant to Section 16 hereof), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted.

        18. Conditions upon Issuance of Shares.

        (a) Compliance with Securities Laws. Shares of the Company’s Class A Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock of the Company may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Class A Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

        19. Reservation of Shares.

        The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

        20. Effect on Other Plans.

        Participation in the Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary unless specifically provided.

-7-

        21. Duration of the Plan.

        The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Company’s Board of Directors or is approved by the Company’s shareholders.

        22. Forfeiture for Dishonesty.

        Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary that damaged the Company or any subsidiary or that the optionee has disclosed trade secrets of the Company or any subsidiary, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee, however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary in any manner.

        23. No Prohibition on Corporate Action.

        No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or direc tor to be appropriate or in the Company’s best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee’s estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

        24. Indemnification.

        With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee and the Board of Directors, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee and the Board of Directors (i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the perfor mance of his duty as such member of the Committee or the Board of Directors; or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved

-8-

by the Company on the advice of its legal counsel; and provided further that no right of indemnifi cation under the provisions set forth herein shall be available to or enforceable by any such member of the Committee and the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee and the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

        25. Miscellaneous Provisions.

        (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Class A Stock reserved for issuance under the Plan or any Option until a written Option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met.

        (b) Approval of Counsel. In the discretion of the Committee, no shares of Class A Stock, other securities or property of the Company, or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

        (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act shall apply to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

        (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

        (e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors and/or the Committee or its delegates.

        (f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

-9-

        26. Shareholder Approval.

        The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the votes present or represented, and entitled to be cast, at a duly held meeting of the shareholders of the Company.

Date of Adoption by Board of Directors —February 23, 1993.

Date of Approval by Shareholders —April 26, 1993.

Date of Amendment by Compensation and Stock Option Committee —April 12, 1995.

EX-10

Exhibit 10.17

PENNSYLVANIA MANUFACTURERS CORPORATION

AMENDED AND RESTATED

1994 EQUITY INCENTIVE PLAN

        1. Purpose.

        The purpose of the Pennsylvania Manufacturers Corporation 1994 Equity Incentive Plan (the “Plan”) is to enhance the ability of Pennsylvania Manufacturers Corporation (the “Company”) and any subsidiaries to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such personnel and to promote the success of the Company. To accomplish these purposes, the Plan provides a means whereby employees of the Company and its subsidiaries may receive stock options to purchase the Company’s Class A Common Stock (“Options”).

        2. Administration.

        (a) Composition of the Committee. The Plan shall be administered by a committee of at least two directors (the “Committee”) appointed by the Company’s Board of Directors. No member of the Committee shall have been, or shall be, granted Options under the Plan, or options or other awards under any other plan of the Company or any of its affiliates, in the year preceding his appointment or while serving on the Committee, except for participation in any plan in which participation would be permitted in accordance with the applicable rules of the Securities and Exchange Commission relating to disinterested administration under the Securities Exchange Act of 1934 (the “Exchange Act”). Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee and thereafter directly administer the Plan.

        (b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made and the amount, size and terms of each such award; to determine the time when awards shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

        3. Stock Subject to the Plan.

        Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 750,000 shares of Class A Common Stock of the Company (the “Class A Stock”). Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for

any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

        4. Eligibility To Receive Options.

        Persons eligible to receive stock options under the Plan shall be limited to those officers and other employees of the Company and any subsidiary (as defined in Section 425 of the Internal Revenue Code of 1986 (the “Code”) or any amendment or substitute thereto), who may also be directors, who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company and/or a subsidiary. Directors of the Company who are not also officers or employees of the Company or any subsidiary shall not be eligible to participate in the Plan.

        5. Types of Options.

        Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Class A Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto (“Incentive Stock Options”) or Options that are not intended to so qualify (“Nonqualified Stock Options”).

        6. Stock Options.

        Options for the purchase of Class A Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each Option agreement shall contain in substance the following terms and conditions:

        (a) Type of Option. Each Option agreement shall identify the Options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

        (b) Option Price. Each Option agreement shall set forth the purchase price of the Class A Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase price of the Class A Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Class A Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall mean the closing price of the Class A Stock, as reported in The Wall Street Journal (or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System), or if the Class A Stock is not reported by NASDAQ, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code.

-2-

        (c) Exercise Term. Each Option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, which shall be such a period or periods of time as may be determined by the Committee, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

        (d) Incentive Stock Options. In the case of an Incentive Stock Option, each Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor:

               (i) The aggregate fair market value (determined as of the date the Option is granted) of the Class A Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000.

               (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or its subsidiaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant.

               (iii) No Incentive Stock Options shall be exercisable more than three months (or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor) after termination of employment.

        (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

-3-

        7. Date of Grant.

        The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee’s authorization of the Option or such later date as may be determined by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

        8. Exercise and Payment for Shares.

        Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Class A Stock at fair market value, or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose.

        9. Rights upon Termination of Employment.

        In the event that an optionee ceases to be an employee of the Company or any subsidiary for any reason other than death, retirement, as hereinafter defined, or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, “retirement”means a termination of employment by reason of an optionee’s retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer’s regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more than three months after termination of employment due to retirement, as provided in this Section 9, but in that event, the Option shall lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

        10. General Restrictions.

        Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Class A Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Class A Stock is necessary

-4-

or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Class A Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

        11. Rights of a Shareholder.

        The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a shareholder unless and until a certificate for shares of Class A Stock is issued and delivered to him.

        12. Right to Terminate Employment.

        Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary or affect any right that the Company or any subsidiary may have to terminate the employment of such optionee.

        13. Withholding.

        Whenever the Company proposes or is required to issue or transfer shares of Class A Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Class A Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Class A Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to the disapproval of the Committee at any time. Any securities so withheld or tendered will be valued by the Committee as of the date of exercise.

        14. Non-Assignability.

        No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee may approve, unless such means would be prohibited by Rule 16b-3 under the Exchange Act. During the life of the recipient such Option shall be exercisable only by such person or by such person’s guardian or legal representative.

-5-

        15. Non-Uniform Determinations.

        The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

        16. Adjustments.

        (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Class A Stock covered by each outstanding Option and the number of shares of Class A Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Class A Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Class A Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Class A Stock, or any other increase or decrease in the number of issued shares of Class A Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Class A Stock subject to an Option.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

        (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but, not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

-6-

        17. Amendment.

        The Committee may terminate or amend the Plan at any time, except that without sharehold er approval the Committee may not (i) materially increase the maximum number of shares that may be issued under the Plan (other than increases pursuant to Section 16 hereof), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted.

        18. Conditions upon Issuance of Shares.

        (a) Compliance with Securities Laws. Shares of the Company’s Class A Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock of the Company may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Class A Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

        19. Reservation of Shares.

        The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

        20. Effect on Other Plans.

        Participation in the Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary unless specifically provided.

-7-

        21. Duration of the Plan.

        The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Company’s Board of Directors or is approved by the Company’s shareholders.

        22. Forfeiture for Dishonesty.

        Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary that damaged the Company or any subsidiary or that the optionee has disclosed trade secrets of the Company or any subsidiary, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee, however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary in any manner.

        23. No Prohibition on Corporate Action.

        No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or director to be appropriate or in the Company’s best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee’s estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

        24. Indemnification.

        With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee and the Board of Directors, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee and the Board of Directors (i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as such member of the Committee or the Board of Directors; or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved

-8-

by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee and the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee and the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

        25. Miscellaneous Provisions.

        (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Class A Stock reserved for issuance under the Plan or any Option until a written Option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met.

        (b) Approval of Counsel. In the discretion of the Committee, no shares of Class A Stock, other securities or property of the Company, or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

        (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act shall apply to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

        (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

        (e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors and/or the Committee or its delegates.

        (f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

-9-

        26. Shareholder Approval.

        The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the votes present or represented, and entitled to be cast, at a duly held meeting of the shareholders of the Company.

Date of Adoption by Board of Directors —January 25, 1994.

Date of Approval by Shareholders —April 25, 1994.

Date of Amendment by Compensation and Stock Option Committee — April 12, 1995.

EX-10

Exhibit 10.19

PENNSYLVANIA MANUFACTURERS CORPORATION

1995 EQUITY INCENTIVE PLAN

        1. Purpose.

        The purpose of the Pennsylvania Manufacturers Corporation 1995 Equity Incentive Plan (the “Plan”) is to enhance the ability of Pennsylvania Manufacturers Corporation (the “Company”) and any subsidiaries to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such personnel and to promote the success of the Company. To accomplish these purposes, the Plan provides a means whereby employees of the Company and its subsidiaries may receive stock options to purchase the Company’s Class A Common Stock (“Options”).

        2. Administration.

        (a) Composition of the Committee. The Plan shall be administered by a committee of at least two directors (the “Committee”) appointed by the Company’s Board of Directors. No member of the Committee shall have been, or shall be, granted Options under the Plan, or options or other awards under any other plan of the Company or any of its affiliates, in the year preceding his appointment or while serving on the Committee, except for participation in any plan in which participation would be permitted in accordance with the applicable rules of the Securities and Exchange Commission relating to disinterested administration under the Securities Exchange Act of 1934 (the “Exchange Act”). Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee and thereafter directly administer the Plan.

        (b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made and the amount, size and terms of each such award; to determine the time when awards shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

        3. Stock Subject to the Plan.

        Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 750,000 shares of Class A Common Stock of the Company (the “Class A Stock”). Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

-1-

        4. Eligibility To Receive Options.

        Persons eligible to receive stock options under the Plan shall be limited to those officers and other employees of the Company and any subsidiary (as defined in Section 425 of the Internal Revenue Code of 1986 (the “Code”) or any amendment or substitute thereto), who may also be directors, who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company and/or a subsidiary. Directors of the Company who are not also officers or employees of the Company or any subsidiary shall not be eligible to participate in the Plan.

        5. Types of Options.

        Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Class A Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto (“Incentive Stock Options”) or Options that are not intended to so qualify (“Nonqualified Stock Options”).

        6. Stock Options.

        Options for the purchase of Class A Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each Option agreement shall contain in substance the following terms and conditions:

        (a) Type of Option. Each Option agreement shall identify the Options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

        (b) Option Price. Each Option agreement shall set forth the purchase price of the Class A Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase price of the Class A Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Class A Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall mean the closing price of the Class A Stock, as reported in The Wall Street Journal (or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System), or if the Class A Stock is not reported by NASDAQ, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code.

        (c) Exercise Term. Each Option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, which shall be such a period or

-2-

periods of time as may be determined by the Committee, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

        (d) Incentive Stock Options. In the case of an Incentive Stock Option, each Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor:

               (i) The aggregate fair market value (determined as of the date the Option is granted) of the Class A Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000.

               (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or its subsidiaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant.

               (iii) No Incentive Stock Options shall be exercisable more than three months (or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor) after termination of employment.

        (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

        7. Date of Grant.

        The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee’s authorization of the Option or such later date as may be determined

-3-

by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

        8. Exercise and Payment for Shares.

        Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Class A Stock at fair market value, or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose.

        9. Rights upon Termination of Employment.

        In the event that an optionee ceases to be an employee of the Company or any subsidiary for any reason other than death, retirement, as hereinafter defined, or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, “retirement”means a termination of employment by reason of an optionee’s retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer’s regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more than three months after termination of employment due to retirement, as provided in this Section 9, but in that event, the Option shall lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

        10. General Restrictions.

        Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Class A Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Class A Stock is necessary or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Class A Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

-4-

        11. Rights of a Shareholder.

        The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a shareholder unless and until a certificate for shares of Class A Stock is issued and delivered to him.

        12. Right to Terminate Employment.

        Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary or affect any right that the Company or any subsidiary may have to terminate the employment of such optionee.

        13. Withholding.

        Whenever the Company proposes or is required to issue or transfer shares of Class A Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Class A Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Class A Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to the disapproval of the Committee at any time. Any securities so withheld or tendered will be valued by the Committee as of the date of exercise.

        14. Non-Assignability.

        No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee may approve, unless such means would be prohibited by Rule 16b-3 under the Exchange Act. During the life of the recipient such Option shall be exercisable only by such person or by such person’s guardian or legal representative.

        15. Non-Uniform Determinations.

        The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

        16. Adjustments.

-5-

        (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Class A Stock covered by each outstanding Option and the number of shares of Class A Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Class A Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Class A Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Class A Stock, or any other increase or decrease in the number of issued shares of Class A Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Class A Stock subject to an Option.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

        (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but, not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

        17. Amendment.

        The Committee may terminate or amend the Plan at any time, except that without shareholder approval the Committee may not (i) materially increase the maximum number of shares that may be issued under the Plan (other than increases pursuant to Section 16 hereof), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted.

-6-

        18. Conditions upon Issuance of Shares.

        (a) Compliance with Securities Laws. Shares of the Company’s Class A Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock of the Company may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Class A Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

        19. Reservation of Shares.

        The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

        20. Effect on Other Plans.

        Participation in the Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary unless specifically provided.

        21. Duration of the Plan.

        The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Company’s Board of Directors or is approved by the Company’s shareholders.

-7-

        22. Forfeiture for Dishonesty.

        Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary that damaged the Company or any subsidiary or that the optionee has disclosed trade secrets of the Company or any subsidiary, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee, however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary in any manner.

        23. No Prohibition on Corporate Action.

        No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or director to be appropriate or in the Company’s best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee’s estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

        24. Indemnification.

        With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee and the Board of Directors, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee and the Board of Directors (i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as such member of the Committee or the Board of Directors; or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee and the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee

-8-

and the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

        25. Miscellaneous Provisions.

        (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Class A Stock reserved for issuance under the Plan or any Option until a written Option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met.

        (b) Approval of Counsel. In the discretion of the Committee, no shares of Class A Stock, other securities or property of the Company, or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

        (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act shall apply to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

        (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

        (e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors and/or the Committee or its delegates.

        (f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

-9-

        26. Shareholder Approval.

        The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the votes present or represented, and entitled to be cast, at a duly held meeting of the shareholders of the Company.

Date of Adoption by Board of Directors - February 28, 1995.

Date of Approval by Shareholders - April 24, 1995.

EX-10

Exhibit 10.21

PENNSYLVANIA MANUFACTURERS CORPORATION

1996 EQUITY INCENTIVE PLAN

        1. Purpose.

        The purpose of the Pennsylvania Manufacturers Corporation 1996 Equity Incentive Plan (the “Plan”) is to enhance the ability of Pennsylvania Manufacturers Corporation (the “Company”) and any subsidiaries to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to such personnel and to promote the success of the Company. To accomplish these purposes, the Plan provides a means whereby employees of the Company and its subsidiaries may receive stock options to purchase the Company’s Class A Common Stock (“Options”).

        2. Administration.

        (a) Composition of the Committee. The Plan shall be administered by a committee of at least two directors (the “Committee”) appointed by the Company’s Board of Directors. No member of the Committee shall have been, or shall be, granted Options under the Plan, or options or other awards under any other plan of the Company or any of its affiliates, in the year preceding his appointment or while serving on the Committee, except for participation in any plan in which participation would be permitted in accordance with the applicable rules of the Securities and Exchange Commission relating to disinterested administration under the Securities Exchange Act of 1934 (the “Exchange Act”). Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee and thereafter directly administer the Plan.

        (b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made and the amount, size and terms of each such award; to determine the time when awards shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

        3. Stock Subject to the Plan.

        Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 750,000 shares of Class A Common Stock of the Company (the “Class A Stock”). Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

        4. Eligibility To Receive Options.

        Persons eligible to receive stock options under the Plan shall be limited to those officers and other employees of the Company and any subsidiary (as defined in Section 425 of the Internal Revenue Code of 1986 (the “Code”) or any amendment or substitute thereto), who may also be directors, who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company and/or a subsidiary. Directors of the Company who are not also officers or employees of the Company or any subsidiary shall not be eligible to participate in the Plan.

        5. Types of Options.

        Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Class A Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto (“Incentive Stock Options”) or Options that are not intended to so qualify (“Nonqualified Stock Options”).

        6. Stock Options.

        Options for the purchase of Class A Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each Option agreement shall contain in substance the following terms and conditions:

        (a) Type of Option. Each Option agreement shall identify the Options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

        (b) Option Price. Each Option agreement shall set forth the purchase price of the Class A Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase price of the Class A Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Class A Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall mean the closing price of the Class A Stock, as reported in The Wall Street Journal (or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“Nasdaq”) System), or if the Class A Stock is not reported by Nasdaq, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code.

        (c) Exercise Term. Each Option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, which shall be such a period or

-2-

periods of time as may be determined by the Committee, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

        (d) Incentive Stock Options. In the case of an Incentive Stock Option, each Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor:

               (i) The aggregate fair market value (determined as of the date the Option is granted) of the Class A Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000.

               (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or its subsid iaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercis able after the expiration of five years from the date of grant.

               (iii) No Incentive Stock Options shall be exercisable more than three months (or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor) after termination of employment.

        (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

        7. Date of Grant.

        The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee’s authorization of the Option or such later date as may be determined

-3-

by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

        8. Exercise and Payment for Shares.

        Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Class A Stock at fair market value, or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose.

        9. Rights upon Termination of Employment.

        In the event that an optionee ceases to be an employee of the Company or any subsidiary for any reason other than death, retirement, as hereinafter defined, or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, “retirement”means a termination of employment by reason of an optionee’s retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer’s regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more than three months after termination of employment due to retirement, as provided in this Section 9, but in that event, the Option shall lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

        10. General Restrictions.

        Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Class A Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Class A Stock is necessary or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Class A Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

-4-

        11. Rights of a Shareholder.

        The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a shareholder unless and until a certificate for shares of Class A Stock is issued and delivered to him.

        12. Right to Terminate Employment.

        Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary or affect any right that the Company or any subsidiary may have to terminate the employment of such optionee.

        13. Withholding.

        Whenever the Company proposes or is required to issue or transfer shares of Class A Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Class A Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Class A Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to the disapproval of the Committee at any time. Any securities so withheld or tendered will be valued by the Committee as of the date of exercise.

        14. Non-Assignability.

        No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee may approve, unless such means would be prohibited by Rule 16b-3 under the Exchange Act. During the life of the recipient such Option shall be exercisable only by such person or by such person’s guardian or legal representative.

        15. Non-Uniform Determinations.

        The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

-5-

        16. Adjustments.

        (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Class A Stock covered by each outstanding Option and the number of shares of Class A Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Class A Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Class A Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Class A Stock, or any other increase or decrease in the number of issued shares of Class A Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Class A Stock subject to an Option.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

        (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but, not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Class A Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

        17. Amendment.

        The Committee may terminate or amend the Plan at any time, except that without shareholder approval the Committee may not (i) materially increase the maximum number of shares that may be issued under the Plan (other than increases pursuant to Section 16 hereof), (ii) materially increase the benefits accruing to participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. The termination or any modification

-6-

or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted.

        18. Conditions upon Issuance of Shares.

        (a) Compliance with Securities Laws. Shares of the Company’s Class A Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Class A Stock of the Company may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Class A Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

        19. Reservation of Shares.

        The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

        20. Effect on Other Plans.

        Participation in the Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary unless specifically provided.

        21. Duration of the Plan.

        The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Company’s Board of Directors or is approved by the Company’s shareholders.

-7-

        22. Forfeiture for Dishonesty.

        Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary that damaged the Company or any subsidiary or that the optionee has disclosed trade secrets of the Company or any subsidiary, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee, however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary in any manner.

        23. No Prohibition on Corporate Action.

        No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or direc tor to be appropriate or in the Company’s best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee’s estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

        24. Indemnification.

        With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee and the Board of Directors, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee and the Board of Directors (i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the perfor mance of his duty as such member of the Committee or the Board of Directors; or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee and the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee

-8-

and the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

        25. Miscellaneous Provisions.

        (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Class A Stock reserved for issuance under the Plan or any Option until a written Option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met.

        (b) Approval of Counsel. In the discretion of the Committee, no shares of Class A Stock, other securities or property of the Company, or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

        (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act shall apply to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

        (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

        (e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors and/or the Committee or its delegates.

        (f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

        26. Shareholder Approval.

        The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the votes present or represented, and entitled to be cast, at a duly held meeting of the shareholders of the Company.

Date of Adoption by Board of Directors - February 27, 1996.

Date of Approval by Shareholders - April 22, 1996.

EX-10

Exhibit 10.30

FIRST AMENDMENT TO
LETTER OF CREDIT AGREEMENT

        This FIRST AMENDMENT TO LETTER OF CREDIT AGREEMENT (this “Amendment”) is made as of the 17th day of June, 2002, by and among PMA CAPITAL CORPORATION, a Pennsylvania corporation (the “Applicant”), each Co-Applicant a party hereto, FLEET NATIONAL BANK, as a “Bank”under the Credit Agreement (as defined herein), and FLEET NATIONAL BANK, as agent for itself and any other Banks (in such capacity, together with its successors and assigns in such capacity, the “Agent”), and as issuing bank (in such capacity, together as with its successors and assigns in such capacity, the “Issuing Bank”) for the Letters of Credit (as defined in the Credit Agreement).

        WHEREAS, the Applicant, the Co-Applicants, the Banks, the Agent, and the Issuing Bank are parties to a certain Letter of Credit Agreement dated as of December 4, 2001 (as amended and in effect from time to time, the “Credit Agreement”);

        WHEREAS, at the request of the Applicant and the Co-Applicants, the other parties to the Credit Agreement have agreed to amend certain provisions of the Credit Agreement as more particularly described below;

        NOW, THEREFORE, in consideration of the foregoing, the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

        §1.  Definitions.  All undefined capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement.

        §2.  Removal of Caliber as Material Subsidiary and Consolidated Affiliate.  Caliber One Indemnity Company, a Delaware insurance company, shall not be a Material Subsidiary or Consolidated Affiliate for any purpose under the Credit Agreement or the other Credit Documents on and after the date hereafter. In furtherance thereof, the references to Caliber in the definitions of “Material Subsidiary” and “Consolidated Affiliate” contained in the Credit Agreement are hereby deleted.

        §3.  Ratification, etc.  The Applicant and the Co-Applicants hereby ratify and confirm all of their obligations, covenants, and agreements set forth in the Credit Agreement and the other Credit Documents. The Applicant and the Co-Applicants hereby confirm and agree that all representations and warranties of the Applicant and the Co-Applicants contained in the Credit Agreement are true and correct in all material respects as of the date hereof (except 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 shall be true and correct in all material respects as of such date). All references to the Credit Agreement in any of the Credit Documents shall refer to the Credit Agreement as it has been modified by this Amendment.

        §4. Governing Law. This Amendment shall for all purposes be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.

-2-

        §5. Headings. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.

        §6. Counterparts.  This Amendment and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Amendment it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.

        §7. Severability.  The provisions of this Amendment are severable, and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Amendment in any jurisdiction.

        §8. Integration.   This Amendment, together with the Credit Documents, embodies the entire agreement and understanding among the Credit Parties, the Agent, the Issuing Bank and the Banks with respect to the subject matter thereof and supersedes all prior agreements and understandings among the Credit Parties, the Agent, the Issuing Bank and the Banks with respect to the subject matter thereof.

        IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a sealed instrument as of the date first set forth above.

PMA CAPITAL CORPORATION
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Senior Vice President, Chief Financial Officer and Treasurer
PMA CAPITAL INSURANCE COMPANY
By:	/s/ Albert D. Ciavardelli
Name:	Albert D. Ciavardelli
Title:	Vice President and Treasurer

-3-

PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Senior Vice President, Chief Financial Vice President and Treasurer
HIGH MOUNTAIN REINSURANCE, LTD.
By:	/s/ Edward S. Hochberg
Name:	Edward S. Hochberg
Title:	Treasurer and Secretary
FLEET NATIONAL BANK, Individually and as Agent and Issuing Bank
By:	/s/ George J. Urban
Name:	George J. Urban
Title:	Portfolio Manger

EX-10

Exhibit 10.31

SECOND AMENDMENT TO
LETTER OF CREDIT AGREEMENT

        This SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT (this “Amendment”)  is made as of the 4^th day of December, 2002, by and among PMA CAPITAL CORPORATION, a Pennsylvania corporation (the “Applicant”), each Co-Applicant a party hereto, FLEET NATIONAL BANK, as a “Bank” under the Credit Agreement (as defined herein), and FLEET NATIONAL BANK, as agent for itself and any other Banks (in such capacity, together with its successors and assigns in such capacity, the “Agent”), and as issuing bank (in such capacity, together as with its successors and assigns in such capacity, the “Issuing Bank”) for the Letters of Credit (as defined in the Credit Agreement).

        WHEREAS, the Applicant, the Co-Applicants, the Banks, the Agent, and the Issuing Bank are parties to a certain Letter of Credit Agreement dated as of December 4, 2001, as amended by that certain First Amendment to Letter of Credit Agreement dated as of June 1, 2002 (as further amended and in effect from time to time, the “Credit Agreement”);

        WHEREAS, at the request of the Applicant and the Co-Applicants, the other parties to the Credit Agreement have agreed to amend certain provisions of the Credit Agreement as more particularly described below;

        NOW, THEREFORE, in consideration of the foregoing, the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

        §1.  Definitions.  All undefined capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement.

