10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

/  / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number 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.)
Mellon Bank Center, Suite 2800
1735 Market Street
Philadelphia, Pennsylvania	19103-7590
(Address of principal executive offices)	(Zip Code)

(215) 665-5046
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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

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 July 31, 2003.

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated balance sheets as of June 30, 2003 and December 31, 2002 (unaudited)	1
	Consolidated statements of operations for the three and six months ended June 30, 2003 and 2002 (unaudited)	2
	Consolidated statements of cash flows for the six months ended June 30, 2003 and 2002 (unaudited)	3
	Consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2003 and 2002 (unaudited)	4
	Notes to the unaudited consolidated financial statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	33
Item 4.	Controls and Procedures	33
Part II.	Other Information
Item 5.	Submission of Matters to a Vote of Security Holders	33
Item 6.	Exhibits and Reports on Form 8-K	34
Signatures		35
Exhibit Index		36

Part I. Financial Information
Item 1. Financial Statements

PMA Capital Corporation
Consolidated Balance Sheets
(Unaudited)

(dollar amounts in thousands)	As of June 30, 2003			As of December 31, 2002
Assets:
Investments and cash:
Fixed maturities available for sale, at fair value
(amortized cost: 2003 - $1,660,092; 2002 - $1,477,921)	$	1,741,879		$	1,529,924
Short-term investments		282,366			298,686
Short-term investments, loaned securities collateral		185,566			--
Cash		12,556			43,853
Total investments and cash		2,222,367			1,872,463
Accrued investment income		19,357			18,600
Premiums receivable (net of valuation allowance:
2003 - $10,761; 2002 - $9,528)		394,065			363,675
Reinsurance receivables (net of valuation allowance:
2003 - $6,243; 2002 - $5,483)		1,307,506			1,295,083
Deferred income taxes, net		70,928			94,074
Deferred acquisition costs		108,740			89,222
Funds held by reinsureds		165,533			157,479
Other assets		249,110			215,198
Total assets	$	4,537,606		$	4,105,794
Liabilities:
Unpaid losses and loss adjustment expenses	$	2,430,276		$	2,449,890
Unearned premiums		499,960			405,379
Short-term debt		--			65,000
Long-term debt		176,250			86,250
Accounts payable, accrued expenses and other liabilities		301,049			253,175
Funds held under reinsurance treaties		311,081			249,670
Dividends to policyholders		15,669			14,998
Payable under securities loan agreements		185,574			42
Total liabilities		3,919,859			3,524,404
Commitments and contingencies (Note 6)
Shareholders' Equity:
Class A Common stock, $5 par value
(2003 - 60,000,000 authorized, 34,217,945 shares issued       and 31,328,922 outstanding
2002 - 40,000,000 authorized, 34,217,945 shares issued       and 31,328,922 outstanding)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		335,304			319,014
Accumulated other comprehensive income		54,621			34,552
Notes receivable from officers		(64	)		(62	)
Treasury stock, at cost (shares: 2003 - 2,889,023 and 2002 - 2,889,023)		(52,535	)		(52,535	)
Total shareholders' equity		617,747			581,390
Total liabilities and shareholders' equity	$	4,537,606		$	4,105,794

See accompanying notes to the unaudited consolidated financial statements.

1

PMA Capital Corporation
Consolidated Statement of Operations
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands, except per share data)	2003			2002			2003			2002
Revenues:
Net premiums written	$	290,656		$	302,503		$	641,514		$	591,144
Change in net unearned premiums		(5,034	)		(27,703	)		(81,822	)		(116,670	)
Net premiums earned		285,622			274,800			559,692			474,474
Net investment income		17,780			23,200			35,425			45,786
Net realized investment gains (losses)		4,451			(17,552	)		8,806			(16,160	)
Other revenues		4,766			3,691			11,766			7,414
Total revenues		312,619			284,139			615,689			511,514
Losses and expenses:
Losses and loss adjustment expenses		193,074			206,009			395,659			392,227
Acquisition expenses		72,215			64,318			128,435			105,812
Operating expenses		24,222			56,387			48,094			78,504
Dividends to policyholders		2,054			2,403			4,090			6,007
Interest expense		2,225			572			3,983			1,099
Total losses and expenses		293,790			329,689			580,261			583,649
Income (loss) before income taxes		18,829			(45,550	)		35,428			(72,135	)
Income tax expense (benefit):
Current		221			--			221			--
Deferred		6,441			(15,801	)		12,338			(25,139	)
Total		6,662			(15,801	)		12,559			(25,139	)
Net income (loss)	$	12,167		$	(29,749	)	$	22,869		$	(46,996	)
Net income (loss) per share:
Basic	$	0.39		$	(0.95	)	$	0.73		$	(1.50	)
Diluted	$	0.39		$	(0.95	)	$	0.73		$	(1.50	)

See accompanying notes to the unaudited consolidated financial statements.