        §2. Amendments to Credit Agreement. The Credit Agreement is hereby amended as follows:

        (a) The following definitions contained in Section 1.1 of the Credit Agreement are hereby deleted in their entirety and replaced with the following:

        “Cash Coverage Ratio” means as of the last day of any period of four consecutive fiscal quarters (the “Measurement Period”), the ratio of:

        (i) the aggregate of (y) the Available Dividend Amount for the Measurement Period for the Insurance Subsidiaries, other than each Insurance Subsidiary that is a Subsidiary of another Insurance Subsidiary plus (z) the Net Tax Sharing Payments (whether a positive or negative number) for the Measurement Period, to

        (ii) the aggregate of (x) Interest Expense incurred during the Measurement Period, plus (y) Restricted Payments (other than as permitted under Section 7.5(i)) during the Measurement Period, plus (z) the aggregate of all operating costs and expenses of the Applicant, including rent, utilities and payroll expenses paid by the Applicant during the Measurement Period.

-2-

        “Contingent Obligation” means, as to any Person (without duplication), any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit excluding any letter of credit issued hereunder or other obligation (the “primary obligations”) of another Person (the “primary obligor”), including (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a “Guaranty Obligation”); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; or (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract; provided, however, that, with respect to the Applicant and its Subsidiaries, the terms Contingent Obligation and Guaranty Obligation shall not include (w) guarantees or agreements issued by the Applicant to Insurance Regulatory Authorities pursuant to which the Applicant agrees to maintain the statutory surplus of PMAIC and MAIC in an amount (in each case) not to exceed $7,500,000, (x) guarantees or agreements issued by the Applicant to PMAIC pursuant to which the Applicant agrees to maintain the statutory surplus of PMA Cayman in an amount not to exceed $15,000,000, (y) endorsements for collection or deposit in the ordinary course of business or (z) obligations entered into by an Insurance Subsidiary in the ordinary course of its business under insurance policies or contracts issued by it or to which it is a party, including reinsurance agreements (and security posted by any such Insurance Subsidiary in the ordinary course of its business to secure obligations thereunder so long as such security consists of letters of credit hereunder or any collateral pursuant to Regulation 114 Trusts.)

        “Indebtedness” of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property);

-3-

(f) all obligations with respect to capital leases or Synthetic Lease Obligations; (g) all obligations with respect to Swap Contracts; (h) all obligations with respect to (x) any loans made to any executives of the Applicant or any its Subsidiaries that are guaranteed by the Applicant and (y) any obligations with respect to repurchase or redemption of shares by the Applicant; (i) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (j) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) above.

        “Revolving Credit Agreement” shall mean that certain Credit Agreement, dated as of September 20, 2002, as amended, among the Applicant, the several financial institutions from time to time party to the Agreement, Fleet National Bank, as syndication agent, Credit Lyonnais New York Branch, as documentation agent, and Bank of America, N.A. as administrative agent for the lenders.

        “Surety Instruments” means all letters of credit (including standby and commercial but excluding letters of credit in connection with any reinsurance or insurance arrangement issued hereunder), banker’s acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments.

        “Swap Contract” means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing.

        “Synthetic Lease Obligations” means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

        “Termination Date” means December 4, 2003, or such earlier date on which the Commitment is terminated.

        (b) A new definition of "Restricted Payments" shall be added to Section 1.1 of the Credit Agreement as follows:

-4-

        “Restricted Payments” has the meaning specified in Section 7.5.

        (c) Section 5.3(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following

               (a) Concurrently with each delivery of the financial statements described in Sections 5.1 and 5.2, a Compliance Certificate in the form of Exhibit E-1 (in the case of the financial statements described in Section 5.1) or Exhibit E-2 (in the case of the financial statements described in Section 5.2) with respect to the period covered by the financial statements then being delivered, executed by the chief financial officer of the Applicant (or a vice president of the Applicant having significant responsibility for financial matters), together, in the case of the financial statements described in Section 5.1, with a Covenant Compliance Worksheet reflecting the computation of the financial covenants set forth in Sections 6.1, 6.2 and 6.5 as of the last day of the period covered by such financial statements, and in the case of the financial statements described in Section 5.2, with a Covenant Compliance Worksheet reflecting the computation of the financial covenants set forth in Sections 6.3 and 6.4 as of the last day of the period covered by such financial statements;

        (d) The number “2.75” contained in the first line of Section 6.2 of the Credit Agreement is hereby deleted and replaced with the number “1.75".

        (e) The number “$450,000,000” contained in the second line of Section 6.3 of the Credit Agreement is hereby deleted and replaced with the number “$500,000,000".

        (f) Section 6.4 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

                     6.4. Risk Based Capital.

                     The Applicant will not permit “total adjusted capital”(within the meaning of the Risk-Based Capital for Insurers Model Act as promulgated by the NAIC as of the date hereof (the “Model Act”)) of any Material Insurance Subsidiary domiciled in the U.S. to be less than one hundred fifty percent (150%) as of the last day of any fiscal quarter, beginning with the fiscal quarter ending December 31, 2002, of the applicable “Company Action Level RBC”(within the meaning of the Model Act) (it being understood that any calculation, other than at a fiscal year end, shall be based upon estimates).

        (g) The following new Section 6.5 is hereby added to the Credit Agreement:

                     6.5. Ratio of Reinsurance Recoverables to Stockholders' Equity.

-5-

                     The Applicant will not permit the ratio for it and its Subsidiaries on a consolidated basis of (a) Reinsurance Recoverables to (b) Stockholders’Equity, as such terms are defined in accordance with Generally Accepted Accounting Principles, at any time to exceed 3.0 to 1.0.

        (h) Section 7.1(ii) is hereby deleted in its entirety and replaced with the following:

                     (ii) the Applicant and its Subsidiaries may (x) sell, or otherwise dispose of, the capital stock or all or any portion of the assets, business or properties of a Subsidiary that is not a Material Subsidiary, (y) liquidate, windup or dissolve any Subsidiary that is not a Material Subsidiary, and (z) sell, or otherwise dispose of, any asset or group of assets constituting less than (calculated net of liabilities transferred in connection therewith) (A) in any single transaction or series of related transactions, ten percent (10%) of Consolidated Statutory Surplus as of the last day of the fiscal quarter ending on or immediately prior to the date of such sale, and (B) during any fiscal year, in the aggregate with all such other sales pursuant to this clause (ii)(z), thirty percent (30%) of Consolidated Statutory Surplus as of the end of the immediately preceding fiscal year.

        (i) Section 7.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

                     7.2. Indebtedness.

                     The Applicant will not, and will not permit or cause any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist, any Indebtedness (excluding the Obligations) other than:

                             (i) Indebtedness under any Debt Agreement;

                             (ii) Indebtedness of any Wholly Owned Subsidiary of the Applicant to the Applicant or to another Wholly Owned Subsidiary and of the Applicant to any Wholly Owned Subsidiary;

                             (iii) Indebtedness of up to $4,000,000 relating to guarantees of officer loans under the Applicant's 1998 Financial Support Program;

                             (iv) Indebtedness not greater than $9,200,000 relating to guarantees of obligations of Walnut Towers Associates in existence on the date hereof or incurred prior to December 31, 2002;

-6-

                             (v) Indebtedness (other than Indebtedness specified in clauses (i) through (iv) above but including Obligations then outstanding) in the aggregate principal amount not exceeding $200,000,000 at any time outstanding, which Indebtedness, other than the Obligations, shall not have any maturity, or be subject to any redemption or prepayment, other than through a conversion of a convertible security into shares of common stock, prior to a date one year after the Stated Maturity Date and provided, that within that time frame the Borrower shall not make any optional redemptions or prepayments of such Indebtedness (other than the Obligations), other than through a conversion of convertible security into shares of common stock.

        (j) Section 7.5(a) of the Credit Agreement is hereby amended by adding the phrase “and except through a conversion of a convertible security into shares of common stock”to the end of the last sentence thereof and by adding a new subsection (iii) as follows:

                     (iii) The Applicant may make payments and distributions otherwise prohibited under this Section 7.5in amounts not in excess of $20,000,000 in any fiscal year.

        (k) Schedule 1.1 to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 1.1 attached hereto.

        (l) Schedule 4.4 to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 4.4 attached hereto.

        (m) Schedule 4.7 to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 4.7 attached hereto.

        (n) Schedule 4.18 to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 4.18 attached hereto.

        (o) Schedule 7.2 to the Credit Agreement is hereby deleted in its entirety.

        (p) Schedule 7.3 to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 7.3 attached hereto.

        §3. Ratification, etc.  The Applicant and the Co-Applicants hereby ratify and confirm all of their obligations, covenants, and agreements set forth in the Credit Agreement and the other Credit Documents. The Applicant and the Co-Applicants hereby confirm and agree that all representations and warranties of the Applicant and the Co-Applicants contained in the Credit Agreement are true and correct in all material respects as of the date hereof (except 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 shall be true and correct in all material respects as of such date). All references to the Credit Agreement in any of the Credit Documents shall refer to the Credit Agreement as it has been modified by this Amendment.

-7-

        §4. Governing Law. This Amendment shall for all purposes be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.

        §5. Headings. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.

        §6.  Counterparts.  This Amendment and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Amendment it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.

        §7.  Severability.  The provisions of this Amendment are severable, and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Amendment in any jurisdiction.

        §8.  Integration.  This Amendment, together with the Credit Documents, embodies the entire agreement and understanding among the Credit Parties, the Agent, the Issuing Bank and the Banks with respect to the subject matter thereof and supersedes all prior agreements and understandings among the Credit Parties, the Agent, the Issuing Bank and the Banks with respect to the subject matter thereof.

[The remainder of this page intentionally left blank; the next page is the signature page]

        IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a sealed instrument as of the date first set forth above.

PMA CAPITAL CORPORATION
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Senior Vice President
PMA CAPITAL INSURANCE COMPANY
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Vice President
PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Senior Vice President
HIGH MOUNTAIN REINSURANCE, LTD.
By:	/s/ William E. Hitselberger
Name:	William E. Hitselberger
Title:	Vice President
FLEET NATIONAL BANK, Individually and as Agent and Issuing Bank
By:	/s/ Lawrence Davis
Name:	Lawrence Davis
Title:	Portfolio Manager

EX-12

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts In Thousands)

		2002			2001			2000		1999		1998
EARNINGS
Pre-tax income (loss)	$	(79,157	)	$	(4,416	)	$	123	$	40,092	$	55,069
Fixed charges		4,611			7,832			13,024		13,109		15,865
Total	$	(74,546	)	$	3,416		$	13,147	$	53,201	$	70,934
FIXED CHARGES
Interest expense and amortization of
debt discount and premium on all
indebtedness	$	3,257		$	6,541		$	11,889	$	12,221	$	15,009
Interest portion of rental expense		1,354			1,291			1,135		888		856
Total fixed charges	$	4,611		$	7,832		$	13,024	$	13,109	$	15,865
Ratio of earnings to fixed
charges		(A)			(B)			1.0x		4.1x		4.5x

(A) Earnings were insufficient to cover fixed charges by $79.2 million in 2002.

(B) Earnings were insufficient to cover fixed charges by $4.4 million in 2001.

EX-13

P M A  C A P I T A L

Selected Financial Data

(dollar amounts in thousands, except per share data)	2002(1)			2001(1)		2000(1)		1999			1998
Net premiums written	$	1,104,997		$	769,058	$	545,555	$	563,510		$	474,761
Consolidated Results of Operations:
Net premiums earned	$	991,011		$	732,440	$	531,424	$	540,087		$	466,715
Net investment income		84,881			86,945		102,591		110,057			120,125
Net realized investment gains (losses)		(16,085	)		7,988		11,975		(7,745	)		21,745
Other revenues		15,330			22,599		14,000		12,718			14,896
Total consolidated revenues	$	1,075,137		$	849,972	$	659,990	$	655,117		$	623,481
Income (loss) before cumulative effect of accounting change	$	(48,024	)	$	7,103	$	1,325	$	28,353		$	44,734
Cumulative effect of accounting change,
net of related tax effect(2)		--			--		--		(2,759	)		--
Net income (loss)	$	(48,024	)	$	7,103	$	1,325	$	25,594		$	44,734
Per Share Data:
Weighted average shares:
Basic		31,284,848			21,831,725		21,898,967		22,976,326			23,608,618
Diluted		31,284,848			22,216,695		22,353,622		23,785,916			24,524,888
Income (loss) before cumulative effect of accounting change:
Basic	$	(1.53	)	$	0.33	$	0.06	$	1.23		$	1.89
Diluted		(1.53	)		0.32		0.06		1.19			1.82
Net income (loss) per share:
Basic		(1.53	)		0.33		0.06		1.11			1.89
Diluted		(1.53	)		0.32		0.06		1.08			1.82
Dividends paid per Common share(3)		--			--		0.16		0.32			0.32
Dividends paid per Class A Common share(3)		0.42			0.42		0.375		0.36			0.36
Shareholders' equity per share		18.56			19.64		20.40		19.21			21.90
Consolidated Financial Position:
Total investments	$	1,828,610		$	1,775,335	$	1,826,949	$	1,918,035		$	2,325,409
Total assets		4,105,794			3,802,979		3,469,406		3,245,087			3,460,718
Reserves for unpaid losses and LAE		2,449,890			2,324,439		2,053,138		1,932,601			1,940,895
Debt		151,250			62,500		163,000		163,000			163,000
Shareholders' equity		581,390			612,006		440,046		429,143			511,480

(1) Operating results in 2002, 2001 and 2000 were impacted by approximately $90 million pre-tax ($59 million after-tax), $52 million pre-tax ($34 million after-tax) and $60 million pre-tax ($39 million after-tax), respectively, of reserve strengthening. Operating results for 2002 were also impacted by $43 million pre-tax ($28 million after-tax) for costs associated with the exit from and run off of Caliber One, our former excess and surplus lines business. In addition, operating results for 2001 were impacted by $30 million pre-tax ($20 million after-tax) for World Trade Center losses.

(2) In 1999, the Company adopted SOP 97-3, “Accounting by Insurance and Other Enterprises for Insurance-Related Assessments.”As a result of adopting SOP 97-3, the Company recorded a liability of $4.3 million pre-tax and a resulting charge to earnings of $2.8 million, net of tax effect.

(3) Effective at the close of business April 24, 2000, all shares of Common stock were reclassified as Class A Common stock. Accordingly, all dividends subsequent to April 24, 2000 are for the Class A Common stock.

22

P M A  C A P I T A L

(dollar amounts in thousands, except per share data)	2002(1)			2001(1)			2000(1)			1999			1998
Pre-tax operating income (loss)(4):
PMA Re	$	13,422		$	(3,062	)	$	(7,297	)	$	50,319		$	46,408
The PMA Insurance Group		25,346			23,148			21,601			18,200			10,470
Corporate and Other		(14,339	)		(6,322	)		(19,142	)		(20,765	)		(21,948	)
Ongoing Operations		24,429			13,764			(4,838	)		47,754			34,930
Run-off Operations(5)		(87,501	)		(26,168	)		(7,014	)		83			(1,606	)
Pre-tax operating income (loss)		(63,072	)		(12,404	)		(11,852	)		47,837			33,324
Net realized investment gains (losses)		(16,085	)		7,988			11,975			(7,745	)		21,745
Income (loss) before income taxes and
cumulative effect of accounting change		(79,157	)		(4,416	)		123			40,092			55,069
Income tax expense (benefit)		(31,133	)		(11,519	)		(1,202	)		11,739			10,335
Income (loss) before extraordinary loss and
cumulative effect of accounting change		(48,024	)		7,103			1,325			28,353			44,734
Cumulative effect of accounting change,
net of related tax effect(3)		-			-			-			(2,759	)		-
Net income (loss)	$	(48,024	)	$	7,103		$	1,325		$	25,594		$	44,734
GAAP Ratios for Ongoing Insurance Segments:
PMA Re:
Loss and LAE ratio		79.6	%		87.4	%		91.6	%		70.4	%		68.9	%
Expense ratio		26.8	%		26.8	%		31.7	%		32.1	%		34.8	%
Combined ratio(6)		106.4	%		114.2	%		123.3	%		102.5	%		103.7	%
Operating ratio(7)		97.6	%		100.9	%		102.9	%		82.9	%		79.2	%
The PMA Insurance Group:
Loss and LAE ratio		75.0	%		74.7	%		74.9	%		75.1	%		81.6	%
Expense ratio(8)		26.4	%		26.7	%		29.3	%		31.7	%		33.7	%
Policyholders’ dividend ratio		1.8	%		4.1	%		7.5	%		8.6	%		7.3	%
Combined ratio(6)		103.2	%		105.5	%		111.7	%		115.4	%		122.6	%
Operating ratio(7)		94.5	%		94.1	%		92.7	%		92.7	%		95.9	%

(4) Pre-tax operating income (loss) excludes net realized investment gains (losses). Pre-tax operating income by business segment for all periods is unaudited and has been presented in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,”which the Company adopted on January 1, 1998. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 15 to the Company's Consolidated Financial Statements. The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments.

(5) In May 2002, we exited the excess and surplus lines business and placed this business, formerly known as Caliber One, into run-off.

(6) The combined ratio computed on a GAAP basis is equal to losses and loss adjustment expenses plus acquisition expenses, operating expenses and policyholders'dividends (where applicable), all divided by net premiums earned.

(7) The operating ratio is equal to the combined ratio less the net investment income ratio, which is computed by dividing net investment income by net earned premiums.

(8) The GAAP operating expense ratios exclude $11.3 million, $8.8 million, $7.0 million, $7.9 million and $9.0 million for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively, of PMA Management Corp. direct expenses related to service revenues, which are not included in premiums earned.

23

P M A  C A P I T A L

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

The following is a discussion of the financial condition of PMA Capital Corporation and its consolidated subsidiaries ("PMA Capital" or the "Company" which also may be referred to as "we" or "us") as of December 31, 2002, compared with December 31, 2001, and the results of operations of PMA Capital for 2002 and 2001, compared with the immediately preceding year. The balance sheet information presented below is as of December 31 for each respective year. The statement of operations information is for the year ended December 31 for each respective year.

        This discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto presented on pages 49 to 72 in this Annual Report. You should also read our discussion of Critical Accounting Estimates beginning on page 45 for an explanation of those accounting estimates that we believe are most important to the portrayal of our financial condition and results of operations and that require our most difficult, subjective and complex judgements.

        This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains forward-looking statements, including those made in the Business Outlook section, which involve inherent risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based upon current estimates, assumptions and projections. Actual results may differ materially from those projected in such forward-looking statements, and therefore, you should not place undue reliance on them. See the Cautionary Statements on page 48 for a list of factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Also, see the Business – Risk Factors in our Form 10-K for the year ended December 31, 2002 ("2002 Form 10-K") for a further discussion of risks that could materially affect our business.

Consolidated Results

In this MD&A, in addition to providing net income (loss), we also provide operating income (loss) because we believe that it is a meaningful measure of the profit or loss generated by our operating segments. Operating income (loss) differs from net income (loss) under generally accepted accounting principles ("GAAP") and does not replace net income (loss) as the GAAP measure of our results of operations. In arriving at operating income (loss), we start with GAAP net income (loss) and exclude net realized investment gains and losses because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of our insurance and reinsurance business segments and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains and losses that do not relate to the operations of the individual segments.

The major components of revenues, pre-tax operating income (loss) and net income (loss) are as follows:

(dollar amounts in thousands)	2002			2001			2000
Revenues:
Net premiums written	$	1,104,997		$	769,058		$	545,555
Net premiums earned	$	991,011		$	732,440		$	531,424
Net investment income		84,881			86,945			102,591
Net realized investment gains (losses)		(16,085	)		7,988			11,975
Other revenues		15,330			22,599			14,000
Total revenues	$	1,075,137		$	849,972		$	659,990
Components of pre-tax operating income (loss) and net income (loss):
PMA Re	$	13,422		$	(3,062	)	$	(7,297	)
The PMA Insurance Group		25,346			23,148			21,601
Corporate and Other		(14,339	)		(6,322	)		(19,142	)
Pre-tax operating income (loss)-- Ongoing Operations		24,429			13,764			(4,838	)
Run-off Operations(1)		(87,501	)		(26,168	)		(7,014	)
Pre-tax operating loss		(63,072	)		(12,404	)		(11,852	)
Net realized investment gains (losses)		(16,085	)		7,988			11,975
Income (loss) before income taxes		(79,157	)		(4,416	)		123
Income tax benefit		(31,133	)		(11,519	)		(1,202	)
Net income (loss)	$	(48,024	)	$	7,103		$	1,325

(1) In May 2002, we announced our decision to withdraw from the excess and surplus lines marketplace. As a result of this decision, the results of this segment, formerly known as Caliber One, are reported as Run-off Operations.

24

P M A  C A P I T A L

        We recorded a net loss of $48.0 million in 2002, compared to net income of $7.1 million and $1.3 million in 2001 and 2000. Included in net income (loss) are after-tax net realized investment losses of $10.5 million in 2002, compared to after-tax net realized investment gains of $5.2 million and $7.8 million for 2001 and 2000. After-tax net realized investment losses for 2002 include impairment losses of $15.4 million ($23.8 million pre-tax) on fixed income securities, primarily corporate bonds issued by telecommunications and energy companies. Net realized investment gains for 2001 reflect the sale of securities because of our decision to shift the mix of our invested asset portfolio from U.S. Treasury and agency securities to corporate bonds and structured securities as a means to enhance our portfolio’s yield. As a result of investment sales pursuant to this strategy and the declining interest rates in 2001, we recorded net realized investment gains in 2001. During 2000, realized investment gains resulted primarily from the sale of equity securities, which had reached our targeted price level.

        Also included in net income for 2001 are a $6.3 million after-tax gain ($9.8 million pre-tax included in Other revenues) on the sale of certain real estate properties and a tax benefit of $10.1 million resulting from the completion of an IRS examination of our 1996 tax return.

        Following is a reconciliation of our operating results as discussed below to GAAP pre-tax income (loss) and net income (loss):

	2002						2001						2000
(dollar amounts in thousands)	Pre-tax			After-tax			Pre-tax			After-tax			Pre-tax			After-tax
Operating income (loss) for Ongoing Operations	$	24,429		$	19,299		$	4,001		$	5,971		$	(4,838	)	$	(1,776	)
Operating loss for Run-off Operations		(87,501	)		(56,868	)		(26,168	)		(20,507	)		(7,014	)		(4,683	)
Gain on sale of real estate		--			--			9,763			6,346			--			--
Tax benefit		--			--			--			10,100			--			--
Operating income (loss)		(63,072	)		(37,569	)		(12,404	)		1,910			(11,852	)		(6,459	)
Net realized investment gains (losses)		(16,085	)		(10,455	)		7,988			5,193			11,975			7,784
Income (loss)	$	(79,157	)	$	(48,024	)	$	(4,416	)	$	7,103		$	123		$	1,325

Pre-tax operating income for the Ongoing Operations was $24.4 million in 2002, compared to pre-tax operating income of $4.0 million in 2001 and a pre-tax operating loss of $4.8 million in 2000. The improvement in pre-tax operating results in 2002 reflects improved underwriting results at both PMA Re and The PMA Insurance Group. Partially offsetting the improved underwriting results is a pre-tax net charge of approximately $45 million ($26 million after-tax) recognized in the fourth quarter, primarily reflecting higher than expected losses and LAE at PMA Re of $50 million pre-tax. Results for 2001 include a charge of approximately $30 million pre-tax ($20 million after-tax) relating to losses resulting from the attack on the World Trade Center. Operating results for 2000 include a charge of approximately $60 million pre-tax (approximately $40 million after-tax) for higher than expected losses and LAE at PMA Re.

        After-tax operating income for the Ongoing Operations was $19.3 million in 2002, compared to after-tax operating income of $6.0 million in 2001 and an after-tax operating loss of $1.8 million in 2000.

        Operating results for the Run-off Operations for 2002 reflect unfavorable prior year loss development of approximately $52 million pre-tax ($34 million after-tax) and a charge of $43 million pre-tax ($28 million after-tax) associated with our decision to exit from and run off our excess and surplus lines business, partially offset by better than expected underwriting results for the current accident year. Operating results for the Run-off Operations for 2001 and 2000 reflect net unfavorable prior year development of $22 million pre-tax ($14 million after-tax) and $3 million pre-tax ($2 million after-tax), respectively.

        Consolidated revenues were $1,075.1 million, $850.0 million and $660.0 million in 2002, 2001 and 2000. The increase in revenues in 2002, compared to 2001, primarily reflects higher net premiums earned by PMA Re and The PMA Insurance Group mainly due to price increases across all lines of business. The increase in revenues in 2001, compared to 2000, primarily reflects higher net premiums earned, partially offset by lower net investment income.

25

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Impact on 2001 Results from the September 11th Terrorist Attack on the World Trade Center

Results for our Ongoing Operations in 2001 were adversely impacted by approximately $30 million pre-tax ($20 million after-tax) as a result of losses incurred at PMA Re from the September 11th terrorist attack on the World Trade Center. The 2001 charge of approximately $30 million pre-tax consisted of total assumed losses of approximately $135 million, which is before (1) reinsurance recoveries ($110 million), (2) additional premiums due to PMA Re’s retrocessionaires ($30 million) and (3) additional premiums due to PMA Re on its assumed business ($25 million). Results for the Run-off Operations for 2001 include approximately $1 million of net property losses related to the September 11th terrorist attack on the World Trade Center, net of $9 million of ceded losses. Our estimate of the net loss from the terrorist attack on the World Trade Center continues to be approximately $30 million pre-tax and is based on our analysis to date of known exposures. However, it is difficult to fully estimate our loss from the attack given the uncertain nature of damage theories and loss amounts, and the development of additional facts related to the attack. As more information becomes available, our estimate may need to be increased.

Business Outlook

Our current expectation is that throughout 2003 premium rates will remain adequate, which will enable PMA Re and The PMA Insurance Group to achieve premium growth of 10-15%. Premium growth may accelerate beyond our current forecasts if rates move higher than we are expecting. However, if rates do not maintain adequate levels during 2003, then we would constrain our premium writings.

        Overall, we expect underwriting results to improve in 2003 due to expected price strengthening that we believe will continue to outpace loss cost and expense trends. Accordingly, embedded underwriting margins should remain strong in 2003. We would expect to see the 2003 combined ratio for PMA Re to be around 95%, which is several points below their long-term goal of 100% and we expect the combined ratio for The PMA Insurance Group to be in line with their long-term goal of 104%.

        Based on our current expectations, the estimated range of consolidated after-tax operating earnings for 2003 is between $1.70 and $1.85 per diluted share. Our range of estimated operating earnings per share for 2003 assumes that rate adequacy will continue to improve as prices continue to increase in 2003. In addition, it assumes that loss trends run at a similar pace as 2002 levels, excluding catastrophes, and that loss reserves for prior accident years continue to be adequate. In addition, our 2003 earnings per share estimate does not reflect any dilution from our 4.25% convertible senior debentures. If we were to assume conversion of this debt, then our earnings per share figures would be lower by about 10%.

        We are unable to provide a reasonable estimate of the range of GAAP net income per share for 2003 because this would require us to forecast net realized investment gains and losses, which are included in GAAP net income but excluded from operating income. We are unable to reasonably estimate future net realized investment gains and losses because they are unpredictable and not necessarily indicative of our current operating fundamentals or our future performance. In addition, in many instances, decisions to buy and sell securities are made for reasons unrelated to our insurance and reinsurance businesses and are made at the holding company level in part due to credit concerns or overall changes in the fixed income markets.

        The statements made in this Business Outlook section are forward-looking. Our actual results may differ materially from our current expectations as a result of the factors described in the cautionary statements accompanying the forward-looking statements and other factors described in the Cautionary Statements on page 48. Also, see the Business – Risk Factors described in our 2002 Form 10-K.

        Please see our earnings release dated February 5, 2003, which is available on our website at www.pmacapital.com for information regarding the status of this business outlook.

Recent Developments

On February 25, 2003, A.M. Best announced that it was lowering the insurance financial strength rating of PMA Capital Insurance Company from A ("Excellent" – 3rd of 16) to A- ("Excellent" – 4th of 16), with their outlook moved from negative to stable. The current financial strength rating of A- ("Excellent" – 4th of 16) of the domestic insurance companies within The PMA Insurance Group was affirmed with a stable outlook.

        On March 5, 2003, Moody’s Investors Service ("Moody’s") announced that it lowered the senior debt rating of PMA Capital Corporation to Ba1 ("Moderate" – 11th of 21) from Baa3 ("Medium" – 10th of 21) and also lowered the insurance financial strength rating of PMA Capital Insurance Company to Baa1 ("Adequate" – 8th of 21) from A3 ("Good" – 7th of 21). In addition, Moody’s affirmed the insurance financial strength ratings of the members of The PMA Insurance Group at Baa1 ("Adequate" – 8th of 21). Moody’s has a negative outlook on these ratings.

        On February 7, 2003, Standard & Poor’s Ratings Services announced that it was not taking any ratings action in response to our fourth quarter 2002 results.

         See the Ratings discussion in our 2002 Form 10-K for additional information.

26

P M A  C A P I T A L

PMA Re

Summarized financial results of PMA Re are as follows:

(dollar amounts in thousands)		2002		2001			2000
Net premiums written	$	639,039	$	360,604		$	261,505
Net premiums earned	$	551,513	$	340,401		$	251,109
Net investment income		48,736		45,361			51,125
Operating revenues		600,249		385,762			302,234
Losses and LAE		439,228		297,623			229,925
Acquisition and operating expenses		147,599		91,201			79,606
Total losses and expenses		586,827		388,824			309,531
Pre-tax operating income (loss)	$	13,422	$	(3,062	)	$	(7,297	)
Combined ratio		106.4%		114.2%			123.3%
Less: net investment income ratio		8.8%		13.3%			20.4%
Operating ratio		97.6%		100.9%			102.9%

PMA Re’s pre-tax operating income was $13.4 million in 2002, compared to pre-tax operating losses of $3.1 million in 2001 and $7.3 million in 2000. PMA Re’s 2002 operating results reflect improved underwriting results, partially offset by a net charge of approximately $45 million pre-tax. This charge primarily relates to strengthening of PMA Re’s loss reserve position for prior accident years at year-end 2002 ($64 million) to reflect our most current projection of the ultimate results for these underwriting years. PMA Re’s 2002 results benefitted from better than expected current accident year business ($14 million), mainly property reinsurance, and a net benefit of approximately $5 million recognized in the fourth quarter primarily due to reductions in acquisition and operating expenses, partially offset by costs associated with ceding certain of its prior year loss development. Operating results for 2001 include a pre-tax charge of approximately $30 million relating to the effects of the losses caused by the attack on the World Trade Center. Operating results for 2000 include a pre-tax charge of approximately $60 million relating to the effects of higher than expected losses and LAE. For additional information, see the discussion under Losses and Expenses on page 29 and the discussion under Impact on 2001 Results from the September 11th Terrorist Attack on the World Trade Center on page 26.

Premiums

PMA Re’s gross premiums written by business unit and major lines of business are as follows:

(dollar amounts in thousands)		2002		2001		2000
Business Unit:
Traditional - Treaty	$	382,955	$	171,318	$	224,226
Finite Risk and Financial Products		252,413		244,527		109,062
Specialty - Treaty		92,088		34,180		50,971
Facultative		49,331		26,566		10,564
Total	$	776,787	$	476,591	$	394,823
Major Lines of Business:
Casualty	$	503,644	$	266,672	$	268,877
Property		247,279		206,940		123,393
Other(1)		25,864		2,979		2,553
Total	$	776,787	$	476,591	$	394,823

(1) Primarily aviation, ocean marine and accident in 2002.

PMA Re’s net premiums written by business unit and major lines of business are as follows:

(dollar amounts in thousands)		2002		2001		2000
Business Unit:
Traditional - Treaty	$	314,172	$	115,814	$	134,724
Finite Risk and Financial Products		230,720		209,939		89,254
Specialty - Treaty		75,471		26,252		34,062
Facultative		18,676		8,599		3,465
Total	$	639,039	$	360,604	$	261,505
Major Lines of Business:
Casualty	$	396,598	$	186,603	$	157,887
Property		217,711		171,056		101,086
Other(1)		24,730		2,945		2,532
Total	$	639,039	$	360,604	$	261,505

(1) Primarily aviation, ocean marine and accident in 2002.

        Gross premiums written were $776.8 million, $476.6 million and $394.8 million, and net premiums written were $639.0 million, $360.6 million and $261.5 million in 2002, 2001 and 2000, respectively.

        Gross and net premiums written for 2002 include additional premiums as a result of a change in estimate during 2002 of ultimate premiums written for prior years, including $58.1 million and $44.2 million, respectively, of gross and net premiums written and $39.9 million of net premiums earned resulting from a second quarter revision in our estimate. Because premiums from ceding companies are typically reported on a delayed basis, we monitor and update, as appropriate, the estimated ultimate premiums written. During the

27

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

second quarter of 2002, our periodic review of estimated ultimate premiums written, comparing actual reported premiums to originally estimated premiums based on ceding company estimates, indicated that premiums written in recent years, primarily for 2001 and 2000 in the Traditional- and Specialty-Treaty units, were higher than originally estimated. This increase in net premiums earned in 2002 was completely offset by losses and LAE, and acquisition expenses.

        In 2001, gross and net premiums written include approximately $25 million of premiums (mainly property premiums in the Finite Risk and Financial Products unit) due under contractual provisions of certain of PMA Re’s assumed business where additional premiums were due to us because of the cession of World Trade Center losses to us by our reinsureds. These additional premiums were more than offset by approximately $30 million of ceded premiums payable by PMA Re to its retrocessionaires because PMA Re ceded a portion of its World Trade Center gross losses to these retrocessionaires. In 2000, net premiums written were reduced by ceded premiums of $52.1 million on existing retrocessional contracts covering higher than expected losses and LAE in 2000.

        Excluding the effects, as discussed above, of the change in our estimate of ultimate premiums written in 2002, the attack on the World Trade Center in 2001 and the additional ceded premiums on existing retrocessional contracts covering higher than expected losses and LAE in 2000:

• Gross premiums written increased approximately $267 million, or 59%, in 2002, compared to 2001, reflecting higher premiums in all of our business units. We have been able to obtain significant price increases and improved terms and conditions on business written across all underwriting units in 2002. For example, the Traditional- and Specialty-Treaty units, which comprise 61% of 2002 gross premiums written, experienced rate increases, as measured by the level of premium increase on renewed in-force business, of approximately 35%. Additionally, gross premiums written increased in 2002, compared to 2001, due to PMA Re’s increased writings of aviation, ocean marine and accident reinsurance business (included in Other in the tables on page 27) due to significantly improved market conditions in these lines.

        Gross premiums written increased approximately $57 million, or 14%, in 2001, compared to 2000. In addition to rate increases on business written in 2001, the increase in gross and net written premiums in 2001, compared to 2000, reflects higher premium volume for both property and casualty coverages written by the Finite Risk and Financial Products unit due primarily to increased demand for these coverages. Partially offsetting premium growth in 2001 was lower premium volume from PMA Re’s Specialty- and Traditional-Treaty units, which primarily write casualty lines of business. During 2001, approximately 35% of the beginning in-force business for the Traditional- and Specialty-Treaty units was non-renewed, largely reflecting non-renewal of accounts that did not meet our pricing guidelines. Despite the full year decline in writings for PMA Re’s Traditional and Specialty treaty coverages, the environment for writing these coverages on acceptable terms became increasingly more favorable as 2001 progressed due to significant price increases and better contract terms and conditions. This resulted in an increase in premiums written for the Traditional and Specialty treaty coverages for the second half of 2001, compared with the first half of the year. This increase continued into 2002 as discussed above.

• Ceded premiums increased by approximately $38 million in 2002, compared to 2001, and increased $5 million in 2001, compared to 2000. The increase in ceded premiums primarily reflects the increase in gross premiums written and an increase in premiums charged by retrocessionaires.

• Net premiums written increased approximately 63% in 2002 and 17% in 2001, mainly reflecting the trends discussed above for gross premiums written. Net premiums earned increased by approximately 48% in 2002 and 14% in 2001, compared to the immediately preceding year. Traditionally, trends in net premiums earned follow patterns similar to net premiums written. Generally, in periods of premium growth, the increase in net premiums written will be greater than the increase in net premiums earned, as was the case in 2002 and 2001. Premiums are earned principally on a pro rata basis over the coverage periods of the underlying policies. However, with respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustments may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premium in the period in which the adjustment is made.

28

P M A  C A P I T A L

Losses and Expenses

The components of the GAAP combined ratios are as follows:

	2002		2001		2000
Loss and LAE ratio	79.6	%	87.4	%	91.6	%
Expense ratio:
Acquisition expenses	24.3	%	20.9	%	26.1	%
Operating expenses	2.5	%	5.9	%	5.6	%
Total expense ratio	26.8	%	26.8	%	31.7	%
Combined ratio	106.4	%	114.2	%	123.3	%

PMA Re’s loss and LAE ratio for 2002 reflects a $50 million increase in net loss reserves in the fourth quarter of 2002 due to higher than expected losses and LAE in certain lines of business. 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 using various loss projection techniques, 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 needed to be increased by approximately $72 million in the fourth quarter, due to an $86 million increase in gross loss and LAE reserves, 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 net impact of prior year development to approximately $64 million. Partially offsetting the prior year development was a $14 million decrease in reserves for full year 2002 accident year business, mainly property reinsurance, reflecting better than expected underwriting results.

        The $64 million of higher than expected losses and LAE for prior accident years recorded in the fourth quarter contributed approximately 12 points to the loss and LAE ratio and to the combined ratio for 2002. In 2001, PMA Re’s loss and LAE ratio and combined ratio included approximately 9 points due to the unfavorable loss activity related to the attack on the World Trade Center. Absent these items, the improvement in underwriting results in 2002, compared to 2001, reflects the continued strong current year pricing environment, along with tighter terms and conditions, which resulted in us achieving more premium per unit of exposure in all segments of our reinsurance business.

        PMA Re’s loss and LAE ratio for 2000 reflected the recognition in the third quarter of 2000 of the effects of higher than expected losses and LAE in certain lines of business, primarily coverages for 1998 and 1999 written on a pro rata basis, partially offset by lower than expected losses and LAE for treaties covering losses occurring in accident years 1996 and prior. The increase in the estimate of gross loss and LAE reserves of $83 million primarily reflected higher than expected losses mainly in our 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 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. The increase in net incurred losses and LAE, combined with $35 million of ceded premiums and interest on funds held under existing retrocessional contracts covering the ceded losses, resulted in a pre-tax charge of approximately $60 million to PMA Re’s operating results in 2000.

        For additional information about PMA Re’s loss reserves, see page 34 and Note 4 to our Consolidated Financial Statements. For additional information, see Impact on 2001 Results from the September 11th Terrorist Attack on the World Trade Center on page 26.

        Net premiums earned, which are used in calculating the components of the expense ratio, were positively impacted by the change in our estimate of ultimate premiums written in 2002 and negatively impacted by the attack on the World Trade

29

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Center in 2001 and the higher than expected losses in 2000 discussed above. Excluding the effect of these items from the calculations of our acquisition and operating expense ratios:

• The acquisition expense ratio increased 3.9 points and the operating expense ratio decreased 3.2 points in 2002, compared to 2001. The increase in the acquisition expense ratio is primarily due to lower ceding commissions received by PMA Re on our retrocessional programs and a shift towards pro rata reinsurance business in the Finite Risk and Financial Products business unit, which generally has higher acquisition expense ratios and lower loss ratios than excess of loss business. The improvement in the operating expense ratio is primarily due to growth in our net premiums earned, combined with a lower level of operating expenses in 2002 compared to 2001. The lower operating expenses are primarily due to improved results related to our participation in a Lloyd’s of London syndicate and managing general agency.

• The acquisition expense ratio decreased 1.0 point and the operating expense ratio increased 1.1 points for 2001, compared to 2000. The lower acquisition expense ratio is primarily due to the shift in business towards excess of loss Finite Risk and Financial Products business, which generates a lower acquisition expense ratio than traditional treaty business. The increase in the operating expense ratio is due to operating expenses growing at a faster rate than earned premiums in 2001, which reflects net results related to our participation in a Lloyd’s of London syndicate and managing general agency.

Net Investment Income

Net investment income was $48.7 million, $45.4 million and $51.1 million in 2002, 2001 and 2000, respectively. The increase in 2002, compared to 2001, reflects higher interest earned of $9.7 million on funds held arrangements. In a funds held arrangement, the ceding company holds onto the premiums and losses are offset against these funds in an experience account. Because the reinsurer is not in receipt of the funds, the reinsurer earns interest on the experience fund balance at a predetermined credited rate of interest. The higher interest on funds held in 2002 was partially offset by lower investment earnings of $6.4 million on the invested asset portfolio. The lower investment earnings resulted from a drop in yields of approximately 100 basis points on an average invested asset base that increased approximately 5% during 2002. The decrease in net investment income in 2001, compared to 2000, is primarily due to lower investment yields.

The PMA Insurance Group

Summarized financial results of The PMA Insurance Group are as follows:

(dollar amounts in thousands)		2002		2001		2000
Net premiums written	$	452,276	$	355,547	$	268,839
Net premiums earned	$	410,266	$	346,574	$	252,348
Net investment income		35,613		39,444		47,969
Other revenues		14,694		11,240		10,099
Operating revenues		460,573		397,258		310,416
Losses and LAE		307,734		258,933		189,001
Acquisition and operating expenses		119,906		101,090		80,959
Dividends to policyholders		7,587		14,087		18,855
Total losses and expenses		435,227		374,110		288,815
Pre-tax operating income	$	25,346	$	23,148	$	21,601
Combined ratio		103.2%		105.5%		111.7%
Less: net investment income ratio		8.7%		11.4%		19.0%
Operating ratio		94.5%		94.1%		92.7%

Pre-tax operating income for The PMA Insurance Group improved to $25.3 million in 2002, compared to $23.1 million in 2001 and $21.6 million in 2000. The 10% and 7% increases in operating income were primarily due to improved underwriting results reflecting improved pricing and rate adequacy, partially offset by lower net investment income.

Premiums

The PMA Insurance Group’s premiums written are as follows:

(dollar amounts in thousands)		2002			2001			2000
Workers' compensation and
integrated disability:
Direct premiums written	$	397,639		$	315,611		$	246,617
Premiums assumed		13,338			6,331			3,620
Premiums ceded		(37,624	)		(29,771	)		(39,367	)
Net premiums written	$	373,353		$	292,171		$	210,870
Commercial Lines:
Direct premiums written	$	102,918		$	92,107		$	83,381
Premiums assumed		1,437			2,646			1,848
Premiums ceded		(25,432	)		(31,377	)		(27,260	)
Net premiums written	$	78,923		$	63,376		$	57,969
Total:
Direct premiums written	$	500,557		$	407,718		$	329,998
Premiums assumed		14,775			8,977			5,468
Premiums ceded		(63,056	)		(61,148	)		(66,627	)
Net premiums written	$	452,276		$	355,547		$	268,839

30

P M A  C A P I T A L

Direct workers’ compensation and integrated disability premiums written increased 26% in 2002 and 28% in 2001, compared to the immediately preceding year, primarily due to price increases of approximately 17% and 14% on workers’ compensation business and, to a lesser extent, an increase in the volume of risks underwritten for the workers’ compensation and integrated disability lines of business. In recent years, The PMA Insurance Group increased its writings of workers’ compensation premiums through focused marketing efforts in its principal marketing territories covering the eastern part of the United States. It has also increased the level of business written for insureds operating primarily in one of The PMA Insurance Group’s principal marketing territories but with some operations in other states.

        For workers’ compensation coverages, the premium charged on fixed-cost policies is primarily based upon the manual rates filed with the state insurance department. Manual rates in The PMA Insurance Group’s principal marketing territories for workers’ compensation increased on average approximately 13% in 2002, 10% in 2001 and 8% in 2000. These increases in manual rates generally reflect the effects of higher average medical and indemnity costs in recent years. Manual rate changes directly affect the prices that The PMA Insurance Group can charge for its rate sensitive workers’ compensation products, which include fixed cost and dividend policies that comprise approximately 58% of workers’ compensation premium for 2002.

        Direct writings of commercial lines of business other than workers’ compensation, such as commercial auto, general liability, umbrella, multi-peril and commercial property lines (collectively, "Commercial Lines"), increased by $10.8 million and $8.7 million in 2002 and 2001, compared to the immediately preceding year, primarily due to weighted average annual rate increases of approximately 28% in 2002 and 2001 for commercial auto, general liability and commercial multi-peril lines.

        Premiums ceded increased $1.9 million in 2002, compared to 2001 and decreased $5.5 million in 2001, compared to 2000. Premiums ceded for workers’ compensation and integrated disability increased by $7.9 million in 2002 as a result of the increase in direct premiums written as well as higher rates being charged by reinsurers. Premiums ceded for Commercial Lines were lower by $5.9 million in 2002, primarily as a result of higher retentions in the Commercial Lines’ reinsurance programs. The change in premiums ceded in 2001, compared to 2000, reflects a decrease of $9.6 million in premiums ceded for workers’ compensation, partially offset by an increase of $4.1 million in premiums ceded for Commercial Lines in 2001, compared to 2000. Premiums ceded for workers’ compensation decreased despite the growth in gross premiums written for workers’ compensation because The PMA Insurance Group increased its net retention by adding a deductible limit of approximately $10 million on its workers’ compensation reinsurance program, effective January 1, 2001. The increase in premiums ceded for Commercial Lines is primarily due to the increase in direct premiums written for these products.

        Net premiums written increased 27% in 2002 and 32% in 2001, compared to the immediately preceding year, mainly reflecting the trends discussed above for direct premiums written. Net premiums earned increased 18% in 2002 and 37% in 2001. Generally, trends in net premiums earned follow patterns similar to net premiums written adjusted for the customary lag related to the timing of premium writings within the year. Direct premiums are earned principally on a pro rata basis over the terms of the policies. However, with respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustment may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premium in the period in which the adjustment is made.

Losses and Expenses

The components of the GAAP combined ratios are as follows:

	2002		2001		2000
Loss and LAE ratio	75.0	%	74.7	%	74.9	%
Expense ratio:
Acquisition expenses	17.5	%	17.6	%	18.4	%
Operating expenses(1)	8.9	%	9.1	%	10.9	%
Total expense ratio	26.4	%	26.7	%	29.3	%
Policyholders' dividend ratio	1.8	%	4.1	%	7.5	%
Combined ratio(1)	103.2	%	105.5	%	111.7	%

(1) The expense ratio and the combined ratio exclude $11.3 million, $8.8 million and $7.0 million in 2002, 2001 and 2000, respectively, for direct expenses related to loss adjusting services and risk control fees included in other revenues, which are not included in premiums earned.

The loss and LAE ratio increased slightly in 2002, compared to 2001, and improved slightly in 2001, compared to 2000. The increase in 2002, compared to 2001, is primarily due to a higher current accident year loss and LAE ratio, partially offset by lower unfavorable prior year development and the favorable impact of net discount accretion. The improvement in 2001, compared to 2000, is primarily due to an improved current accident year loss ratio and the favorable impact of net discount accretion, partially offset by the unfavorable impact of changes in prior year development.

31

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

        The current accident year loss and LAE ratio increased by 1.0 point in 2002, compared to 2001, primarily due to increased reinsurance costs and higher workers’ compensation loss trends, partially offset by price increases. Medical cost inflation continues in the 8% range, which has primarily contributed to increased severity of workers’ compensation losses. The PMA Insurance Group continues its efforts to try to mitigate medical cost inflation primarily through its affiliation with a national preferred provider organization, an extensive medical review process and utilization of nurses, where appropriate. As discussed below, lower policyholder dividends are also used as a means to improve a policy’s overall profitability.

        The current accident year loss and LAE ratio improved by 1.7 points in 2001, compared to 2000, primarily reflecting price increases in workers’ compensation and integrated disability lines of business. The reduction in the loss and LAE ratios for workers’ compensation and integrated disability in 2001 also reflected a decline in claims frequency for workers’ compensation business.

        The PMA Insurance Group experienced $1.1 million and $2.9 million of unfavorable prior year development in 2002 and 2001, respectively, compared to favorable prior year development of $6.1 million in 2000. The lower unfavorable prior year development reduced the loss and LAE ratio by 0.5 points in 2002, compared to 2001. The change in prior year development unfavorably impacted the loss and LAE ratio by 3.2 points in 2001, compared to 2000. The unfavorable prior year development in 2002 and 2001 primarily 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.

        The loss and LAE ratio is negatively impacted by accretion of discount on prior year reserves and favorably impacted by the recording of discount for current year reserves. The net of these amounts is referred to as net discount accretion. The recording of discount essentially offset the accretion of discount on prior year reserves for 2002 and 2001, and resulted in a favorable impact to the loss and LAE ratio of 0.2 points year over year. The accretion of discount on prior year reserves exceeded the recording of discount for 2000. The change in net discount accretion in 2001, compared to 2000, favorably impacted the loss and LAE ratio by 1.7 points. The lower accretion of discount in 2001, compared to 2000, primarily reflects the transfer of substantially all of the assets and liabilities, including discounted loss reserves, of The PMA Insurance Group’s run-off operations to a third party under an assumption reinsurance agreement effective December 31, 2000. See Note 5 to the Consolidated Financial Statements for additional information.