2

PMA Capital Corporation
Consolidated Statements of Cash Flows
(Unaudited)

	Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002
Cash flows from operating activities:
Net income (loss)	$	22,869		$	(46,996	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in)
operating activities:
Deferred income tax expense (benefit)		12,338			(25,139	)
Net realized investment (gains) losses		(8,806	)		16,160
Change in:
Premiums receivable and unearned premiums, net		64,191			48,492
Reinsurance receivables		(12,423	)		(89,447	)
Unpaid losses and loss adjustment expenses		(19,614	)		69,790
Funds held by reinsureds		(8,054	)		(2,865	)
Funds held under reinsurance treaties		61,411			8,210
Deferred acquisition costs		(19,518	)		(19,333	)
Accounts payable, accrued expenses and other liabilities		18,550			28,178
Dividends to policyholders		671			1,073
Accrued investment income		(757	)		(984	)
Other, net		(17,956	)		756
Net cash flows provided by (used in) operating activities		92,902			(12,105	)
Cash flows from investing activities:
Fixed maturities available for sale:
Purchases		(567,601	)		(317,776	)
Maturities or calls		153,465			93,339
Sales		242,678			221,935
Net sales of short-term investments		16,322			14,190
Sale of subsidiary, net of cash sold		17,676			--
Other, net		(1,806	)		(6,287	)
Net cash flows provided by (used in) investing activities		(139,266	)		5,401
Cash flows from financing activities:
Dividends paid to shareholders		(6,579	)		(5,526	)
Issuance of long-term debt		90,000			--
Debt issue costs		(3,354	)		--
Repayments of short-term debt		(65,000	)		--
Proceeds from exercise of stock options		--			2,696
Purchase of treasury stock		--			(1,726	)
Net repayments of notes receivable from officers		--			97
Net cash flows provided by (used in) financing activities		15,067			(4,459	)
Net decrease in cash		(31,297	)		(11,163	)
Cash - beginning of period		43,853			20,656
Cash - end of period	$	12,556		$	9,493
Supplementary cash flow information:
Income taxes paid (refunded)	$	2,600		$	(1,000	)
Interest paid	$	2,986		$	863

See accompanying notes to the unaudited consolidated financial statements.

3

PMA Capital Corporation
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Net income (loss)	$	12,167		$	(29,749	)	$	22,869		$	(46,996	)
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during the period		22,390			5,264			25,129			(10,576	)
Less: reclassification adjustment for (gains)
losses included in net income (loss) (net of
tax expense (benefit): $1,558 and ($6,143) for
three months ended June 30, 2003 and
2002; $3,082 and ($5,656) for six months
ended June 30, 2003 and 2002)		(2,893	)		11,409			(5,724	)		10,504
Total unrealized gain (loss) on securities		19,497			16,673			19,405			(72	)
Foreign currency translation gain, net of tax
expense: $541 and $352 for three months
ended June 30, 2003 and 2002; $358 and $249 for
six months ended June 30, 2003 and 2002		1,005			654			664			463
Other comprehensive income, net of tax		20,502			17,327			20,069			391
Comprehensive income (loss)	$	32,669		$	(12,422	)	$	42,938		$	(46,605	)

See accompanying notes to the unaudited consolidated financial statements.

4

PMA Capital Corporation

Notes to the Unaudited Consolidated Financial Statements

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 operates 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. 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 9 for additional information.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. It is management’s opinion that all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to the 2003 presentation.

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. Due to this and certain other factors, such as the seasonal nature of portions of the insurance business as well as competitive and other market conditions, operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.

The information included in this Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in its 2002 Annual Report to Shareholders and incorporated by reference in its Form 10-K for the year ended December 31, 2002.

B. Recent Accounting Pronouncements – Effective December 31, 2002, the Company adopted the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amended 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.