        For additional information regarding The PMA Insurance Group’s loss reserves, see page 34.

        The expense ratio improved by 0.3 points in 2002 and by 2.6 points in 2001, compared to the immediately preceding year, as premium growth outpaced the increase in expenses.

        The policyholders’ dividend ratio was 1.8%, 4.1% and 7.5% in 2002, 2001 and 2000, respectively. Under policies that are subject to dividend plans, the customer may receive a dividend based upon loss experience during the policy period. The improvements in the policyholders’ dividend ratio occurred primarily because The PMA Insurance Group sold less business under dividend plans and wrote business under lower paying dividend plans. Lower dividend payments are effectively another form of price increase that contribute to the overall profitability of our workers’ compensation business.

Net Investment Income

Net investment income was $3.8 million lower in 2002 and $8.5 million lower in 2001, compared to the immediately preceding year. The decline in 2002, compared to 2001, primarily reflects a reduction in invested asset yields of approximately 50 basis points. The decline in 2001, compared to 2000, reflects a lower invested asset base due to the transfer of substantially all of the assets and liabilities of The PMA Insurance Group’s run-off operations to a third party effective December 31, 2000 under an assumption reinsurance agreement.

Run-off Operations

Summarized financial results of the Run-off Operations, formerly known as Caliber One, are as follows:

(dollar amounts in thousands)		2002			2001			2000
Net premiums written	$	14,563		$	53,674		$	16,043
Net premiums earned	$	30,113		$	46,232		$	28,799
Net investment income		1,140			3,124			4,424
Operating revenues		31,253			49,356			33,223
Losses and LAE		76,696			60,207			30,462
Acquisition and operating expenses		42,058			15,317			9,775
Total losses and expenses		118,754			75,524			40,237
Pre-tax operating loss	$	(87,501	)	$	(26,168	)	$	(7,014	)

32

P M A  C A P I T A L

In May 2002, we announced our decision to withdraw from the excess and surplus lines marketplace previously served by the Caliber One operating segment. On January 2, 2003, we completed the sale of the capital stock of Caliber One Indemnity Company and received gross proceeds of approximately $31 million, representing $3.5 million plus surplus of approximately $27 million. Pursuant to the 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 our decision to exit this business, the results of this segment are reported as Run-off Operations.

        In 2002, the Run-off Operations recorded pre-tax operating losses of $87.5 million. As a result of our decision to exit from and run off this business, the Run-off Operations recorded a charge of $43 million pre-tax. Components of the charge include expenses associated with the recognition of liabilities of approximately $27 million, including reinsurance costs of approximately $19 million, long-term lease costs of approximately $4 million and involuntary employee termination benefits of approximately $3 million. In addition, the $43 million charge includes approximately $16 million to write-down assets to their estimated net realizable value, including approximately $9 million for reinsurance, premiums and other receivables and non-cash charges of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill. The charge was included in Operating expenses (approximately $24 million) and Net premiums earned (approximately $19 million) in the Statement of Operations in 2002.

        During 2002, approximately 80 employees were terminated in accordance with our exit plan. All of the terminated employees worked for Caliber One, primarily in the underwriting area. Approximately 17 positions, primarily claims, remain after the terminations. Involuntary employee termination benefits of $1.9 million were paid during 2002. The remainder will be paid in 2003.

        Pre-tax operating results for 2002 also include net unfavorable prior year loss 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 this segment. 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.

        The Run-off Operations recorded a pre-tax operating loss of $26.2 million and $7.0 million for 2001 and 2000, respectively. The results for 2001 include net 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. As a result of its reserve reviews conducted in 2001, the Run-off Operations revised its estimate of ultimate expected claim activity and, accordingly, increased its estimate of ultimate losses, substantially all for accident years 1999 and 2000.

        Operating results for the Run-off Operations for 2000 reflect 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 and 2000 exposures. The loss and LAE ratio for 2000 also reflects the ceding of a substantial amount of losses and LAE from the professional liability and commercial automobile lines of business to reinsurers. For additional information regarding loss reserves, see Loss Reserves on page 34.

33

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Loss Reserves and Reinsurance

Loss Reserves

Our consolidated unpaid losses and LAE, net of reinsurance, at December 31, 2002 and 2001 were $1,184.3 million and $1,143.1 million, net of discount of $103.8 million and $113.7 million, respectively. Included in the consolidated unpaid losses and LAE are amounts related to our workers’ compensation claims of $368.7 million and $363.5 million, net of discount of $82.7 million and $91.0 million at December 31, 2002 and 2001, respectively. The discount rate used was approximately 5% at December 31, 2002 and 2001.

        Unpaid losses and LAE reflect management’s best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to us. 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 us and our payment of that loss. In general, liabilities for reinsurers become known more slowly than for primary insurers and are subject to more unforeseen development and uncertainty. As part of the process for determining our unpaid losses and LAE, actuarial models are used that analyze historical data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, changes in social attitudes and economic conditions. See the discussion under Losses and Expenses beginning on page 29 and Run-off Operations beginning on page 32 for additional information regarding higher than expected losses and LAE during the past three years at PMA Re and the Run-off Operations.

        Management believes that its unpaid losses and LAE are fairly stated at December 31, 2002. However, estimating the 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.

        At December 31, 2002, 2001 and 2000, our 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). At December 31, 2002, 2001 and 2000, our 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).

        Estimating reserves for asbestos and environmental exposures continues to be difficult because of several factors, including: (i) evolving methodologies for the estimation of the liabilities; (ii) lack of reliable historical claim data; (iii) uncertainties with respect to insurance and reinsurance coverage related to these obligations; (iv) changing judicial interpretations; and (v) changing government standards. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts, existing case law and generally accepted actuarial methodologies. However, due to changing interpretations by courts involving coverage issues, the potential for changes in federal and state standards for clean-up and liability, as well as issues involving policy provisions, allocation of liability 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.

        See Critical Accounting Estimates — Unpaid Losses and Loss Adjustment Expenses on page 45 for additional information. In addition, see the Cautionary Statements on page 48 and Business – Risk Factors in our 2002 Form 10-K for a discussion of factors that may adversely impact our losses and LAE in the future.

34

P M A  C A P I T A L

Reinsurance

Under our reinsurance and retrocessional coverages in place during 2002, 2001 and 2000, we ceded earned premiums totaling $300.6 million, $243.4 million and $278.6 million, and we ceded earned losses and LAE of $223.2 million, $359.6 million and $308.8 million to reinsurers and retrocessionaires. The increase in ceded losses in 2001, compared to 2000, is primarily related to losses from the attack on the World Trade Center. See Impact on 2001 Results from the September 11th Terrorist Attack on the World Trade Center on page 26 for additional information.

        At December 31, 2002 and 2001, we had amounts receivable from our reinsurers and retrocessionaires totaling $1,295.1 million and $1,210.8 million, respectively. Approximately $37 million and $36 million, or 3% of these amounts are due to us on losses we have already paid at December 31, 2002 and 2001. The remainder of the reinsurance receivables relate to unpaid claims.

        At December 31, 2002, we had reinsurance receivables due from the following unaffiliated reinsurers in excess of 5% of our shareholders’ equity:

(dollar amounts in thousands)	Reinsurance Receivables		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 LondonLife & 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 at December 31, 2002, approximately 91%, were due from reinsurers rated "A-" or better by A.M. Best and is broken down as follows: "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. See Critical Accounting Estimates – Reinsurance Receivables on page 46 and Note 5 to our Consolidated Financial Statements for additional information.

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

	Retention			Limits (1)
PMA Re
Per Occurrence:
Casualty lines	$	5.0 million		$	45.0 million
Property lines	$	10.0 million		$	40.0 million
Per Risk:
Property lines	$	1.0 million		$	4.0 million
Casualty lines	$	1.5 million		$	6.0 million
The PMA Insurance Group
Per Occurrence:
Workers' compensation	$	250,000	(2)	$	104.8 million
Per Risk:
Property lines(3)	$	500,000		$	19.5 million
Auto physical damage	$	500,000		$	2.5 million
Other casualty lines(4)(5)	$	500,000		$	4.5 million

(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.

35

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

        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, the Company supplemented its 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 the Company funded in 2002. Cessions of losses under these contracts may require the Company to cede additional premiums ranging from 40% to 50% of ceded losses depending on the level of such losses. For additional information regarding our reinsurance arrangements with Trabaja, see Business – Reinsurance and Retrocessional Protection in our 2002 Form 10-K.

        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 PMARe to mitigate the severity of the catastrophe loss to PMA Re. 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 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. 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.

        See Note 5 to our Consolidated Financial Statements for additional discussion.

Terrorism

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 covered industry-wide losses. TRIA applies to commercial lines of property and casualty insurance, including workers’ compensation insurance, offered by The PMA Insurance Group, 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

36

P M A  C A P I T A L

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 risks.

        Although, as discussed above, we have refined our underwriting processes to account for terrorism risks and TRIA may mitigate the potential impact of terrorism losses on our results, because of TRIA’s uncertain application, the amount of terrorism losses that The PMA Insurance Group must retain under TRIA and the fact that TRIA does not apply to, and we do not have terrorism exclusions in all of our reinsurance business, future terrorist attacks may result in losses that could have a material adverse effect on our financial condition, results of operations and liquidity. For additional information regarding the underwriting criteria of our operating segments, see Business – PMARe, Underwriting and The PMA Insurance Group, Underwriting in our 2002 Form 10-K.

Corporate and Other

The Corporate and Other segment includes unallocated investment income and expenses, including debt service, as well as the results of certain of our real estate properties. This segment had pre-tax operating losses of $14.3 million, $6.3 million and $19.1 million in 2002, 2001 and 2000, respectively. During 2001, we sold certain real estate properties for net proceeds totaling $14.4 million, resulting in a pre-tax gain of $9.8 million, which is recorded in other revenues. Absent the gain on sale of real estate in 2001, pre-tax operating results for Corporate and Other improved in 2002 and 2001, compared to the immediately preceding year, primarily due to declines in interest expense of $3.3 million and $5.3 million during 2002 and 2001, respectively. The lower interest expense reflects a lower average amount of debt outstanding and lower interest rates throughout the years.

Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure sufficient cash to meet its contractual obligations and operating needs. At the holding company level, our primary sources of liquidity are dividends from subsidiaries, net tax payments received from subsidiaries and capital raising activities (both debt and equity). We utilize cash to pay debt obligations, including interest costs; dividends to shareholders; taxes to the federal government; and corporate obligations. In addition, we utilize cash resources to capitalize subsidiaries and to repurchase shares of our common stock from time to time.

        Our domestic insurance subsidiaries’ ability to pay dividends to us is limited by the insurance laws and regulations of Pennsylvania. All of our domestic insurance entities are owned by PMA Capital Insurance Company ("PMACIC"). As a result, dividends from The PMA Insurance Group’s Pooled Companies may not be paid directly to PMA Capital Corporation. Instead, only PMACIC, a Pennsylvania domiciled company, may pay dividends directly to PMA Capital Corporation. Approximately $58 million of dividends are available to be paid by PMACIC to PMA Capital Corporation in 2003 without the prior approval of the Pennsylvania Insurance Commissioner. As of December 31, 2002, The PMA Insurance Group’s Pooled Companies can pay up to $24.6 million in dividends to PMACIC during 2003. Dividends received in the past three years from subsidiaries were $28.0 million, $29.6 million and $36.0 million in 2002, 2001 and 2000, respectively, and represent approximately 50% of the maximum dividend capacity in each year.

        Net tax payments received from subsidiaries were $12.0 million, $2.4 million and $6.4 million in 2002, 2001 and 2000, respectively.

        In 2002 and 2001, we raised $244 million of capital through two public capital markets transactions. In October 2002, we issued $86.25 million of 4.25% convertible senior debentures ("Convertible Debt") due September 30, 2022 from which we received net proceeds of approximately $83.7 million. We used the proceeds from this offering primarily to increase the capital and surplus of our reinsurance and insurance subsidiaries. See Note 6 to our Consolidated Financial Statements for additional information. In December 2001, we issued 9,775,000 shares of Class A Common stock, for net proceeds of approximately $158 million. We used the net proceeds from this issuance to contribute additional capital to our reinsurance subsidiary and to repay $62.5 million of our outstanding debt maturing at year-end 2001 under our bank credit facility.

37

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

        At December 31, 2002, we had $65 million of outstanding debt representing borrowings under our new credit facility ("Credit Facility"), which was executed in September 2002 and replaced our existing bank facility that was scheduled to mature at December 31, 2002. The proceeds from the Credit Facility were used to repay the existing bank facility, which had $62.5 million outstanding. The Credit Facility will mature in September 2003, or we may convert the outstanding principal amount into a term loan maturing June 30, 2004, if we meet certain financial performance targets. At December 31, 2002, the interest rate on the utilized portion of the Credit Facility was 3.6%, which equals the London InterBank Offered Rate ("LIBOR") plus 1.8%. The Credit Facility carries a facility fee on any unutilized portion of 0.375% per annum. Effective March 2003, we amended the Credit Facility to reduce it to $45 million in borrowing capacity and repaid $20 million. In addition, the March 2003 amendment increased the interest rate to LIBOR plus 2.125%. See Note 6 to our Consolidated Financial Statements for additional information.

        During 2002, 2001 and 2000, we incurred $3.3 million, $6.5 million and $11.9 million of interest expense, and $2.1 million, $7.1 million and $11.8 million was paid in each respective year.

        We maintain a committed facility of $50.0 million for letters of credit (the "Letter of Credit Facility"), which we utilize primarily for collateralizing reinsurance obligations of our insurance subsidiaries. As of December 31, 2002, we had $15.7 million outstanding in letters of credit under the Letter of Credit Facility.

        During 2002, 2001 and 2000, we paid dividends to shareholders of $12.1 million, $9.0 million and $8.0 million, respectively. The increase in dividends paid in 2002 is due to the additional shares outstanding resulting from our December 2001 issuance of 9,775,000 shares of Class A Common stock. Our dividends to shareholders are restricted by certain of our debt agreements. Under the most restrictive debt covenant, PMA Capital would be able to pay dividends of approximately $25 million in 2003.

        We repurchased 90,000 shares, 299,000 shares and 989,000 shares of our Class A Common stock at a cost of $1.7 million, $5.3 million and $18.4 million in 2002, 2001 and 2000, respectively. Since the inception of our share repurchase program, we have repurchased a total of approximately 3.9 million shares at a cost of $74.6 million. Our remaining share repurchase authorization at December 31, 2002 is $15.4 million. Decisions regarding share repurchases are subject to prevailing market conditions and an evaluation of the costs and benefits associated with alternative uses of capital.

        In 2002 and 2001, we increased the capital and surplus of our insurance subsidiaries through providing funds totaling $73.5 million and $58.0 million, respectively.

        In 2002 and 2001, we contributed $16.5 million and $9.0 million, respectively, to our qualified pension plan in order to ensure that the plan assets were at least equal to our accumulated benefit obligation at the end of each year. If plan assets were not at least equal to our accumulated benefit obligation at the end of any particular year, then the company would recognize a reduction in Shareholders’ equity. In 2002, the Company was not required to make any contribution to the pension plan under the minimum funding requirements of the Employee Retirement Income Security Act ("ERISA") of 1974. We made the contributions in 2002 and 2001 due to a significant decline in the market value of our plan assets, stemming from the broad market declines in the bond and equity markets over the past three years. Our plan assets are composed of 65% fixed maturities and 35% equities at December 31, 2002, and 45% fixed maturities and 55% equities at December 31, 2001. We currently estimate that the pension plan’s assets will generate a 9% long-term rate of return, which we believe is a reasonable long-term rate of return, in part, because of the historical performance of the broad financial markets. For example, for the 20-year period from 1982 to 2002, the S&P 500 Index and the Lehman Bond Aggregate Index have returned 14.0% and 9.8% on average. We believe that this is a reasonable period of time over which to evaluate market returns as it approximates the current duration of the pension plan’s liabilities. Pension plan funding is currently expected to be insignificant in 2003 assuming plan assets achieve the expected long-term rate of return of 9% in 2003. If plan assets were to decline by 10% in 2003, then we would need to contribute approximately $6.4 million to our pension plan assets by year-end 2003 to ensure that the plan assets remain at least equal to the accumulated

38

P M A  C A P I T A L

benefit obligation. However, no contribution is expected to be required under ERISA in 2003. Pension expense in 2002, 2001 and 2000 was $3.0 million, $1.9 million and $686,000, respectively. We currently expect that 2003 pension costs will increase by $1.0 million, or 33%, over 2002 costs due to the continued amortization of unrecognized actuarial losses primarily from lower than expected returns on plan assets over the previous three years.

        In addition to the $45 million of debt scheduled to mature in September 2003, we have contractual obligations to pay $7.7 million in operating lease payments, net of sublease rentals of $242,000 in 2003. Our future commitments for operating lease payments are $5.2 million in 2004, $4.2 million in 2005 and $21.8 million thereafter, net of sublease rentals of $1.5 million in 2004, $1.5 million in 2005 and $14.1 million thereafter. Other than these future commitments, we have $86.25 million of convertible debt due to mature in 2022.

        We have provided guarantees of $7.0 million related to loans on properties in which we have an interest. We have also provided guarantees of $2.2 million related to an executive loan program for officers of the Company with a financial institution. The program expires on December 31, 2003.

        Under the terms of the sale of one of our insurance subsidiaries in 1998, we have agreed to indemnify the buyer, 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 the former subsidiary were established. If the actual claim payments in the aggregate are less than the estimated payments upon which the loss reserves have been established, we will participate in such favorable loss reserve development.

        We believe that our available sources of funds will provide sufficient liquidity to meet our short-term and long-term obligations. However, because we depend primarily upon dividends from our operating subsidiaries to meet our short-term and long-term obligations, any event that has a material adverse effect on the results of operations of our insurance subsidiaries could affect our liquidity and ability to meet our contractual obligations and operating needs. In addition, our ability to

refinance our existing debt obligations or raise additional capital is dependent upon several factors, including conditions with respect to both the equity and debt markets and the ratings of any securities that we may issue as established by the principal rating agencies. Our ability to refinance our outstanding debt obligations, as well as the cost of such borrowings, could be adversely affected by any future ratings downgrade. See Business–Risk Factors in our 2002 Form 10-K for additional discussion.

        We currently believe that the existing capital structure is adequate for our current and near term needs, but we believe that additional capital and longer-term capital would provide better support for our growth objectives. Given our debt-to-total capital ratio of 20%, we believe that we have the financial flexibility to provide the necessary capital and support to our insurance businesses so that they are in position to participate in what we believe will be a favorable property and casualty insurance market in 2003. We continually monitor the capital structure in light of developments in our businesses, and our present assessment could change as we become aware of new opportunities and challenges in our businesses.

Investments

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.

39

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Our investments at December 31 were as follows:

	2002				2001
(dollar amounts in millions)	Fair Value		Percent		Fair Value		Percent
U.S. Treasury securities and obligations of U.S. Government agencies	$	329.4		18%	$	266.0		15%
States, political subdivisions and foreign government securities		11.1		1%		17.1		1%
Corporate debt securities		632.9		35%		599.0		34%
Mortgage-backed and other asset-backed securities		556.5		30%		543.2		30%
Total fixed maturities available for sale		1,529.9		84%		1,425.3		80%
Short-term investments		298.7		16%		350.0		20%
Total	$	1,828.6		100%	$	1,775.3		100%

Our investment portfolio includes only fixed maturities, short-term investments and cash. The portfolio is diversified and does not contain any significant concentrations in single issuers other than U.S. Treasury and agency obligations. Our largest exposure to a single corporate issuer is $25 million, or 1% of total invested assets. In addition, we do not have a significant concentration of our 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 the financing subsidiaries of automotive manufacturers. Substantially all of our investments are dollar denominated as of December 31, 2002.

        Mortgage-backed and other asset-backed securities in the table above include collateralized mortgage obligations ("CMOs") of $181.2 million and $125.6 million carried at fair value as of December 31, 2002 and 2001. CMO holdings are concentrated in securities with limited prepayment, extension and default risk, such as planned amortization class bonds.

        As of December 31, 2002, the duration of our investments that support the insurance reserves was 2.6 years and the duration of our insurance reserves was 3.4 years. The difference in the duration of our investments and our insurance reserves reflects our decision to maintain a shorter asset duration due to our current expectation that interest rates will rise throughout 2003.

        We determine the market value of each fixed income security using prices obtained in the public markets. There is only one security, which was carried at its fair value of $14.6 million at December 31, 2002, whose fair value is not reliably determined from these public market sources. For this security, we utilized the services of our outside professional investment asset manager to determine the fair value. The asset manager determines the fair value of the security by using a discounted present value of the estimated future cash flows (interest and principal repayment).

        The net unrealized gain on our investment assets at December 31, 2002 was $52.0 million, or 2.9% of the amortized cost basis. The net unrealized gain included gross unrealized gains of $64.5 million and gross unrealized losses of $12.5 million.

        At December 31, our fixed maturities had an overall average credit quality of AA, broken down as follows:

	2002				2001
(dollar amounts in millions)	Fair Value		Percent		Fair Value		Percent
U.S. Treasury securities and AAA	$	874.6		58%	$	793.2		56%
AA		64.2		4%		87.8		6%
A		325.9		21%		263.8		19%
BBB		250.9		16%		257.8		18%
Below investment grade		14.3		1%		22.7		1%
Total	$	1,529.9		100%	$	1,425.3		100%

Ratings as assigned by Standard and Poor’s. Such ratings are generally assigned at the time of the issuance of the securities, subject to revision on the basis of ongoing evaluations.

40

P M A  C A P I T A L

Our investment income and net effective yield were as follows:

(dollar amounts in thousands)		2002		2001		2000
Average invested assets(1)	$	1,716.1	$	1,648.2	$	1,742.8
Investment income(2)	$	87.4	$	98.6	$	112.7
Net effective yield(3)		5.09%		5.98%		6.47%

(1) Average invested assets throughout the year, at amortized cost, excluding amounts related to securities lending activities.

(2) Gross investment income less investment expenses and before interest credited on funds held treaties of $2.9 million, $12.0 million and $10.6 million in 2002, 2001 and 2000, respectively. Excludes net realized investment gains and losses and amounts related to securities lending activities.

(3) Investment income for the period divided by average invested assets for the same period.

We review the securities in our fixed income portfolio on a periodic basis to specifically review individual securities for any meaningful decline in market value below amortized cost. Our analysis addresses all securities whose fair value is significantly below amortized cost at the time of the analysis, with additional emphasis placed on securities whose fair value has been below amortized cost for an extended period of time. As part of our periodic review process, we utilize the expertise of our outside professional asset managers who provide us with an updated assessment of each issuer’s current credit situation based on recent issuer activities, such as quarterly earnings announcements or other pertinent financial news for the company, recent developments in a particular industry, economic outlook for a particular industry and rating agency actions.

        In addition to company-specific financial information and general economic data, we also consider the ability and intent of our insurance operations to hold a particular security to maturity or until the market value of the bond recovers to a level in excess of the carrying value. Our ability and intent to hold securities to such time is evidenced by our strategy and process to match the cash flow characteristics of the invested asset portfolio, both interest income and principal repayment, to the actuarially determined estimated liability pay-out patterns of each insurance company’s claims liabilities. As a result of this periodic review process, we have determined that currently there is no need to sell any of the fixed maturity investments prior to their scheduled or expected maturity to fund anticipated claim payments.

        As of December 31, 2002, our investment asset portfolio had gross unrealized losses of $12.5 million. For securities that were in an unrealized loss position at December 31, 2002, the length of time that such securities have been in an unrealized loss position, as measured by their month-end market values, is as follows:

(dollar amounts in millions)	Number of Securities		Fair Value		Amortized Cost		Unrealized Loss		Percentage Fair Value to Amortized Cost
Less than 6 months		39	$	85.8	$	89.6	$	3.8		96	%
6 to 9 months		9		22.1		22.6		0.5		98	%
9 to 12 months		3		4.0		4.2		0.2		95	%
More than 12 months		19		46.9		54.9		8.0		85	%
Subtotal		70		158.8		171.3		12.5		93	%
U.S. Treasury and
Agency securities		5		0.6		0.6		--		100	%
Total		75	$	159.4	$	171.9	$	12.5		93	%

        Of the 19 securities that have been in an unrealized loss position for more than 12 months, 18 securities have an unrealized loss of less than $1 million and/or less than 20% of their amortized cost. These 18 securities have an average unrealized loss per security of approximately $140,000. In addition, 12 of these securities have fair values at December 31, 2002 that are 90% or more of the amortized cost basis. There is only one security out of the 19 with an unrealized loss in excess of $1 million at December 31, 2002, and it has a market value of $14.6 million and a cost of $20.0 million. The security is a structured security backed by a U.S. Treasury Strip, and is rated AAA. This security matures in 2011 at a value of $20 million, and we have both the ability and intent to hold this security until it matures.

41

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

        The contractual maturity of securities in an unrealized loss position at December 31, 2002 was as follows:

(dollar amounts in millions)	Fair Value		Amortized Cost		Unrealized Loss		Percentage Fair Value to Amortized Cost
2003	$	3.9	$	3.9	$	--		100	%
2004 - 2007		42.5		42.9		0.4		99	%
2008 - 2012		31.0		32.3		1.3		96	%
2013 and later		32.0		33.9		1.9		94	%
Mortgage-backed and other asset-backed securities		49.4		58.3		8.9		85	%
Subtotal		158.8		171.3		12.5		93	%
U.S. Treasury and Agency securities		0.6		0.6		--		100	%
Total	$	159.4	$	171.9	$	12.5		93	%

For all securities that are in an unrealized loss position for an extended period of time, we perform an evaluation of the specific events attributable to the market decline of the security. We consider the length of time and extent to which the security’s market value has been below cost as well as the general market conditions, industry characteristics and the fundamental operating results of the issuer to determine if the decline is due to changes in interest rates, changes relating to a decline in credit quality of the issuer, or general market conditions. We also consider as part of the evaluation our intent and ability to hold the security until its market value has recovered to a level at least equal to the amortized cost. Where we determine that a security’s unrealized loss is other than temporary, a realized loss is recognized in the period in which the decline in value is determined to be other than temporary.

        At December 31, 2002, all of our fixed income investments were publicly traded and all were rated by at least one nationally recognized credit rating agency. In addition, at December 31, 2002, $14.3 million, or 0.8%, of our total investments were below investment grade, of which $5.1 million of these below investment grade investments were in an unrealized loss position, which totaled $500,000.

        During 2002, we determined there were other than temporary declines in market value of securities issued by 11 companies, resulting in impairment charges of $23.8 million pre-tax, including $14.2 million for WorldCom. The write-downs were measured based on public market prices and our expectation of the future realizable value for the security at the time we determined the decline in value was other than temporary. In 2001, we recognized an impairment loss of $1.6 million pre-tax resulting from one issuer filing for bankruptcy. We did not recognize any impairment losses during 2000. See Critical Accounting Estimates — Investments on page 46 for additional information.

Net Realized Investment Gains and Losses

We recorded pre-tax net realized investment losses of $16.1 million in 2002, compared to pre-tax net realized investment gains of $8.0 million and $12.0 million in 2001 and 2000, respectively. During 2002, there were gross realized gains and losses of $18.7 million and $34.8 million, respectively. Included in the gross losses of $34.8 million were $23.8 million of impairment losses on fixed income securities, primarily corporate bonds issued by telecommunications and energy companies. Realized losses also include $7.3 million of realized losses on sales of securities where we reduced and/or eliminated our positions in certain issuers due to credit concerns. To a lesser extent, realized losses also include sales reducing our per issuer exposure and general duration management trades.

        Net realized investment gains for 2001 reflect the sale of securities because of our decision to shift the mix of our invested asset portfolio from U.S. Treasury and agency securities to corporate bonds and structured securities as a means to enhance our portfolio’s yield. As a result of investment sales pursuant to this strategy and the declining interest rates in 2001, we recorded net realized investment gains in 2001. During 2000, realized investment gains primarily reflect the sale of equity securities, which had reached our targeted price level.

        See Business — Investments, in our 2002 Form 10-K, and Notes 2B and 3 to our Consolidated Financial Statements for additional discussion about our investment portfolio.

42

P M A  C A P I T A L

Market Risk of Financial Instruments

A significant portion of our assets and liabilities are financial instruments that are subject to the market risk of potential losses from adverse changes in market rates and prices. Our primary market risk exposures relate to interest rate risk on fixed rate domestic medium-term instruments and, to a lesser extent, domestic short- and long-term instruments. To manage our exposure to market risk, we have established strategies, asset quality standards, asset allocations and other relevant criteria for our investment portfolio. In addition, invested asset cash flows are structured after considering projected liability cash flows with actuarial models. All of our financial instruments are held for purposes other than trading. As stated above, our portfolio does not contain a significant concentration in single issuers other than U.S. Treasury and agency obligations. In addition, we do not have a significant concentration of our investments in any single industry segment other than finance companies, which comprise approximately 15% of invested assets at December 31, 2002. Included in this industry segment are financial institutions, including the financing subsidiaries of automotive manufacturers. See Notes 2B, 3, 6 and 11 to our Consolidated Financial Statements for additional information about financial instruments.

        Caution should be used in evaluating our overall market risk from the information below, since actual results could differ materially because the information was developed using estimates and assumptions as described below, and because insurance liabilities and reinsurance receivables are excluded in the hypothetical effects (insurance liabilities represent 70% of our total liabilities and reinsurance receivables represent 32% of our total assets).

        The hypothetical effects of changes in market rates or prices on the fair values of financial instruments as of December 31, 2002, excluding insurance liabilities and reinsurance receivables on unpaid losses because such insurance related assets and liabilities are not carried at fair value, would have been as follows:

• If interest rates had increased by 100 basis points, there would have been no significant change in the fair value of our debt. The change in fair values was determined by estimating the present value of future cash flows using models that measure the change in net present values arising from selected hypothetical changes in market interest rates.

• If interest rates had increased by 100 basis points, there would have been a net decrease of approximately $64 million in the fair value of our investment portfolio. The change in fair values was determined by estimating the present value of future cash flows using various models, primarily duration modeling.

Other Matters

Environmental Factors

Our businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards and reinterpretations of insurance contracts long after the policies were written in an effort to provide coverage unanticipated by us. The eventual effect on us of the changing environment in which we operate remains uncertain.

Comparison of SAP and GAAP Results

Results presented in accordance with GAAP vary in certain respects from results presented in accordance with statutory accounting practices prescribed or permitted by the Pennsylvania Insurance Department, (collectively "SAP"). Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners publications. Permitted SAP encompasses all accounting practices that are not prescribed. Our domestic insurance subsidiaries use SAP to prepare various financial reports for use by insurance regulators. See Note 17 to our Consolidated Financial Statements for additional information.

Recent Accounting Pronouncements

In January, 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We account for stock-based employee compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, we have applied the disclosure provisions of SFAS No. 148 to our Consolidated Financial Statements as of and for the year ended December 31, 2002. See Note 2K to our Condolidated Financial Statements for additional information.

43

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

        In May 2002, we announced our decision to withdraw from the excess and surplus lines marketplace previously served by our Caliber One operating segment. We accounted for the discontinuation of this business under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which are effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and establishes a single accounting model for the disposal of long-lived assets and asset groups.

        In January 2003, we sold the capital stock of Caliber One Indemnity Company. Pursuant to the agreement of sale, we have retained all assets and liabilities related to in-force policies and outstanding claim obligations and will runoff such in-force policies and claim obligations. Accordingly, under SFAS No. 144, the results of operations of this segment are reported in results from continuing operations, and will continue to be reported as such until all in-force policies and outstanding claim obligations are satisfied, at which point we will report the results of the Run-off segment as discontinued operations. The long-lived assets of this segment were tested for impairment in the second quarter of 2002 in accordance with the provisions of SFAS No. 144. See Note 14 to our Consolidated Financial Statements for additional information.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Accordingly, this standard does not apply to our exit from the excess and surplus lines business, which we announced in May 2002.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires a company to assess if consolidation of an entity is appropriate based upon its variable economic interests in a variable interest entity ("VIE"). The initial determination of whether an entity is a VIE is required to be made on the date at which a company becomes involved with the entity. A VIE is an entity in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A company shall consolidate a VIE if the company has a variable interest that will absorb a majority of the VIE’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur or both.

        FIN 46 is effective for new VIEs established subsequent to January 31, 2003, and for existing VIEs as of July 1, 2003. FIN 46 also requires the disclosure of certain information related to VIEs in which an entity holds a significant variable interest. We are currently assessing the impact that implementing FIN 46 may have on our consolidated financial statements. In this regard, we will be evaluating whether Trabaja Reinsurance Company ("Trabaja") is a variable interest entity as defined in FIN 46 and, if so, whether our business activities with Trabaja would warrant consolidation and/or additional disclosure in our future financial statements. We expect that any impact from implementing FIN 46 would be a non-cash adjustment recorded in our consolidated financial statements as a cumulative effect adjustment no later than the third quarter of 2003. Any such cumulative effect adjustment may be material to our consolidated financial condition and results of operations. However, there will be no effect on the statutory capital of our insurance subsidiaries. See Note 5 to our Consolidated Financial Statements for additional information relating to our business activities with Trabaja.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures, even when the likelihood of making payments under the guarantee is remote. Generally, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party. The recognition provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. We are currently assessing the impact of adopting FIN 45, and we currently do not expect that it will have a material adverse effect on our consolidated financial condition, results of operations or liquidity.

44

P M A  C A P I T A L

        Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 142, we no longer amortize goodwill, but instead test it periodically for impairment. As of December 31, 2002, we had approximately $3.0 million of goodwill, which is included in Other assets on the balance sheet. Amortization of goodwill was $960,000, or $0.04 per basic and diluted share, for 2001, and $220,000, or $0.01 per basic and diluted share, for 2000. In 2002, we recognized an impairment charge of $1.3 million associated with goodwill at the Run-off Operations, which is included in Operating expenses.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. Some of the accounting policies permitted by GAAP require us to make estimates of the amounts of assets and liabilities to be reported in our Consolidated Financial Statements. We have provided a summary of all of our significant accounting policies in Note 2 to our Consolidated Financial Statements. We recommend that you read all of these policies.

        The following discussion is intended to provide you with an understanding of our critical accounting estimates, which are those accounting estimates that we believe are

most important to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective and complex judgments.

Unpaid Losses and Loss Adjustment Expenses

At December 31, 2002, we estimated that under all insurance policies and reinsurance contracts issued by our insurance businesses the ultimate amount that we would have to pay for all events that occurred as of December 31, 2002 is $2,449.9 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. Our estimate also includes amounts for losses occurring prior to December 31, 2002 whether or not these claims have been reported to us.

        In arriving at the estimate of unpaid claims, our actuaries performed detailed studies of historical data for incurred claims, reported claims and paid claims for each major line of business and by accident year. The review of this data results in patterns and trends that are analyzed using actuarial models that assume that historical development patterns will be predictive of future patterns. Along with this historical data, our actuaries consider the impact of legal and legislative developments, regulatory trends, changes in social attitudes and economic conditions. From this assessment, we develop various sets of assumptions that we believe are reasonable, valid and can be relied upon to help us predict future claim trends. These assumptions are then applied to various actuarially accepted methods and techniques, which provide us with a range of possible outcomes of the ultimate claims to be paid by us in the future. Management uses its judgment to select the best estimate of the amounts needed to pay all future claims and related expenses from this range of possible outcomes. Under GAAP, we record a liability on our balance sheet equal to our best estimate of the ultimate claims liability.

        It is important to realize and understand that the process of 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 to us. As additional experience and data become available regarding claim 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, we revise our estimates accordingly. We believe that our liability for unpaid losses and loss adjustment expenses is fairly stated at December 31, 2002. However, if our future estimate of ultimate unpaid losses is larger than the recorded amounts, we would have to increase our reserves. Any increase in reserves would result in a charge to earnings in the period recorded. Accordingly, any reserve adjustment could have a material adverse effect on our financial condition, results of operations and liquidity.

        As outlined above, our loss and LAE reserves at December 31, 2002 have been established using generally accepted actuarial techniques and are based on numerous critical assumptions and informed judgments about reported and paid claim trends and their implication on our estimate of the ultimate loss for reported and incurred but unreported claims at the balance sheet date. We have established a loss and LAE reserve for unpaid claims at December 31, 2002 that we believe is a reasonable and adequate provision based on the information available to us. If we revised our assessment of loss reporting and claims payment patterns because of changes in those patterns, such that it resulted in a 1% change in our net loss and LAE reserves, then our pre-tax operating income would change by approximately $12 million.

        For additional information about our liability for unpaid losses and LAE, see Notes 2D and 4 to our Consolidated Financial Statements as well as the discussion on page 34 of this Management’s Discussion and Analysis.

45

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Investments

All investments in our portfolio are carried at market value. For 99% of our investments, we determine the market value using prices obtained in the public markets, both primary and secondary markets. These market prices reflect publicly reported values of recent purchase and sale transactions for each specific, individual security. Therefore, we believe that the reported fair values for our investments at December 31, 2002 reflect the value that we could realize if we sold these investments in the open market at that time.

        As part of determining the market value for each specific investment that we hold, we evaluate each issuer’s ability to fully meet their obligation to pay all amounts, both interest and principal, due in the future. Because we have invested in fixed income obligations with an average credit quality of AA, and all of our investments are currently meeting their obligations with respect to scheduled interest income and principal payments, we believe that we will fully realize the value of our investments. However, future general economic conditions and/or specific company performance issues may cause a particular issuer, or group of issuers in the same industry segment, to become unable to meet their obligation to pay principal and interest as it comes due. If such events were to occur, then we would evaluate our ability to fully recover the recorded value of our investment. Ultimately, we may have to write down an investment to its then determined net realizable value and reflect that write-down in earnings in the period such determination is made.

        Based on our evaluation of securities with an unrealized loss at December 31, 2002, we do not believe that any additional other-than-temporary impairment losses other than those already reflected in the financial statements are necessary at the balance sheet date. However, if we were to have determined that all securities that were in an unrealized loss position at December 31, 2002 should have been written down to their fair value, we would have recorded an additional other-than-temporary impairment loss of $12.5 million pre-tax.

        For additional information about our investments, see Notes 2B, 3 and 11 as well as the discussion on pages 39 to 43 of this Management’s Discussion and Analysis.

Reinsurance Receivables

We follow the customary insurance industry practice of reinsuring with other insurance and reinsurance companies a portion of the risks under the policies written by our insurance and reinsurance subsidiaries. Our reinsurance receivables total $1,295.1 million at December 31, 2002. We have also estimated that $5.5 million of reinsurance receivables will be uncollectible, and we have provided a valuation allowance for that amount.

        Although the contractual obligation of individual reinsurers to pay their reinsurance obligations is determinable from specific contract provisions, the collectibility of such amounts requires significant estimation by management. Many years may pass between the occurrence of a claim, when it is reported to us and when we ultimately settle and pay the claim. As a result, it can be several years before a reinsurer has to actually remit amounts to us. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their ability to meet these obligations and while they may still acknowledge their contractual obligation to do so, they may not have the financial resources to fully meet their obligation to us. If this occurs, we may have to write down a reinsurance receivable to its then determined net realizable value and reflect that write-down in earnings in the period such determination is made. We attempt to limit any such exposure to uncollectible reinsurance receivables by performing credit reviews of our reinsurers. In addition, we require collateral, such as assets held in trust or letters of credit, for certain reinsurance receivables. However, if our future estimate of uncollectible receivables exceeds our current expectations, we may need to increase our allowance for uncollectible reinsurance receivables. The increase in this allowance would result in a charge to earnings in the period recorded. Accordingly, any related charge could have a material adverse effect on our financial condition, results of operations and liquidity.

        Based on our evaluation of reinsurance recoverables at December 31, 2002, we have established an allowance for amounts that we have concluded are uncollectible at the balance sheet date. In reaching our conclusion, we relied on historical performance as well as any known disputes or collection issues as of the balance sheet date and applied our informed judgment in ascertaining the appropriate level of allowance for uncollectible amounts. Because our current relationships with reinsurers are considered sound and because such reinsurers are current on their obligations to our insurance subsidiaries, we currently consider all amounts to be collectible. At December 31, 2002, approximately $38 million of uncollateralized reinsurance receivables, including $25 million due for ceded IBNR, are due from reinsurers whose A.M. Best financial strength rating had declined to below A- in 2002 or who were under regulatory supervision or in liquidation in 2002.

46

P M A  C A P I T A L

        For additional information about reinsurance receivables, see Note 5 to the Consolidated Financial Statements as well as the discussion on pages 35 and 36 of this Management’s Discussion and Analysis.

Deferred Tax Assets

We record deferred tax assets and liabilities to the extent of the tax effect of differences between the financial statement carrying values and tax bases of assets and liabilities. The deferral of tax losses is evaluated based upon management’s estimates of the future profitability of the Company’s taxable entities based on current forecasts. A valuation allowance is established for any portion of a deferred tax asset that management believes is more likely than not going to be realized. At December 31, 2002, PMA Capital has a net deferred tax asset of $94.1 million, resulting from $165.9 million of deferred tax assets reduced by $71.8 million of deferred tax liabilities. In establishing the appropriate value of this asset, management must make judgments about the Company’s ability to utilize the net tax benefit from the reversal of temporary differences and the utilization of operating loss carryforwards that expire mainly from 2018 through 2022.

        In evaluating the recoverability of our net deferred tax asset, management has considered the recent performance of its business, which generated pre-tax losses of $79.2 million and $4.4 million in 2002 and 2001 due primarily to losses from Run-off Operations and World Trade Center losses. While such performance may call into question our ability to be profitable, we believe that future results will be substantially improved due to our exit from the business segment that generated a substantial portion of our net loss in 2002 and 2001, as well as the unprecedented loss event in 2001 stemming from the attack on the World Trade Center. Accordingly, despite our recent earnings history, we have estimated at year-end 2002 that our ongoing insurance operations will generate sufficient future taxable income to utilize the net deferred tax asset over a period of time not exceeding the expiration of our operating loss carryforwards. As a result, we determined that it is more likely than not that we will be able to realize the future tax benefit of our net deferred tax asset. In making this determination, we have made reasonable estimates of our future taxable income. If our estimates of future income were to be revised downward and we determined that it was then more likely than not that we would not be able to realize the value of our net deferred tax asset, then this could have a material adverse effect on our results of operations. For additional information see Note 12 to our Consolidated Financial Statements.

Premiums

Premiums, including estimates of additional premiums resulting from audits of insureds’ records, and premiums from ceding companies which are typically reported on a delayed basis, are earned principally on a pro rata basis over the terms of the policies. As discussed on page 27, in the second quarter of 2002, PMA Re recognized $44 million of net written premiums for prior underwriting years due to a difference between the originally estimated and actual premiums. Due to the customary lag in reporting premium data by some of PMA Re’s clients, PMA Re must estimate the ultimate written premiums to be received from a ceding company based upon data received when we initially receive the submission, including broker and ceding company data and projections. Actual premiums written for PMA Re reported in the Statement of Operations are based upon reports received from ceding companies, supplemented by our own estimates of premiums written for which ceding company reports have not been received. Differences between such estimates and actual amounts are recorded in the period in which the actual amounts are determined.

        The premiums on reinsurance business ceded are recorded as incurred on a pro rata basis over the contract period. Certain ceded reinsurance contracts contain provisions requiring us to pay additional premiums ranging from 20% to 50% of ceded losses or reinstatement premiums in the event that losses of a significant magnitude are ceded under such contracts. Under accounting rules, we are not permitted to establish reserves for potential additional premiums or record such amounts until a loss occurs that would obligate us to pay such additional or reinstatement premiums. As a result, the net benefit to our results from ceding losses to our retrocessionaires in the event of a loss may be reduced by the payment of additional premiums and reinstatement premiums to our retrocessionaires. For example, in 2000, PMA Re increased its gross losses by $83 million and ceded $60 million of these losses to our retrocessionaires. Under the terms of the retrocessional coverage to which we ceded these losses, we were required to pay $35 million of additional ceded premiums to our retrocessionaires, which reduced the net benefit of the loss cessions from $60 million to $25 million. For additional information, see Notes 4 and 5 to our Consolidated Financial Statements.

47

P M A  C A P I T A L

Management's Discussion and Analysis (continued)

Cautionary Statements

Except for historical information provided in Management’s Discussion and Analysis and otherwise in this report, statements made throughout, including in the Business Outlook section on page 26, are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. Words such as "believes," "estimates," "anticipates," "expects" or similar words are intended to identify forward-looking statements. These forward-looking statements are based on currently available financial, competitive and economic data and our current operating plans based on assumptions regarding future events. Our actual results may differ materially from our current expectations. The factors that could cause actual results to vary materially, some of which are described with the forward-looking statements, include, but are not limited to:

• changes in general economic conditions, including the performance of financial markets, interest rates and the level of unemployment;

• regulatory or tax changes, including changes in risk-based capital or other regulatory standards that affect the cost of, or demand for, our products or otherwise affect our ability to conduct business;

• competitive conditions that may affect the level of rate adequacy related to the amount of risk undertaken and that may influence the sustainability of adequate rate changes;

• ability to implement and maintain rate increases;

• the effect of changes in workers’ compensation statutes and their administration, which may affect the rates that we can charge and the manner in which we administer claims;

• our ability to predict and effectively manage claims related to insurance and reinsurance policies;

• the lowering or loss of one or more of the financial strength or claims paying ratings of our insurance subsidiaries;

• adequacy of reserves for claim liabilities;

• adverse property and casualty loss development for events we insured in prior years;

• the uncertain nature of damage theories and loss amounts and the development of additional facts related to the attack on the World Trade Center;

• uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts;

• adequacy and collectibility of reinsurance that we purchased;

• severity of natural disasters and other catastrophes, including future acts of terrorism in connection with insurance and reinsurance policies;

• reliance on key management;

• uncertainties related to possible terrorist activities or international hostilities; and

• other factors disclosed from time to time in our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission.

You should not place undue reliance on any such forward-looking statements. Unless otherwise stated, we disclaim any current intention to update forward-looking information and to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

48

P M A  C A P I T A L

Consolidated Balance Sheets

(in thousands, except share data)		2002			2001
Assets:
Investments:
Fixed maturities available for sale, at fair value (amortized cost:
2002 - $1,477,921; 2001 - $1,416,901)	$	1,529,924		$	1,425,281
Short-term investments		298,686			325,054
Short-term investments, loaned securities collateral		--			25,000
Cash		43,853			20,656
Total investments and cash		1,872,463			1,795,991
Accrued investment income		18,600			19,121
Premiums receivable (net of valuation allowance: 2002 - $9,528; 2001 - $12,583)		363,675			301,104
Reinsurance receivables (net of valuation allowance: 2002 - $5,483; 2001 - $4,562)		1,295,083			1,210,764
Deferred income taxes, net		94,074			82,120
Deferred acquisition costs		89,222			64,350
Funds held by reinsureds		157,479			145,239
Other assets		215,198			184,290
Total assets	$	4,105,794		$	3,802,979
Liabilities:
Unpaid losses and loss adjustment expenses	$	2,449,890		$	2,324,439
Unearned premiums		405,379			308,292
Short-term debt		65,000			62,500
Long-term debt		86,250			--
Accounts payable, accrued expenses and other liabilities		253,175			217,490
Funds held under reinsurance treaties		249,670			227,892
Dividends to policyholders		14,998			17,132
Payable under securities loan agreements		42			33,228
Total liabilities		3,524,404			3,190,973
Commitments and contingencies (Note 7)
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)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		319,014			382,165
Accumulated other comprehensive income		34,552			5,375
Notes receivable from officers		(62	)		(158	)
Treasury stock, at cost (2002 - 2,889,023 shares; 2001 - 3,050,939 shares)		(52,535	)		(55,797	)
Total shareholders' equity		581,390			612,006
Total liabilities and shareholders' equity	$	4,105,794		$	3,802,979

See accompanying notes to the consolidated financial statements.

49

P M A  C A P I T A L

Consolidated Statements of Operations

(in thousands, except per share data)		2002			2001			2000
Revenues:
Net premiums written	$	1,104,997		$	769,058		$	545,555
Change in net unearned premiums		(113,986	)		(36,618	)		(14,131	)
Net premiums earned		991,011			732,440			531,424
Net investment income		84,881			86,945			102,591
Net realized investment gains (losses)		(16,085	)		7,988			11,975
Other revenues		15,330			22,599			14,000
Total revenues		1,075,137			849,972			659,990
Losses and Expenses:
Losses and loss adjustment expenses		823,658			616,763			449,388
Acquisition expenses		216,984			138,982			112,654
Operating expenses		102,808			78,015			67,081
Dividends to policyholders		7,587			14,087			18,855
Interest expense		3,257			6,541			11,889
Total losses and expenses		1,154,294			854,388			659,867
Income (loss) before income taxes		(79,157	)		(4,416	)		123
Income tax benefit		(31,133	)		(11,519	)		(1,202	)
Net income (loss)	$	(48,024	)	$	7,103		$	1,325
Income (loss) per share:
Basic	$	(1.53	)	$	0.33		$	0.06
Diluted	$	(1.53	)	$	0.32		$	0.06

See accompanying notes to the consolidated financial statements.

50

P M A  C A P I T A L

Consolidated Statements of Cash Flows

(in thousands)		2002			2001			2000
Cash flows from operating activities:
Net income (loss)	$	(48,024	)	$	7,103		$	1,325
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Deferred income tax benefit		(27,527	)		(3,147	)		(82	)
Net realized investment (gains) losses		16,085			(7,988	)		(11,975	)
Gain on sale of real estate		--			(9,763	)		--
Change in:
Premiums receivable and unearned premiums, net		34,516			20,236			(18,127	)
Dividends to policyholders		(2,134	)		(114	)		3,464
Reinsurance receivables		(34,319	)		(276,875	)		(275,725	)
Unpaid losses and loss adjustment expenses		125,451			257,520			120,537
Funds held by reinsureds		(12,240	)		(72,588	)		(54,721	)
Funds held under reinsurance treaties		21,778			54,130			79,317
Accrued investment income		521			1,746			1,866
Deferred acquisition costs		(24,872	)		(15,828	)		427
Accounts payable, accrued expenses and other liabilities		25,836			45,122			96,667
Other, net		(2,904	)		(9,129	)		1,988
Net cash flows provided by (used in) operating activities		72,167			(9,575	)		(55,039	)
Cash flows from investing activities:
Fixed maturities available for sale:
Purchases		(964,047	)		(1,054,794	)		(422,350	)
Maturities and calls		256,625			297,549			121,814
Sales		634,480			833,884			408,233
Equity securities:
Purchases		--			--			(24,706	)
Sales		--			--			78,182
Net purchases of short-term investments		(29,942	)		(102,637	)		(131,688	)
Proceeds from sale of real estate		--			14,401			--
Other, net		(20,961	)		(8,071	)		(29,522	)
Net cash flows used in investing activities		(123,845	)		(19,668	)		(37	)
Cash flows from financing activities:
Proceeds from issuance of stock		--			157,868			--
Dividends paid to shareholders		(12,102	)		(9,035	)		(8,020	)
Proceeds from exercise of stock options		2,866			1,387			2,866
Purchase of treasury stock		(1,726	)		(5,323	)		(18,427	)
Proceeds from issuance of debt		151,250			--			--
Debt issue costs		(3,009	)		--			--
Repayments of debt		(62,500	)		(100,500	)		--
Net repayments (issuance) of notes receivable from officers		96			(102	)		--
Net cash flows provided by (used in) financing activities		74,875			44,295			(23,581	)
Net increase (decrease) in cash		23,197			15,052			(78,657	)
Cash - beginning of year		20,656			5,604			84,261
Cash - end of year	$	43,853		$	20,656		$	5,604
Supplementary cash flow information:
Income tax paid (refunded)	$	(10,649	)	$	(8,991	)	$	7,300
Interest paid	$	2,091		$	7,074		$	11,795

See accompanying notes to the consolidated financial statements.

51

P M A  C A P I T A L

Consolidated Statements of Shareholders' Equity

(in thousands)		2002			2001			2000
Class A Common stock:
Balance at beginning of year	$	171,090		$	122,214		$	56,791
Issuance of Class A Common stock		--			48,876			--
Conversion of Common stock into Class A Common stock		--			--			65,423
Balance at end of year		171,090			171,090			122,214
Additional paid-in capital - Class A Common stock:
Balance at beginning of year		109,331			339			339
Issuance of Class A Common stock		--			108,992			--
Balance at end of year		109,331			109,331			339
Retained earnings:
Balance at beginning of year		382,165			384,694			391,981
Net income (loss)		(48,024	)		7,103			1,325
Class A Common stock dividends declared		(13,142	)		(9,018	)		(7,458	)
Common stock dividends declared		--			--			(922	)
Reissuance of treasury shares under employee benefit plans		(1,985	)		(614	)		(232	)
Balance at end of year		319,014			382,165			384,694
Accumulated other comprehensive income (loss):
Balance at beginning of year		5,375			(14,373	)		(46,844	)
Other comprehensive income, net of tax expense:
2002 - $15,710; 2001 - $10,634; 2000 - $17,484;		29,177			19,748			32,471
Balance at end of year		34,552			5,375			(14,373	)
Notes receivable from officers:
Balance at beginning of year		(158	)		(56	)		(56	)
Repayment (issuance) of notes receivable from officers		96			(102	)		--
Balance at end of year		(62	)		(158	)		(56	)
Treasury stock - Class A Common:
Balance at beginning of year		(55,797	)		(52,772	)		(32,909	)
Purchase of treasury shares		(1,726	)		(5,323	)		(18,427	)
Conversion of Common stock into Class A Common stock		--			--			(5,582	)
Reissuance of treasury shares under employee benefit plans		4,988			2,298			4,146
Balance at end of year		(52,535	)		(55,797	)		(52,772	)
Total shareholders' equity:
Balance at beginning of year		612,006			440,046			429,143
Net income (loss)		(48,024	)		7,103			1,325
Issuance of Class A Common stock		--			157,868			--
Class A Common stock dividends declared		(13,142	)		(9,018	)		(7,458	)
Common stock dividends declared		--			--			(922	)
Purchase of treasury shares		(1,726	)		(5,323	)		(18,427	)
Reissuance of treasury shares under employee benefit plans		3,003			1,684			3,914
Other comprehensive income		29,177			19,748			32,471
Repayment (issuance) of notes receivable from officers		96			(102	)		--
Balance at end of year	$	581,390		$	612,006		$	440,046

In 2000, all shares and related dollar amounts of Common stock ($65,423) and Treasury stock - Common ($5,582) were converted into Class A Common stock.

See accompanying notes to the consolidated financial statements.

52

P M A  C A P I T A L

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)		2002			2001			2000
Net income (loss)	$	(48,024	)	$	7,103		$	1,325
Other comprehensive income (loss), net of tax:
Unrealized gain on securities:
Holding gain arising during the period		17,355			25,175			40,095
Less: reclassification adjustment for (gains) losses included
in net income, net of tax expense (benefit): 2002 - ($5,630);
2001 - $2,796; 2000 - $4,191		10,455			(5,192	)		(7,784	)
Total unrealized gain on securities		27,810			19,983			32,311
Foreign currency translation gain (loss), net of tax expense (benefit):
2002 - $736; 2001 - ($127); 2000 - $87		1,367			(235	)		160
Other comprehensive income, net of tax		29,177			19,748			32,471
Comprehensive income (loss)	$	(18,847	)	$	26,851		$	33,796

See accompanying notes to the consolidated financial statements.

53

P M A  C A P I T A L

Notes to Consolidated Financial Statements

Note 1. Business Description

The accompanying consolidated financial statements include the accounts of PMA Capital Corporation and its subsidiaries (collectively referred to as "PMA Capital" or the "Company"). PMA Capital is an insurance holding company that owns and operates the following specialty risk management businesses:

PMA Re — PMA Capital’s reinsurance operations offer excess of loss and pro rata property and casualty reinsurance protection mainly through reinsurance brokers. PMA Re focuses on risk-exposed business, which it believes allows it to best utilize its underwriting and actuarial expertise.

The PMA Insurance Group — The PMA Insurance Group writes 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, the Company 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, the Company announced its decision to withdraw from the excess and surplus lines marketplace. As a result of this decision, the results of this segment are reported as Run-off Operations. See Note 14 for additional information.

Note 2. Summary of Significant Accounting Policies

A. Basis of Presentation — The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP"). All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. In addition, certain prior year amounts have been restated to conform to the current year classification. The balance sheet information presented in these financial statements and notes thereto is as of December 31 for each respective year. The statement of operations information is for the year ended December 31 for each respective year.

B. Investments — All fixed maturities are classified as available-for-sale and, accordingly, are carried at fair value. Changes in fair value of fixed maturities, net of income tax effects, are reflected in accumulated other comprehensive income (loss). All short-term, highly liquid investments, which have original maturities of one year or less from acquisition date, are treated as short-term investments and are carried at amortized cost, which approximates fair value.

        Realized gains and losses, determined by the first-in, first-out method, are reflected in income in the period in which the sale transaction occurs. For all securities that are in an unrealized loss position for an extended period of time, the Company performs an evaluation of the specific events attributable to the market decline of the security. The Company considers the length of time and extent to which the security’s market value has been below cost as well as the general market conditions, industry characteristics and the fundamental operating results of the issuer to determine if the decline is due to changes in interest rates, changes relating to a decline in credit quality of the issuer, or general market conditions. The Company also considers as part of the evaluation its intent and ability to hold the security until its market value has recovered to a level at least equal to the amortized cost. Where the Company determines that a security’s unrealized loss is other than temporary, a realized loss is recognized in the period in which the decline in value is determined to be other than temporary. The write-downs are measured based on public market prices and the Company’s expectation of the future realizable value for the security at the time the Company determines the decline in value was other than temporary.

        The Company participates in a securities lending program through which securities are lent from the Company’s portfolio for short periods of time to qualifying third parties via a lending agent. Borrowers of these securities must provide collateral equal to a minimum of 102% of the market value including accrued interest of the lent securities. Acceptable collateral may be in the form of either cash or securities. Cash received as collateral is invested in short-term investments, and is recorded as such on the balance sheet, along with a corresponding liability included in payable under securities loan agreements. All securities received as collateral are of similar quality to those securities lent by the Company. The Company is not permitted by contract to sell or repledge the securities received as collateral. Additionally, the Company limits securities lending to 40% of statutory admitted assets of its insurance subsidiaries, with a 2% limit on statutory admitted assets to any individual borrower. The Company either receives a fee from the borrower or retains a portion of the income earned on the collateral. Under the terms of the securities lending program, the Company is indemnified

54

P M A  C A P I T A L

against borrower default, with the lending agent responsible to the Company for any deficiency between the cost of replacing a security that was not returned and the amount of collateral held by the Company.

C. Premiums — Premiums, including estimates of additional premiums resulting from audits of insureds’ records, and premiums from ceding companies which are typically reported on a delayed basis, are earned principally on a pro rata basis over the terms of the policies. For reinsurance premiums assumed, management must estimate the subject premiums associated with the treaties in order to determine the level of written and earned premiums for a reporting period. Such estimates are based on information from brokers and ceding companies, which can be subject to change as new information becomes available. See Note 4 for additional information. With respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustments may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premium in the period in which the adjustment is made. Premiums applicable to the unexpired terms of policies in force are reported as unearned premiums. The estimated premiums receivable on retrospectively rated policies are reported as a component of premiums receivable.

D. Unpaid Losses and Loss Adjustment Expenses — Unpaid losses and loss adjustment expenses ("LAE"), which are stated net of estimated salvage and subrogation, are estimates of losses and loss adjustment expenses on known claims, and estimates of losses and loss adjustment expenses incurred but not reported ("IBNR"). IBNR reserves are calculated utilizing various actuarial methods. Unpaid losses on certain workers’ compensation claims are discounted to present value using the Company’s payment experience and mortality and interest assumptions in accordance with statutory accounting practices prescribed by the Pennsylvania Insurance Department (collectively "SAP"). The Company also discounts unpaid losses and LAE for certain other claims at rates permitted by domiciliary regulators or if the timing and amount of such claims are fixed and determinable. The methods of making such estimates and establishing the resulting reserves are continually reviewed and updated and any adjustments resulting therefrom are reflected in earnings in the period identified. See Note 4 for additional information.

E. Reinsurance — In the ordinary course of business, PMA Capital’s reinsurance and insurance subsidiaries assume and cede premiums with other insurance companies and are members of various insurance pools and associations. The Company’s reinsurance and insurance subsidiaries cede business in order to limit the maximum net loss from large risks and limit the accumulation of many smaller losses from a catastrophic event. The reinsurance and insurance subsidiaries remain primarily liable to their clients in the event their reinsurers are unable to meet their financial obligations. Reinsurance receivables include claims paid by the Company and estimates of unpaid losses and LAE that are subject to reimbursement under reinsurance and retrocessional contracts. The method for determining the reinsurance receivable for unpaid losses and LAE involves reviewing actuarial estimates of gross unpaid losses and LAE to determine the Company’s ability to cede unpaid losses and LAE under its existing reinsurance contracts. This method is continually reviewed and updated and any adjustments resulting therefrom are reflected in earnings in the period identified. Under certain of the Company’s reinsurance and retrocessional contracts, additional premium and interest may be required if predetermined ceded loss and LAE thresholds are exceeded.

        Certain of the Company’s assumed and ceded reinsurance contracts are funds held arrangements. In a funds held arrangement, the ceding company holds onto the premiums instead of paying them to the reinsurer and losses are offset against these funds in an experience account. Because the reinsurer is not in receipt of the funds, the reinsurer earns interest on the experience fund balance at a predetermined credited rate of interest. The Company generally earns an interest rate of between 6% and 8% on its assumed funds held arrangements and generally pays interest at a rate of between 6% and 8% on its ceded funds held arrangements.The interest earned or credited on funds held arrangements is included in net investment income in the Statement of Operations. In addition, interest on funds held arrangements will continue to be earned or credited until the experience account is fully depleted, which can extend many years beyond the expiration of the coverage period.

        Certain of the Company’s reinsurance contracts are retroactive in nature. Any benefit derived from retroactive reinsurance contracts is deferred and amortized into income over the payout pattern of the underlying claim liabilities unless the contracts call for immediate recovery by the Company from reinsurers as ceded losses are incurred.

55

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

F. Deferred Acquisition Costs — Costs that directly relate to and vary with acquisition of new and renewal business are deferred and amortized over the period during which the related premiums are earned. Such direct costs include commissions, brokerage and premium taxes, as well as other policy issuance costs and underwriting expenses. The Company determines whether deferred acquisition costs are recoverable considering future losses and loss adjustment expenses, maintenance costs and anticipated investment income. To the extent that deferred acquisition costs are not recoverable, the deficiency is charged to income in the period identified.

G. Dividends to Policyholders — The PMA Insurance Group issues certain workers’ compensation insurance policies with dividend payment features. These policyholders share in the operating results of their respective policies in the form of dividends declared at the discretion of the Board of Directors of The PMA Insurance Group’s operating companies. Dividends to policyholders are accrued during the period in which the related premiums are earned and are determined based on the terms of the individual policies.

H. Income Taxes — The Company records deferred tax assets and liabilities to the extent of the tax effect of differences between the financial statement carrying values and tax bases of assets and liabilities. A valuation allowance is recorded for deferred tax assets where it appears more likely than not that the Company will not be able to recover the deferred tax asset.

I. Stock-Based Compensation — The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s Class A Common stock at grant date or other measurement date over the amount an employee must pay to acquire the Class A Common stock. See Note 2K for additional information.

J. Other Revenues — Other revenues include service revenues related to unbundled claims, risk management and related services provided by The PMA Insurance Group, which are earned over the term of the related contracts in proportion to the actual services rendered, and other miscellaneous revenues. During 2001, other revenues included a $9.8 million gain on the sale of certain real estate properties.

K. Recent Accounting Pronouncements — In January 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock-based employee compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the Company has applied the disclosure provisions of SFAS No. 148 to our Financial Statements as of and for the year ended December 31, 2002.

        The following table illustrates the effect on net income (loss) if the fair value based method had been applied:

(in thousands, except per share))		2002			2001			2000
Net income (loss)	$	(48,024	)	$	7,103		$	1,325
Stock-based compensation expense
already included in reported
net income (loss), net of tax		140			--			(650	)
Total stock-based compensation
expense determined under fair
value based method, net of tax		(1,480	)		(1,043	)		(1,308	)
Pro forma net income (loss)	$	(49,364	)	$	6,060		$	(633	)
Income (loss) per share:
Basic - as reported	$	(1.53	)	$	0.33		$	0.06
Basic - pro forma	$	(1.58	)	$	0.28		$	(0.03	)
Diluted - as reported	$	(1.53	)	$	0.32		$	0.06
Diluted - pro forma	$	(1.58	)	$	0.27		$	(0.03	)

In May 2002, the Company announced its decision to withdraw from the excess and surplus lines marketplace previously served by its Caliber One operating segment. The Company accounted for the discontinuation of this business under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which are effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30,

56

P M A  C A P I T A L

"Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and establishes a single accounting model for the disposal of long-lived assets and asset groups.

        In January 2003, the Company sold the capital stock of Caliber One Indemnity Company. Pursuant to the agreement of sale, the Company has retained all assets and liabilities related to in-force policies and outstanding claim obligations and will run-off such in-force policies and claim obligations. Accordingly, under SFAS No. 144, the results of operations of this segment are reported in results from continuing operations, and will continue to be reported as such until all in-force policies and outstanding claim obligations are satisfied, at which point the Company will report the results of the Run-off segment as discontinued operations. The long-lived assets of this segment were tested for impairment in the second quarter of 2002 in accordance with the provisions of SFAS No. 144. See Note 14 for additional information.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Accordingly, this standard does not apply to the Company’s exit from the excess and surplus lines business, which was announced in May 2002.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46") which requires a company to assess if consolidation of an entity is appropriate based upon its variable economic interests in a variable interest entity ("VIE"). The initial determination of whether an entity is a VIE is required to be made on the date at which a company becomes involved with the entity. A VIE is an entity in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A company shall consolidate a VIE if the company has a variable interest that will absorb a majority of the VIE’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur or both.

        FIN 46 is effective for new VIEs established subsequent to January 31, 2003, and for existing VIEs as of July 1, 2003. FIN 46 also requires the disclosure of certain information related to VIEs in which the company holds a significant variable interest. The Company is currently assessing the impact that implementing FIN 46 may have on its consolidated financial statements. In this regard, the Company will be evaluating whether Trabaja Reinsurance Company ("Trabaja") is a variable interest entity as defined in FIN 46 and, if so, whether the Company’s business activities with Trabaja would warrant consolidation and/or additional disclosure in the Company’s future financial statements. The Company expects that any impact from implementing FIN 46 would be a non-cash adjustment recorded in its consolidated financial statements as a cumulative effect adjustment no later than the third quarter of 2003. Any such cumulative effect adjustment may be material to the Company’s consolidated financial condition and results of operations. However, there will be no effect on the statutory capital of the Company’s insurance subsidiaries. See Note 5 for additional information regarding the Company’s business activities with Trabaja.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures, even when the likelihood of making payments under the guarantee is remote. Generally, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party. The recognition provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. The Company is currently assessing the impact of adopting FIN 45, and currently does not expect that it will have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.

        Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 142, the Company no longer amortizes goodwill, but instead tests it periodically for impairment. As of December 31, 2002, the Company had approximately $3.0 million of goodwill, which is included in other assets on the balance sheet. Amortization of goodwill was $960,000, or $0.04 per basic and diluted share, for 2001, and $220,000, or $0.01 per basic and diluted share, for 2000. For the year ended December 31, 2002, the Company recognized an impairment charge of $1.3 million associated with the goodwill of the Run-off Operations, which is included in Operating expenses.

57

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

Note 3: Investments

The Company’s investment portfolio is diversified and does not contain any significant concentrations in single issuers other than U.S. Treasury and agency obligations. In addition, the Company does 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 the financing subsidiaries of automotive manufacturers.

        The amortized cost and fair value of the Company’s investment portfolio are as follows:

(dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2002
Fixed maturities available for sale:
U.S. Treasury securities and obligations of U.S. Government agencies	$	315,911	$	13,490	$	3	$	329,398
States, political subdivisions and foreign government securities		10,217		936		--		11,153
Corporate debt securities		608,407		28,026		3,580		632,853
Mortgage-backed and other asset-backed securities		543,386		22,018		8,884		556,520
Total fixed maturities available for sale		1,477,921		64,470		12,467		1,529,924
Short-term investments		298,686		--		--		298,686
Total investments	$	1,776,607	$	64,470	$	12,467	$	1,828,610
December 31, 2001
Fixed maturities available for sale:
U.S. Treasury securities and obligations of U.S. Government agencies	$	263,633	$	4,563	$	2,155	$	266,041
States, political subdivisions and foreign government securities		16,857		272		31		17,098
Corporate debt securities		594,477		13,354		8,828		599,003
Mortgage-backed and other asset-backed securities		541,934		10,215		9,010		543,139
Total fixed maturities available for sale		1,416,901		28,404		20,024		1,425,281
Short-term investments		350,054		--		--		350,054
Total investments	$	1,766,955	$	28,404	$	20,024	$	1,775,335

The amortized cost and fair value of fixed maturities at December 31, 2002, by contractual maturity, are included in the table below:

(dollar amounts in thousands)	Amortized Cost		Fair Value
2003	$	90,227	$	91,437
2004-2007		380,839		391,438
2008-2012		232,103		243,027
2013 and thereafter		231,366		247,502
Mortgage-backed and other asset-backed securities		543,386		556,520
	$	1,477,921	$	1,529,924

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties.

        Net investment income consists of the following:

(dollar amounts in thousands)		2002			2001			2000
Fixed maturities	$	84,957		$	91,530		$	103,490
Equity securities		--			--			716
Short-term investments		5,073			7,048			8,513
Other		913			2,911			3,002
Total investment income		90,943			101,489			115,721
Investment expenses		(3,173	)		(2,559	)		(2,490	)
Interest on funds held, net		(2,889	)		(11,985	)		(10,640	)
Net investment income	$	84,881		$	86,945		$	102,591

The Company recognized income, net of lending fees, from securities lending transactions of $360,000, $383,000 and $600,000 in 2002, 2001 and 2000, respectively, which was included in net investment income. At December 31, 2002, the Company had no securities on loan.

58

P M A  C A P I T A L

        Net realized investment gains (losses) consist of the following:

(dollar amounts in thousands)		2002			2001			2000
Realized gains:
Fixed maturities	$	18,659		$	15,768		$	3,423
Equity securities		--			--			15,698
		18,659			15,768			19,121
Realized losses - fixed maturities		(34,744	)		(7,780	)		(7,146	)
Total net realized
investment gains (losses)	$	(16,085	)	$	7,988		$	11,975

Net realized investment losses for 2002 include impairment losses of $23.8 million on fixed income securities, primarily corporate bonds issued by telecommunications and energy companies, including $14.2 million for WorldCom. Net realized losses for 2001 include impairment losses of $1.6 million. The write-downs were measured based on public market prices and the Company’s expectation of the future realizable value for the security at the time when the Company determined the decline in value was other than temporary. No impairment losses were recorded in 2000.

        The change in unrealized gains (losses) on investments for 2002, 2001 and 2000 was $43.6 million, $30.7 million and $49.7 million, respectively, attributable to fixed maturities.

        On December 31, 2002, the Company had securities with a total amortized cost of $38.5 million and fair value of $39.8 million on deposit with various governmental authorities, as required by law. In addition, at December 31, 2002, securities with a total amortized cost of $24.1 million and fair value of $25.0 million were pledged as collateral for letters of credit issued on behalf of the Company. A security with an amortized cost of $1.9 million and fair value of $2.0 million was pledged as collateral for an executive loan program with a financial institution. Securities with a total amortized cost of $5.4 million and fair value of $5.5 million were held in trust to support the Company’s participation in the underwriting capacity of a Lloyd’s of London syndicate. The securities on deposit, pledged as collateral or held in trust are included in Fixed Maturities on the balance sheets.

Note 4: Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and LAE is summarized as follows:

(dollar amounts in thousands)		2002			2001			2000
Balance at January 1	$	2,324,439		$	2,053,138		$	1,932,601
Less: reinsurance
recoverable on unpaid
losses and LAE		1,181,322			924,429			648,227
Net balance at January 1		1,143,117			1,128,709			1,284,374
Losses and LAE incurred, net:
Current year,
net of discount		655,395			586,392			432,767
Prior years		159,748			23,512			6,491
Accretion of
prior years' discount		8,515			6,859			10,130
Total losses and LAE
incurred, net		823,658			616,763			449,388
Losses and LAE paid, net:
Current year		(138,127	)		(145,352	)		(110,188	)
Prior years		(594,342	)		(457,003	)		(445,865	)
Total losses and LAE
paid, net		(732,469	)		(602,355	)		(556,053	)
Reserves transferred		(50,000	)		--			(49,000	)
Net balance at December 31		1,184,306			1,143,117			1,128,709
Reinsurance recoverable
on unpaid losses and LAE		1,265,584			1,181,322			924,429
Balance at December 31	$	2,449,890		$	2,324,439		$	2,053,138

Unpaid losses and LAE reflect management’s best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to the Company. 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 Company and the Company’s payment of that loss. In general, liabilities for reinsurers become known more slowly than for primary insurers and are subject to more unforeseen development and uncertainty. As part of the process for determining the Company’s unpaid losses and LAE, actuarial models are used that analyze historical data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, changes in social attitudes and economic conditions.

59

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

        Losses and LAE incurred in 2001 were impacted by the September 11th terrorist attack on the World Trade Center. The Company incurred $30 million of pre-tax net losses from this catastrophe. Gross losses of approximately $145 million resulted from this catastrophe, which is before (1) reinsurance recoveries ($120 million), (2) additional premiums due to PMA Re’s retrocessionaires ($30 million) and (3) additional premiums due to PMA Re on its assumed business ($25 million). The Company’s estimate of net loss from the September 11th terrorist attack on the World Trade Center continues to be approximately $30 million pre-tax and is based on its analysis to date of known exposures. However, it is difficult to fully estimate the Company’s loss from the attack given the uncertain nature of damage theories and loss amounts, and the development of additional facts related to the attack. As more information becomes available, the Company’s estimate of these losses may need to be increased.

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

(dollar amounts in thousands)		2002		2001			2000
PMA Re	$	106,866	$	(1,568	)	$	9,691
The PMA Insurance Group		1,082		2,889			(6,074	)
Run-off Operations		51,800		22,191			2,874
Total net unfavorable development	$	159,748	$	23,512		$	6,491

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, the Company’s actuaries noticed a higher than expected increase in 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 using various loss projection techniques, 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.

60

P M A  C A P I T A L

        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.

        Reserves transferred in 2002 and 2000 reflect the assumption of PMA Re’s and The PMA Insurance Group’s losses by an unaffiliated third party. Cash and short-term investments of $50 million and $49 million were transferred in 2002 and 2000, respectively, to support the payment of the transferred reserves.

        Unpaid losses for the Company’s workers’ compensation claims, net of reinsurance, at December 31, 2002 and 2001 were $368.7 million and $363.5 million, net of discount of $82.7 million and $91.0 million, respectively. The discount rate used was approximately 5% at December 31, 2002 and 2001.

        The Company’s loss reserves were stated net of salvage and subrogation of $41.1 million and $40.8 million at December 31, 2002 and 2001, respectively.

        Management believes that its unpaid losses and LAE are fairly stated at December 31, 2002. However, estimating the 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, social attitudes and economic conditions, the estimates are revised accordingly. If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at December 31, 2002, the related adjustments could have a material adverse effect on the Company’s financial condition, results of operations and liquidity.

        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.

61

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

        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. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts, existing case law and generally accepted actuarial methodologies. However, due to changing interpretations by courts involving coverage issues, the potential for changes in federal and state standards for clean-up and liability, as well as issues involving policy provisions, allocation of liability and damages among participating insurers, and proof of coverage, the Company’s ultimate exposure for these claims may vary significantly from the amounts currently recorded, resulting in a potential future adjustment that could be material to the Company’s financial condition and results of operations.

Note 5. Reinsurance

The components of net premiums written and earned, and losses and LAE incurred are as follows:

(dollar amounts in thousands)		2002			2001			2000
Written premiums:
Direct	$	604,984		$	531,286		$	422,537
Assumed		781,562			485,568			398,726
Ceded		(281,549	)		(247,796	)		(275,708	)
Net	$	1,104,997		$	769,058		$	545,555
Earned premiums:
Direct	$	599,827		$	508,821		$	416,152
Assumed		691,740			466,975			393,828
Ceded		(300,556	)		(243,356	)		(278,556	)
Net	$	991,011		$	732,440		$	531,424
Losses and LAE:
Direct	$	503,867		$	478,013		$	368,424
Assumed		543,025			498,366			389,724
Ceded		(223,234	)		(359,616	)		(308,760	)
Net	$	823,658		$	616,763		$	449,388

Losses and LAE ceded for 2001 included approximately $120 million related to the September 11th attack on the World Trade Center.

        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)	Reinsurance Receivables		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 InsuranceCompany ($50.8 million).

The Company performs credit reviews of its reinsurers focusing on, among other things, financial capacity, stability, trends and commitment to the reinsurance business. Prospective and existing reinsurers failing to meet the Company’s standards are excluded from the Company’s reinsurance programs. In addition, the Company requires collateral, typically assets in trust, letters of credit or funds withheld, to support balances due from certain reinsurers, consisting generally of those not authorized to transact business in the applicable jurisdictions.

62

P M A  C A P I T A L

At December 31, 2002 and 2001, the Company’s reinsurance receivables of $1,295.1 million and $1,210.8 million 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. The Company believes 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 the Company.

        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 Corporation ("London Reinsurance Group"). The Company 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, the Company has 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 the Company 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. Management believes that the assets of Trabaja of $272.5 million at December 31, 2002, are sufficient to satisfy Trabaja’s reinsurance obligations to the Company. All of Trabaja’s reinsurance transactions are conducted with the Company.

        In January 2002, the Company supplemented its 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. Such funding was provided by the Company in 2002. 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 the Company. 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 the Company to cede additional premiums ranging from 40% to 50% of ceded losses depending on the level of such losses. In addition to the transfer of assets and loss reserves of $50 million in 2002 to Trabaja, PMA also transferred $49 million of assets and loss reserves to Trabaja in 2000.

Note 6. Debt

At December 31, 2002, the Company had $65.0 million outstanding under its new credit facility ("Credit Facility"), which was executed in September 2002 and replaced the Company’s existing bank facility that was scheduled to mature at December 31, 2002. The proceeds from the Credit Facility were used to repay the existing bank facility, which had $62.5 million outstanding. The Credit Facility will mature in September 2003, or the Company may convert the outstanding principal amount into a term loan that matures June 30, 2004, if the Company meets certain financial performance targets. At December 31, 2002, the interest rate on the utilized portion of the Credit Facility was 3.6%, which equals the London InterBank Offered Rate ("LIBOR") plus 1.8%. The Credit Facility carries a facility fee on any unutilized portion of 0.375% per annum. Effective March 2003, the Company amended the Credit Facility to reduce it to $45 million in borrowing capacity and repaid $20 million. In addition, the March 2003 amendment increased the interest rate to LIBOR plus 2.125%.

        In October 2002, the Company issued $86.25 million of 4.25% convertible senior debentures ("Convertible Debt") due September 30, 2022 from which the Company received net proceeds of approximately $83.7 million. The Convertible Debt bears interest at a rate of 4.25% per annum, payable semi-annually, beginning on March 30, 2003. In addition, contingent interest may be payable by the Company to the holders of the Convertible Debt commencing September 30, 2006, under certain circumstances. Each $1,000 principal amount of the Convertible Debt is convertible into 61.0948 shares of the Company’s Class A common stock under certain events specified in the indenture, including once the stock price reaches $19.64 for a specified period of time or if the Company’s senior debt rating is below Ba3 or BB-. Further, holders of the Convertible Debt, at their option, may require the Company to repurchase all or a portion of their debentures on September 30, 2006, 2008, 2010, 2012 and 2017, or subject to specified exceptions, upon a change in control. The Company may choose to pay the repurchase price in cash or shares of Class A common stock. The Convertible Debt is redeemable in cash, in whole or in part, at the Company’s option at any time on or after September 30, 2006. See Note 8 for additional information.

        The Company has a letter of credit facility (the "Letter of Credit Facility") which provides for up to $50.0 million in letter of credit capacity. At December 31, 2002 and 2001, the aggregate outstanding face amount of letters of credit issued was $15.7 million and $27.9 million, respectively. The Letter

63

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

of Credit Facility is utilized primarily for collateralizing reinsurance obligations of the insurance subsidiaries of the Company. At December 31, 2002, fees for the Letter of Credit Facility were 0.45% per annum on the utilized portion and 0.15% on the unutilized portion.

        The debt covenants supporting the Credit Facility and the Letter of Credit Facility contain provisions that, among other matters, limit the Company’s ability to incur additional indebtedness, merge, consolidate and acquire or sell assets. The debt covenants of the Company’s currently outstanding debt also require the Company to satisfy certain ratios related to statutory surplus, debt-to-capitalization, cash coverage, risk-based capital and reinsurance recoverables to equity. Additionally, the debt covenants place restrictions on dividends to shareholders.

Note 7. Commitments and Contingencies

For the years ended December 31, 2002, 2001 and 2000 total rent expense was $4.1 million, $3.9 million and $3.4 million, respectively. At December 31, 2002, the Company was obligated under noncancelable operating leases for office space with aggregate minimum annual net rentals of $5.0 million in 2003, $3.4 million in 2004, $3.3 million in 2005, $3.0 million in 2006 and $18.3 million thereafter, net of sublease rentals of $242,000 in 2003, $1.5 million in 2004, 2005 and 2006, and $12.6 million thereafter. In addition, the Company was obligated under noncancelable operating leases for office computers, equipment and other items of $2.7 million in 2003, $1.8 million in 2004, $881,000 in 2005, $426,000 in 2006 and $65,000 thereafter.

        In the event a property and casualty insurer operating in a jurisdiction where the Company’s insurance subsidiaries also operate becomes or is declared insolvent, state insurance regulations provide for the assessment of other insurers to fund any capital deficiency of the insolvent insurer. Generally, this assessment is based upon the ratio of an insurer’s voluntary premiums written to the total premiums written for all insurers in that particular jurisdiction. As of December 31, 2002 and 2001, the Company had recorded liabilities of $5.4 million and $3.8 million for these assessments, which is included in accounts payable, accrued expenses and other liabilities on the balance sheet.

        The Company has provided guarantees of $7.0 million related to loans on properties in which the Company has an interest. The Company has also provided guarantees of $2.2 million related to an executive loan program for officers of the Company with a financial institution. The program expires on December 31, 2003. See Note 16 for additional information.

        Under the terms of the sale of PMA Cayman in 1998, the Company has agreed to indemnify the buyer, 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, the Company will participate in such favorable loss reserve development.

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

Note 8. Shareholders’ Equity

Changes in Class A Common stock shares were as follows:

	2002		2001		2000
Class A Common stock:
Balance at beginning of year	34,217,945		24,442,945		11,358,280
Issuance of Class A
Common stock	--		9,775,000		--
Conversion of Common stock
into Class A Common stock	--		--		13,084,665
Balance at end of year	34,217,945		34,217,945		24,442,945
Treasury stock - Class A
Common stock:
Balance at beginning of year	3,050,939		2,869,629		1,665,426
Purchase of treasury shares	90,185		299,300		988,800
Reissuance of treasury shares
under employee benefit plans	(252,101	)	(117,990	)	(220,604	)
Conversion of Common stock
into Class A Common stock	--		--		436,007
Balance at end of year	2,889,023		3,050,939		2,869,629

In December 2001, the Company issued 9,775,000 shares of its Class A Common stock, realizing net proceeds of $157.9 million. The Company used the net proceeds from this issuance to contribute additional capital to its reinsurance

64

P M A  C A P I T A L

subsidiary and to repay $62.5 million of its outstanding debt under its Credit Facility.

        The Company repurchased 90,000 shares of its Class A Common stock at a cost of $1.7 million in 2002, 299,000 shares at a cost of $5.3 million in 2001 and 989,000 shares at a cost of $18.4 million in 2000. The Company’s remaining share repurchase authorization at December 31, 2002 is $15.4 million. Decisions regarding share repurchases are subject to prevailing market conditions and an evaluation of the costs and benefits associated with alternative uses of capital.

        The Company declared dividends on its Class A Common stock of $0.42, $0.42 and $0.39 per share in 2002, 2001 and 2000, respectively. The Company declared dividends on its Common stock of $0.08 per share in 2000.

        Effective on the close of business April 24, 2000, the Company eliminated its class of Common stock from the Company’s authorized capital and reclassified each issued share of Common stock (13,084,665 shares of Common stock and 436,007 shares of Common Treasury stock) into one share of Class A Common stock. In addition, in early 2000 the Company authorized 2,000,000 shares of undesignated Preferred stock, $0.01 par value per share. There are no shares of Preferred stock issued or outstanding.

        In 2000, the Company’s Board of Directors adopted a shareholder rights plan that will expire on May 22, 2010. The rights automatically attached to each share of Class A Common stock. Generally, the rights become exercisable after the acquisition of 15% or more of the Company’s Class A Common stock and permit rights-holders to purchase the Company’s Class A Common stock or that of an acquirer at a substantial discount. The Company may redeem the rights for $0.001 per right at any time prior to an acquisition.

        The Company’s domestic insurance subsidiaries’ ability to pay dividends to the holding company is limited by the insurance laws and regulations of Pennsylvania. All of PMA Capital’s domestic insurance entities are owned by PMA Capital Insurance Company ("PMACIC"). As a result, dividends from The PMA Insurance Group’s Pooled Companies may not be paid directly to PMA Capital. Instead, only PMACIC, a Pennsylvania domiciled company, may pay dividends directly to PMA Capital. Approximately $58 million of dividends are available to be paid by PMACIC to PMA Capital in 2003 without the prior approval of the Pennsylvania Insurance Commissioner. As of December 31, 2002, The PMA Insurance Group’s Pooled Companies can pay up to $24.6 million in dividends to PMACIC during 2003. Dividends received from subsidiaries were $28.0 million, $29.6 million and $36.0 million in 2002, 2001 and 2000, respectively.

        PMA Capital’s dividends to shareholders are restricted by certain of its debt agreements. Under the most restrictive debt covenant of the Credit Facility and the Letter of Credit Facility, the Company would be able to pay dividends of approximately $25 million in 2003.

Note 9. Stock Options

The Company currently has stock option plans in place for stock options granted to officers and other key employees for the purchase of the Company’s Class A Common stock, under which 3,401,652 Class A Common shares were reserved for issuance at December 31, 2002. The stock options are granted under terms and conditions determined by the Stock Option Committee of the Board of Directors. Stock options granted have a maximum term of ten years, generally vest over periods ranging between two and four years, and are typically granted with an exercise price at least equal to the fair market value of the Class A Common stock on the date the options are granted. Information regarding these option plans is as follows:

	2002					2001					2000
	Shares			Weighted Average Price		Shares			Weighted Average Price		Shares			Weighted Average Price
Options outstanding, beginning of year		3,387,154		$	16.45		3,444,026		$	16.22		3,320,556		$	15.40
Options granted		440,500			19.50		115,000			20.00		411,000			21.50
Options exercised		(302,465	)		12.66		(128,372	)		12.20		(221,905	)		13.02
Options forfeited or expired		(428,695	)		18.78		(43,500	)		20.26		(65,625	)		18.84
Options outstanding, end of year(1)		3,096,494		$	16.93		3,387,154		$	16.45		3,444,026		$	16.22
Options exercisable, end of year		2,059,729		$	15.74		2,190,357		$	14.91		2,102,509		$	14.38
Option price range at end of year	$11.50 to $21.50					$10.00 to $21.50						$8.00 to $21.50
Option price range for exercised shares	$10.00 to $17.00					$8.00 to $17.00						$8.00 to $17.00
Options available for grant at end of year	305,158					48,466						121,966

(1) Included in the options outstanding at the end of 2002, 2001 and 2000 are 260,000, 420,000 and 420,000 options ("Target Price Options"), respectively, with an exercise price of $17.00, which would have become exercisable had the Company’s Class A Common stock achieved certain target prices by February 2003. Because the stock did not reach the necessary price, the Target Price Options expired as unvested options in February 2003. In 2000, the Company reduced the accrual for these Target Price Options by approximately $1 million. There was no accrued liability for the Target Price Options as of December 31, 2002 and 2001.

65

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

Of the total options granted in 2002, 225,000 were granted with an exercise price that was lower than the market value on the grant date ("in-the-money"), and such options had a weighted average exercise price of $19.50 per share and a weighted average fair value of $14.61 per share. The remaining 215,500 were granted with an exercise price that exceeded the market value on the grant date ("out-of-the-money"), and such options had an exercise price of $19.50 per share and a weighted average fair value of $7.66 per share. In 2001 and 2000, all options were granted out-of-the-money at an exercise price of $20.00 and $21.50 per share and a fair value of $6.39 and $7.16 per share, respectively.

        The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Included in the Company’s net loss for 2002 were pre-tax compensation costs of $215,000. No compensation cost was recognized in 2001. In 2000, net income included a benefit of $1 million pre-tax related to the Target Price Options as discussed above.

        The fair value of options at date of grant was estimated using an option-pricing model with the following weighted average assumptions:

	2002		2001		2000
Expected life (years)	10		10		10
Risk-free interest rate	5.1	%	5.2	%	6.5	%
Expected volatility	16.8	%	15.9	%	17.1	%
Expected dividend yield	2.0	%	2.4	%	2.4	%

Stock options outstanding and options exercisable at December 31, 2002 were as follows:

	Options Outstanding			Options Exercisable
Exercise Prices	Number of Shares	Weighted Average Remaining Life	Weighted Average Exercise Price	Number of Shares	Weighted Average Exercise Price
$11.50 to $14.00	572,139	0.83	$11.79	572,139	$11.79
$14.01 to $16.50	445,300	2.43	$15.48	445,300	$15.48
$16.51 to $19.00	989,750	3.36	$17.07	729,750	$17.09
$19.01 to $21.50	1,089,305	7.63	$20.09	312,540	$20.17

See Note 2K for additional information.

Note 10. Earnings Per Share

Shares used as the denominator of the basic and diluted earnings per share were computed as follows:

	2002	2001	2000
Basic shares - weighted
average shares outstanding	31,284,848	21,831,725	21,898,967
Effect of dilutive stock options	--	384,970	454,655
Total diluted shares	31,284,848	22,216,695	22,353,622

For all years presented, there were no differences in the numerator (net income (loss)) for the basic and diluted earnings per share calculation.

        The effect of 3.1 million, 873,000 and 840,500 stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive for 2002, 2001 and 2000, respectively.

        The 2002 diluted shares do not assume the conversion of the Company’s 4.25% convertible debentures into 5.3 million shares of Class A Common stock because under the terms of the Convertible Debt agreement they did not meet the required conditions for holders to be able to convert the debentures. See Note 6 for additional information.

Note 11. Fair Value of Financial Instruments

As of December 31, 2002, 2001 and 2000, the carrying amounts for the Company’s financial instruments approximated their estimated fair value, other than the Convertible Debt, which had a fair value of approximately $95 million, compared to a carrying value of $86.25 million. The Company measures the fair value of fixed maturities and the Convertible Debt based upon quoted market prices or by obtaining quotes from dealers. The fair value of bank debt is estimated using discounted cash flow calculations based upon the Company’s current incremental borrowing rate for similar types of borrowing facilities or the rate utilized to prepay obligations, where applicable. For other financial instruments, the carrying values approximate their fair values. Certain financial instruments, specifically amounts relating to insurance and reinsurance contracts, are excluded from this disclosure.

Note 12. Income Taxes

The components of the federal income tax benefit are:

(dollar amounts in thousands)		2002			2001			2000
Current	$	(3,606	)	$	(8,372	)	$	(1,120	)
Deferred		(27,527	)		(3,147	)		(82	)
Income tax benefit	$	(31,133	)	$	(11,519	)	$	(1,202	)

A reconciliation between the total income tax benefit and the amounts computed at the statutory federal income tax rate of 35% is as follows:

(dollar amounts in thousands)		2002			2001			2000
Federal income tax at the
statutory rate	$	(27,705	)	$	(1,546	)	$	43
Reversal of income tax accruals		(3,000	)		(10,076	)		(1,362	)
Other		(428	)		103			117
Income tax benefit	$	(31,133	)	$	(11,519	)	$	(1,202	)

66

P M A  C A P I T A L

The tax effects of significant temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that represent the net deferred tax asset are as follows:

(dollar amounts in thousands)	2002			2001
Discounting of unpaid losses and LAE	$	61,824		$	54,647
Net operating loss and tax credit carryforwards		50,914			29,189
Unearned premiums		26,870			18,508
Allowance for uncollectible accounts		6,235			6,402
Postretirement benefit obligation		4,715			4,878
Deferred compensation		1,944			3,001
Depreciation		2,043			1,909
Guaranty funds and other assessments		1,604			1,335
Other		9,706			9,469
Gross deferred tax assets		165,855			129,338
Valuation allowance		--			(572	)
Deferred tax assets, net of valuation allowance		165,855			128,766
Deferred acquisition costs		(31,227	)		(22,521	)
Losses of foreign reinsurance affiliate		(8,120	)		(11,120	)
Unrealized appreciation of investments		(18,594	)		(2,886	)
Prepaid pension		(8,106	)		(2,945	)
Capitalized software		(4,066	)		(4,100	)
Other		(1,668	)		(3,074	)
Gross deferred tax liabilities		(71,781	)		(46,646	)
Net deferred tax assets	$	94,074		$	82,120

At December 31, 2002, the Company had $107.7 million of net operating loss carryforwards, which will expire in 2018 through 2022; $11.4 million of capital loss carryforwards, which will expire in 2007; and $8.5 million of alternative minimum tax ("AMT") credit carryforwards, which do not expire.

        Management believes that it is more likely than not that the benefit of its deferred tax asset of $94.1 million, as of December 31, 2002, will be fully realized. The Company has determined that no valuation allowance is required on its future income tax asset as of December 31, 2002. Realization of the deferred tax asset is dependent on generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced if actual, or estimates, of future taxable income are reduced. In 2002, the Company decreased its valuation allowance on deferred tax assets relating to certain foreign insurance operations by $572,000 because the Company utilized $572,000 of foreign net operating loss carryovers in 2002.

        The Company’s federal income tax returns are subject to audit by the Internal Revenue Service ("IRS"), and provisions are made in the financial statements in anticipation of the results of these audits. In 2001, the IRS completed their examination of the Company’s 1996 U.S. federal tax return with no material changes to the Company’s filed tax return. No other tax years are currently under audit by the IRS. In management’s opinion, adequate liabilities have been established for all years.

        In October 2002, the Company received a refund from the IRS of $9.6 million resulting from an AMT net operating loss, which was generated in 2001 and carried back to 1998 and 1999.

Note 13. Employee Retirement, Postretirement and Postemployment Benefits

A. Pension and Other Postretirement Benefits:

Pension Benefits — The Company sponsors a qualified non-contributory defined benefit pension plan (the "Qualified Pension Plan") covering substantially all employees. After meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the plan are generally determined on the basis of an employee’s length of employment and salary during employment. The Company’s policy is to fund pension costs in accordance with the Employee Retirement Income Security Act of 1974.

        The Company also maintains non-qualified unfunded supplemental defined benefit pension plans (the "Non-qualified Pension Plans") for the benefit of certain key employees. The projected benefit obligation and accumulated benefit obligation for the Non-qualified Pension Plans were $6.2 million and $5.8 million, respectively, as of December 31, 2002.

Other Postretirement Benefits — In addition to providing pension benefits, the Company provides certain health care benefits for retired employees and their spouses. Substantially all of the Company’s employees may become eligible for those benefits if they meet the requirements for early retirement under the Qualified Pension Plan and have a minimum of 10 years employment with the Company. For employees who retired on or subsequent to January 1, 1993, the Company will pay a fixed portion of medical insurance premiums, including Medicare Part B. Retirees will absorb future increases in medical premiums.

67

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

        The following tables set forth the amounts recognized in the Company’s financial statements with respect to Pension Benefits and Other Postretirement Benefits:

	Pension Benefits						Other Postretirement Benefits
(dollar amounts in thousands)		2002			2001			2002			2001
Change in benefit obligation:
Benefit obligation at beginning of year	$	57,143		$	51,698		$	8,515		$	8,274
Service cost		2,396			1,917			316			205
Interest cost		4,278			3,911			589			605
Actuarial loss		5,379			1,868			229			496
Benefits paid		(2,272	)		(2,251	)		(841	)		(1,065	)
Benefit obligation at end of year	$	66,924		$	57,143		$	8,808		$	8,515
Change in plan assets:
Fair value of plan assets at beginning of year	$	49,327		$	45,440		$	--		$	--
Actual return on plan assets		(6,437	)		(2,862	)		--			--
Employer contributions		16,500			9,000			--			--
Benefits paid		(2,272	)		(2,251	)		--			--
Fair value of plan assets at end of year	$	57,118		$	49,327		$	--		$	--
Benefit obligation greater than the fair value of plan assets	$	(9,806	)	$	(7,816	)	$	(8,808	)	$	(8,515	)
Unrecognized actuarial (gain) loss		29,126			13,603			(3,905	)		(4,354	)
Unrecognized prior service (cost) benefit		492			497			(722	)		(841	)
Unrecognized net transition obligation		333			329			--			--
Prepaid (accrued) benefit at end of year	$	20,145		$	6,613		$	(13,435	)	$	(13,710	)

	Pension Benefits									Other Postretirement Benefits
(dollar amounts in thousands)		2002			2001			2000			2002			2001			2000
Components of net periodic benefit cost:
Service cost	$	2,396		$	1,917		$	1,408		$	316		$	205		$	181
Interest cost		4,278			3,911			3,686			589			605			613
Expected return on plan assets		(4,333	)		(3,983	)		(4,375	)		--			--			--
Amortization of transition obligation		(4	)		(4	)		(4	)		--			--			--
Amortization of prior service cost		5			5			5			(119	)		(119	)		(119	)
Recognized actuarial (gain) loss		662			26			(34	)		(218	)		(231	)		(248	)
Net periodic benefit cost	$	3,004		$	1,872		$	686		$	568		$	460		$	427
Weighted average assumptions:
Discount rate		6.75%			7.25%			7.50%			6.75%			7.25%			7.50%
Expected return on plan assets		9.00%			9.00%			9.00%			--			--			--
Rate of compensation increase		4.50%			4.75%			4.75%			--			--			--

For the measurement of Other Postretirement Benefits, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually to 5.5% by 2007 and remain at that level thereafter. A one percentage point change in assumed health care cost trend rates would have an immaterial impact on the total service and interest cost components of the net periodic benefit cost and the postretirement benefit obligation.

        Qualified Pension Plan assets consist of approximately 35% equity securities and approximately 65% fixed maturity securities at December 31, 2002.

B. Defined Contribution Savings Plan — The Company also maintains a voluntary defined contribution savings plan covering substantially all employees. The Company matches employee contributions up to 5% of compensation. Contri-butions under such plans expensed in 2002, 2001 and 2000 were $3.4 million, $2.9 million and $2.6 million, respectively.

68

P M A  C A P I T A L

C.  Postemployment Benefits — The Company may provide certain benefits to employees subsequent to their employment, but prior to retirement including severance, long-term and short-term disability payments, and other related benefits. Postemployment benefits attributable to prior service and/or that relate to benefits that vest or accumulate are accrued presently if the payments are probable and reasonably estimable. Postemployment benefits that do not meet such criteria are accrued when payments are probable and reasonably estimable. See Note 14 for additional information regarding severance.

Note 14. Run-Off Operations

In May 2002, the Company announced its decision to withdraw from the excess and surplus lines marketplace previously served by the Caliber One operating segment. On January 2, 2003, the Company completed the sale of the capital stock of Caliber One Indemnity Company, and received gross proceeds of approximately $31 million, representing $3.5 million plus surplus of approximately $27 million. Pursuant to the agreement of sale, the Company has 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 the Company’s financial condition and results of operations. As a result of the Company’s decision to exit this business, the results of this segment are reported as Run-off Operations.

        As a result of the decision to exit from and run off this business, 2002 results for the Run-off Operations include a charge of $43 million pre-tax ($28 million after-tax). Components of the pre-tax charge include expenses associated with the recognition of liabilities of approximately $27 million, including reinsurance costs of approximately $19 million, long-term lease costs of approximately $4 million and involuntary employee termination benefits of approximately $3 million. In addition, the $43 million pre-tax charge includes approximately $16 million to write-down assets to their estimated net realizable value, including approximately $9 million for reinsurance, premiums and other receivables and a non-cash charge of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill. See Note 15 for additional information regarding the reinsurance component of the charge. The charge was included in Operating expenses (approximately $24 million) and Net premiums earned (approximately $19 million) in the statement of operations in 2002.

        During 2002, approximately 80 Caliber One employees, primarily in the underwriting area, were terminated in accordance with the Company’s exit plan. Approximately 17 positions, primarily claims, remain after the terminations. Involuntary employee termination benefits of $1.9 million were paid during 2002.

Note 15. Business Segments

The Company’s pre-tax operating income (loss) by principal business segment and net income (loss) are presented in the table below. In addition to providing net income (loss), the Company also provides operating income (loss) because management believes that it is a meaningful measure of the profit or loss generated by the Company’s operating segments. Operating income (loss) differs from GAAP net income (loss) in that it excludes net realized investment gains and losses because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains and losses that do not relate to the operations of the individual segments. Operating income (loss) does not replace net income (loss) as the GAAP measure of our results of operations.

(dollar amounts in thousands)		2002			2001			2000
Pre-tax operating income (loss):
PMA Re	$	13,422		$	(3,062	)	$	(7,297	)
The PMA Insurance Group		25,346			23,148			21,601
Run-off Operations		(87,501	)		(26,168	)		(7,014	)
Corporate and Other		(14,339	)		(6,322	)		(19,142	)
Pre-tax operating loss		(63,072	)		(12,404	)		(11,852	)
Net realized investment
gains (losses)		(16,085	)		7,988			11,975
Income (loss) before income taxes		(79,157	)		(4,416	)		123
Income tax benefit		(31,133	)		(11,519	)		(1,202	)
Net income (loss)	$	(48,024	)	$	7,103		$	1,325

The Company’s revenues, substantially all of which are generated within the U.S., by principal business segment were as follows:

(dollar amounts in thousands)		2002			2001		2000
PMA Re	$	600,249		$	385,762	$	302,234
The PMA Insurance Group		460,573			397,258		310,416
Run-off Operations		31,253			49,356		33,223
Corporate and Other		(853	)		9,608		2,142
Net realized investment
gains (losses)		(16,085	)		7,988		11,975
Total revenues	$	1,075,137		$	849,972	$	659,990

69

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

Net premiums earned by principal business segment are as follows:

(dollar amounts in thousands)		2002			2001			2000
PMA Re:
Traditional - Treaty
Casualty	$	167,411		$	66,242		$	79,942
Property		94,655			50,347			44,779
Other		4,949			1,285			683
Total		267,015			117,874			125,404
Finite Risk and Financial Products
Casualty		101,885			74,499			30,236
Property		86,639			108,395			45,085
Other		19,007			1,163			2,876
Total		207,531			184,057			78,197
Specialty - Treaty
Casualty		54,911			28,416			42,448
Property		2,998			1,378			1,031
Other		439			734			617
Total		58,348			30,528			44,096
Facultative
Casualty		12,263			4,727			65
Property		6,356			3,215			3,347
Total		18,619			7,942			3,412
Total casualty		336,470			173,884			152,691
Total property		190,648			163,335			94,242
Total other(1)		24,395			3,182			4,176
Total premiums earned		551,513			340,401			251,109
The PMA Insurance Group:
Workers' compensation and
integrated disability		333,956			284,128			195,856
Commercial automobile		43,384			32,664			26,963
Commercial multi-peril		25,390			25,863			27,669
Other		7,536			3,919			1,860
Total premiums earned		410,266			346,574			252,348
Run-off Operations		30,113			46,232			28,799
Corporate and Other		(881	)		(767	)		(832	)
Net premiums earned	$	991,011		$	732,440		$	531,424

(1) Primarily aviation, ocean marine and accident in 2002.

The Company’s amortization and depreciation expense by principal business segment were as follows:

(dollar amounts in thousands)		2002		2001		2000
PMA Re	$	4,159	$	3,520	$	1,803
The PMA Insurance Group		3,598		1,933		3,609
Run-off Operations		1,313		1,295		1,123
Corporate and Other		129		328		863
Total depreciation and
amortization expense	$	9,199	$	7,076	$	7,398

The Company’s total assets⁽¹⁾ by principal business segment were as follows:

(dollar amounts in thousands)		2002		2001
PMA Re	$	2,000,960	$	1,868,818
The PMA Insurance Group		1,874,610		1,678,206
Run-off Operations		206,849		299,756
Corporate and Other(2)		23,375		(43,801	)
Total assets	$	4,105,794	$	3,802,979

(1) Equity investments in subsidiaries, which eliminate in consolidation, are excluded from total assets for each segment.

(2) Corporate and Other includes the effects of eliminating transactions between the various insurance segments.

PMA Re distributes its products through reinsurance brokers, and PMA Re’s top four such brokers accounted for approximately 80% of PMA Re’s gross premiums written in 2002. During 2002, 2001 and 2000, total revenues of approximately $287 million, $110 million and $76 million, respectively, were placed through brokers which individually exceeded 10% of the Company’s total revenue.

        The PMA Insurance Group’s operations are concentrated in nine contiguous states in the eastern part of the U.S. As such, economic trends in individual states may not be independent of one another. Also, The PMA Insurance Group’s products are highly regulated by each of these states. For many of The PMA Insurance Group’s products, the insurance departments of the states in which it conducts business must approve rates and policy forms. In addition, workers’ compensation benefits are determined by statutes and regulations in each of these states. While The PMA Insurance Group considers factors such as rate adequacy, regulatory climate and economic factors in its underwriting process, unfavorable developments in these factors could have an adverse impact on the Company’s financial condition and results of operations. In 2002, 2001 and 2000, workers’ compensation net premiums written by The PMA Insurance Group represented 32%, 36% and 37%, respectively, of the Company’s net premiums written.

70

P M A  C A P I T A L

        PMA Re has agreed to assume the claims obligations of the Run-off Operations if the actual claim payments in the aggregate exceed the estimated payments upon which the loss reserves of the Run-off Operations were established. As a result of this transaction, PMA Re recorded assumed premium of $10 million in 2002. No losses were recorded by PMA Re in connection with this transaction. Also during 2002, PMA Re recorded assumed premium of $8.5 million in connection with the assumption of losses from the Run-off Operations, which PMA Re retroceded under its existing retrocessional contracts. As a result of these two transactions, the Run-off Operations recorded a ceded premium charge of $18.5 million in 2002 as part of the charge to exit from and run off the excess and surplus lines business. These amounts are reflected in the individual business segments’ pre-tax operating income (loss) and revenues.

        The Company actively manages its exposure to catastrophes through its underwriting process, where the Company generally monitors the accumulation of insurable values in catastrophe-prone regions. Also, in writing property reinsurance coverages, PMA Re typically requires per occurrence loss limitations for contracts that could have catastrophe exposure. Through per risk reinsurance, the Company manages its net retention in each exposure. PMA Re’s property per occurrence reinsurance provides catastrophe protection of $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 the cession of 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.

        Although the Company believes that it has adequate reinsurance to protect against the estimated probable maximum gross loss from a catastrophe, an especially severe catastrophe or series of catastrophes could exceed the Company’s reinsurance and/or retrocessional protection and may have a material adverse impact on the Company’s financial condition, results of operations and liquidity. In 2001, the Company’s results reflect approximately $30 million pre-tax ($20 million after-tax) of losses due to the attack on the World Trade Center. See Note 4 for additional information. In 2002 and 2000, the Company’s loss and LAE ratios were not significantly impacted by catastrophes.

Note 16. Transactions with Related Parties

The Company’s largest shareholder is PMA Foundation (the "Foundation"), a not-for-profit corporation qualified under Section 501(c)(6) of the Internal Revenue Code, whose purposes include the promotion of the common business interests of its members and the economic prosperity of the Commonwealth of Pennsylvania. As of December 31, 2002, the Foundation owned 5,558,050 shares, or 17.7%, of the Company’s Class A Common stock, and all but two members of the Company’s Board of Directors currently serve as members of the Foundation’s Board of Trustees. Also, Frederick W. Anton III, Chairman of the Company, serves as President and Chief Executive Officer of the Foundation. The Company and certain of its subsidiaries provide certain administrative services to the Foundation for which the Company and its subsidiaries receive reimbursement. Total reimbursements amounted to $13,000 for each of the years ended December 31, 2002, 2001 and 2000, respectively. The Foundation also leases its Harrisburg, Pennsylvania headquarters facility from a subsidiary of the Company under an operating lease presently requiring rent payments of $25,000 per month, and reimburses a subsidiary of the Company for its use of office space. Rent and related reimbursements paid to the Company’s affiliates by the Foundation was $304,000 for each of the years ended December 31, 2002, 2001 and 2000.

        The Company incurred legal and consulting expenses aggregating approximately $3.9 million, $4.8 million and $5.3 million in 2002, 2001 and 2000, respectively, from firms in which directors of the Company are partners or principals.

        At December 31, 2002, 2001 and 2000, the Company had notes receivable from officers totaling $62,000, $158,000 and $56,000, respectively, that are accounted for as a reduction of shareholders’ equity. At December 31, 2002, the interest rate on these notes was 4.75%.

        The Company has arranged an executive loan program with a financial institution. The institution provides personal demand loans to officers of the Company at a floating interest rate equal to the financial institution’s prime rate minus 1/2%. Such loans are collateralized by Class A Common stock beneficially owned by the officer and a Company treasury security. The Company has agreed to purchase any loan made to an officer (including accrued interest and related expenses) from the financial institution in the event that the borrower defaults on the loan. The amount of loans outstanding as of December 31, 2002 under this program was $2.2 million. The program expires on December 31, 2003.

71

P M A  C A P I T A L

Notes to Consolidated Financial Statements (continued)

Note 17. Statutory Financial Information

These consolidated financial statements vary in certain respects from financial statements prepared using statutory accounting practices that are prescribed or permitted by the Pennsylvania Insurance Department and the Delaware Insurance Department, (collectively "SAP"). Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners ("NAIC") publications. Permitted SAP encompasses all accounting practices that are not prescribed. The Codification of Statutory Accounting Principles ("Codification") guidance is the NAIC’s primary guidance on statutory accounting.

SAP net income (loss) and capital and surplus for PMA Capital’s domestic insurance subsidiaries are as follows:

(dollar amounts in thousands)		2002			2001			2000
SAP net income (loss):
PMA Capital Insurance Co.	$	(8,039	)	$	(18,708	)	$	8,920
The PMA Insurance Group		4,984			25,341			4,847
Caliber One Indemnity Co.		(27,874	)		(3,658	)		5,233
Total	$	(30,929	)	$	2,975		$	19,000
SAP capital and surplus:
PMA Capital Insurance Co.	$	580,151		$	559,578		$	529,631
The PMA Insurance Group		305,533			264,476			254,633
Caliber One Indemnity Co.		26,844			37,060			42,859
Eliminations(1)		(332,377	)		(301,536	)		(297,492	)
Total	$	580,151		$	559,578		$	529,631

(1) The surplus of The PMA Insurance Group’s domestic insurance subsidiaries and Caliber Indemnity Company are eliminated as they are included in the statutory surplus of PMA Capital Insurance Company, the parent company of these insurance companies.

A reconciliation of PMA Capital’s domestic insurance subsidiaries’ SAP net income (loss) to the Company’s GAAP net income (loss) is as follows:

(dollar amounts in thousands)		2002			2001			2000
SAP net income (loss) -
domestic insurance subsidiaries	$	(30,929	)	$	2,975		$	19,000
GAAP adjustments:
Dividends received from
subsidiaries		(15,200	)		(16,797	)		(1,706	)
Change in deferred acquisition costs		24,872			15,828			(109	)
Benefit (provision) for deferred
income taxes		3,790			(7,100	)		(5,205	)
Allowance for doubtful accounts		906			4,874			(454	)
Guaranty fund and loss based
assessments		(910	)		328			1,362
Other		(7,694	)		(10,610	)		1,984
GAAP net income (loss) -
domestic insurance subsidiaries		(25,165	)		(10,502	)		14,872
Other entities and eliminations		(22,859	)		17,605			(13,547	)
GAAP net income (loss)	$	(48,024	)	$	7,103		$	1,325

A reconciliation of PMA Capital’s domestic insurance subsidiaries’ SAP capital and surplus to the Company’s GAAP shareholders’ equity is as follows:

(dollar amounts in thousands)		2002			2001			2000
SAP capital and surplus -
domestic insurance subsidiaries	$	580,151		$	559,578		$	529,631
GAAP adjustments:
Deferred acquisition costs		89,222			64,350			48,522
Deferred income taxes		33,227			36,226			41,843
Allowance for doubtful accounts		(13,641	)		(13,954	)		(18,828	)
Retirement accruals		(9,106	)		(8,943	)		(9,370	)
Non-admitted assets		22,101			88,150			50,770
Unrealized gain (loss) on fixed
maturities available for sale		25,382			5,584			(12,789	)
Other		(6,527	)		12,030			16,969
GAAP shareholders' equity -
domestic insurance subsidiaries		720,809			743,021			646,748
Other entities and eliminations		(139,419	)		(131,015	)		(206,702	)
GAAP shareholders' equity	$	581,390		$	612,006		$	440,046

The Company’s statutory financial statements are presented on the basis of accounting practices prescribed or permitted by the Pennsylvania Insurance Department (for PMA Capital Insurance Company and The PMA Insurance Group) and the Delaware Insurance Department (for Caliber One Indemnity Company). Pennsylvania and Delaware have adopted Codification as the basis of their statutory accounting practices. However, Pennsylvania has retained the prescribed practice of non-tabular discounting of unpaid losses and LAE for workers’ compensation, which was not permitted under Codification. This prescribed accounting practice increased statutory capital and surplus by $13.0 million, $22.2 million and $20.4 million at December 31, 2002, 2001 and 2000, respectively, over what it would have been had the prescribed practice not been allowed. In addition, under this prescribed accounting practice, the Company discounted certain of its ceded unpaid loss and LAE reserves for workers’ compensation and increased its statutory credit for ceded reinsurance, which indirectly benefited statutory capital and surplus by approximately $72 million at December 31, 2002. Only if these reserves were not discounted and the Company was unsuccessful in obtaining collateral would the statutory surplus be directly impacted.

72

P M A  C A P I T A L

Report of Independent Accountants

PRICEWATERHOUSECOOPERS [LOGO]

To the Board of Directors and Shareholders of
PMA Capital Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows, shareholders’ equity and comprehensive income (loss) present fairly, in all material respects, the financial position of PMA Capital Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 5, 2003, except for Note 6,
as to which the date is March 17, 2003

73

P M A  C A P I T A L

Quarterly Financial Information (Unaudited)

The following unaudited quarterly financial data are presented on a consolidated basis for each of the years ended December 31, 2002 and 2001. Quarterly financial results necessarily rely on estimates and caution is required in drawing specific conclusions from quarterly consolidated results.

(dollar amounts in thousands, except share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2002
Income Statement Data:
Total revenues	$	227,375		$	284,139		$	271,007		$	292,616
Income (loss) before income taxes		(26,585	)		(45,550	)(1)		14,829			(21,851	)
Net income (loss)		(17,247	)		(29,749	)(1)		9,375			(10,403	)
Per Share Data:
Net income (loss) (Basic)	$	(0.55	)	$	(0.95	)(1)	$	0.30		$	(0.33	)
Net income (loss) (Diluted)	$	(0.55	)	$	(0.95	)(1)	$	0.30		$	(0.33	)
Class A Common Stock Prices:
High	$	23.10		$	25.99		$	20.50		$	15.30
Low		18.71			17.65			13.05			12.37
Close		22.94			21.15			15.00			14.33
2001
Income Statement Data:
Total revenues	$	193,599		$	217,075		$	210,155		$	229,143
Income (loss) before income taxes		(2,549	)		9,726			(20,934	)(2)		9,341
Net income (loss)		8,091			6,040			(13,650	)(2)		6,622
Per Share Data:
Net income (loss) (Basic)	$	0.38		$	0.28		$	(0.63	)(2)	$	0.29
Net income (loss) (Diluted)	$	0.37		$	0.28		$	(0.63	)(2)	$	0.29
Class A Common Stock Prices:
High	$	18.94		$	18.05		$	18.24		$	19.40
Low		16.50			16.59			16.13			16.05
Close		17.38			18.05			18.00			19.30

The Company had approximately 5,700 holders of its Class A Common stock at January 31, 2003 based on recordholders and other beneficial owners. In each quarter of 2001 and 2002, the Company declared quarterly dividends of $0.105 per share for its Class A Common stock.

(1) Includes approximately $43 million pre-tax ($28 million after-tax or $0.90 per basic and diluted share) for costs associated with the exit from and run off of Caliber One, our former excess and surplus lines business.

(2) Includes losses of approximately $30 million pre-tax ($20 million after-tax or $0.93 per basic and diluted share) for the attack on the World Trade Center.

74

P M A  C A P I T A L

Investor Information

Securities Listing

The Corporation’s Class A Common stock is listed on The Nasdaq Stock Market®. It trades under the stock symbol: PMACA

Dividends

PMA Capital Corporation’s quarterly dividends on Class A Common stock are paid on or about the first day of January, April, July and October.

77

EX-21

EXHIBIT 21

PMA Capital Corporation
Significant Subsidiaries of Registrant
As of December 31, 2002

PMA Capital Corporation (Pennsylvania)
     PMA Capital Insurance Company (Pennsylvania)
          Pennsylvania Manufacturers' Association Insurance Company (Pennsylvania)
          Pennsylvania Manufacturers Indemnity Company (Pennsylvania)
          Manufacturers Alliance Insurance Company (Pennsylvania)
          PMA Re Corporate Capital Limited (UK)
          PMA Holdings Ltd. (Bermuda)
               Pennsylvania Manufacturers' International Insurance Ltd. (Bermuda)
     Mid-Atlantic States Investment Company (Delaware)
          PMA Holdings, Cayman Ltd. (Cayman)
          High Mountain Reinsurance, Ltd. (Cayman)
          PMA Insurance SPC, Cayman (Cayman)
     PMA Re Management Company (Pennsylvania)
     PMA Management Corporation (Pennsylvania)
     PMA Services Incorporated (Pennsylvania)

EX-23

EXHIBIT 23

PRICEWATERHOUSECOOPERS LLP (LOGO)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-45949, File No. 333-68855, File No. 333-77111, File No. 333-73240 and File No. 333-86796) and Form S-3 (File No. 333-84764) of our report dated February 5, 2003, except for Note 6, as to which the date is March 17, 2003, relating to the consolidated financial statements, which appears in the 2002 Annual Report to Shareholders of PMA Capital Corporation, which is incorporated by reference in PMA Capital Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002. We also consent to the incorporation by reference of our report dated February 5, 2003 relating to the financial statement schedules, which appears in such Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 20, 2003

EX-24

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and officer of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ John W. Smithson
    John W. Smithson

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and officer of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Frederick W. Anton III
    Frederick W. Anton III

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Paul I. Detwiler, Jr.
    Paul I. Detwiler, Jr.

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Joseph H. Foster
    Joseph H. Foster

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Thomas J. Gallen
    Thomas J. Gallen

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Anne S. Genter
    Anne S. Genter

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ James F. Malone III
    James F. Malone III

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Louis N. McCarter III
    Louis N. McCarter III

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ John W. Miller, Jr.
    John W. Miller, Jr.

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Edward H. Owlett
    Edward H. Owlett

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Roderic H. Ross
    Roderic H. Ross

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ L. J. Rowell, Jr.
    L. J. Rowell, Jr.

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Charles A. Brawley, III, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA's Annual Report on Form 10-K for the year ended December 31, 2002 and all amendments thereto;

(ii) all amendments to PMA’s registration statement on Form S-3, Registration Number 333-84764, including without limitation, post-effective amendments thereto, pertaining to a shelf offering by PMA of an indeterminate amount of its Class A Common Stock, $5 par value per share, preferred stock, $.01 par value per share, debt securities, depositary shares, warrants, stock purchase contracts, units, preferred securities of a trust or trusts and a guarantees of the preferred securities of a trust or trusts, and any and all related registration statements filed pursuant to Rule 462(b) of the Securities Act and all post-effective amendments thereto; and

(iii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2004.

        IN WITNESS WHEREOF, the undersigned has executed this document as of the 5th day of February 2003.

/s/ Neal Schneider
    Neal Schneider

EX-24

Exhibit 24.2

CERTIFIED RESOLUTIONS

Certified to be a true and correct copy of the resolutions adopted by the Board of Directors of PMA Capital Corporation at a meeting held on February 5, 2003, a quorum being present, and such resolutions are still in full force and effect as of this date of certification, not having been amended, modified or rescinded since the date of their adoption.

        RESOLVED, that the Officers of the Company, and each of them, are hereby authorized to sign the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and any amendments thereto, (the “Form 10-K”) in the name and on behalf of the Company and as attorneys for each of its Directors and Officers.

        RESOLVED, that each Officer and Director of the Company who may be required to execute (whether on behalf of the Company or as an Officer or Director thereof) the Form 10-K, is hereby authorized to execute and deliver a power of attorney appointing such person or persons named therein as true and lawful attorneys and agents to execute in the name, place and stead (in any such capacity) of any such Officer or Director the Form 10-K and to file any such power of attorney together with the Form 10-K with the Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company, this 20th day of March, 2003.

/s/ Charles A. Brawley, III
Charles A. Brawley, III
Assistant Secretary

(SEAL)

EX-99

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, John W. Smithson, President and Chief Executive Officer of PMA Capital Corporation, do hereby certify, to the best of my knowledge, that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, the information contained in the Annual Report of PMA Capital Corporation on Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMA Capital Corporation.

/s/ John W. Smithson

John W. Smithson
President and Chief Executive Officer

March 20, 2003

EX-99

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, William E. Hitselberger, Senior Vice President, Chief Financial Officer and Treasurer of PMA Capital Corporation, do hereby certify, to the best of my knowledge, that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, the information contained in the Annual Report of PMA Capital Corporation on Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMA Capital Corporation.

/s/ William E. Hitselberger

William E. Hitselberger
Senior Vice President,
Chief Financial Officer and
Treasurer

March 20, 2003