5

The following table illustrates the effect on net income (loss) if the fair value based method had been applied:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands, except per share data)	2003			2002			2003			2002
Net income (loss)	$	12,167		$	(29,749	)	$	22,869		$	(46,996	)
Stock-based compensation expense
already included in reported net income
(loss), net of tax		39			12			77			70
Total stock-based compensation expense
determined under fair value based
method, net of tax		(300	)		(380	)		(518	)		(699	)
Pro forma net income (loss)	$	11,906		$	(30,117	)	$	22,428		$	(47,625	)
Net income (loss) per share:
Basic - as reported	$	0.39		$	(0.95	)	$	0.73		$	(1.50	)
Basic - pro forma	$	0.38		$	(0.96	)	$	0.72		$	(1.52	)
Diluted - as reported	$	0.39		$	(0.95	)	$	0.73		$	(1.50	)
Diluted - pro forma	$	0.38		$	(0.96	)	$	0.72		$	(1.52	)

Effective January 1, 2003, the Company adopted the recognition provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The Company had previously applied the disclosure provisions of FIN 45 to its year end 2002 financial statements. 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. Adoption of FIN 45 did not have a material effect on the Company’s consolidated financial condition, results of operations or liquidity.

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 were effective January 1, 2002. SFAS No. 144 supercedes 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, 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 is running 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 have been tested for impairment in accordance with the provisions of SFAS No. 144. See Note 9 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 the Company announced in May 2002.

6

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. During the second quarter of 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. As of June 30, 2003, the Company had no goodwill which is subject to the provisions of SFAS No. 142. The Company has approximately $3.0 million of equity method goodwill (included in other assets on the Balance Sheet), which is accounted for under the provisions of APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.”

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 must consolidate a VIE if the company has a variable interest that will absorb a majority of the VIEs expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur or both. FIN 46 also requires the disclosure of certain information related to VIEs in which a company holds a significant variable interest. FIN 46 is effective for new VIEs established subsequent to January 31, 2003, and for existing VIEs as of July 1, 2003.

The Company is currently assessing the impact that implementing FIN 46 may have on its consolidated financial statements. In this regard, the Company is currently 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 disclosure in the Company’s future financial statements. If the Company were to conclude that it must consolidate Trabaja into its financial statements in accordance with FIN 46, the Company currently estimates that this would result in an increase in investments of approximately $280 million and a decrease in reinsurance receivables of approximately $370 million on the Balance Sheet, and the Company currently estimates that any impact from the initial adoption of FIN 46 would be a non-cash cumulative effect adjustment of no more than approximately $60 million after-tax. Any impact resulting from the implementation of FIN 46 would be subsequently reflected as earnings in future periods for the Company. In addition, the Company is currently evaluating the impact, if any, of FIN 46 on its reporting for two of its wholly owned statutory trusts, which issued $32.5 million of trust preferred securities that are included on the Company’s Balance Sheet at June 30, 2003. See Note 5 for additional information about the trust preferred debt. The Company currently does not expect the application of FIN 46 to these wholly owned statutory trusts to be material to the Company’s financial condition, results of operations or liquidity. The Company is required to adopt FIN 46 in the third quarter of 2003. FIN 46 will have no effect on the statutory capital or results of operations of the Company’s insurance subsidiaries.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. The Company does not expect adoption of this statement to have a material impact on its financial condition, results of operations or liquidity.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for instruments entered into or modified after May 31, 2003 and the disclosure requirements are effective for the third quarter of 2003. Adoption of this statement did not have an impact on the Company’s financial statements.

7

3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

At June 30, 2003, the Company estimated that under all insurance policies and reinsurance contracts issued by its insurance businesses the Company’s liability for unpaid losses and loss adjustment expenses (“LAE”) for all events that occurred as of June 30, 2003 was $2,430.3 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. This estimate includes amounts for losses occurring prior to June 30, 2003 whether or not these claims have been reported to the Company.

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, various 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.

PMA Re increased net loss reserves for prior accident years by $10.0 million and $19.5 million for the three and six months ended June 30, 2003, respectively. Each quarter, company actuaries conduct their quarterly reserve reviews to determine the impact of any emerging data on loss development trends and recorded unpaid losses and LAE reserves. During the first quarter of 2003, company actuaries identified higher than expected reported losses and, to a lesser extent, higher than expected paid losses arising from a limited number of ceding company clients who had recently reported loss development in their general liability line of business. This loss emergence occurred mainly in pro rata business written in 1998 to 2000. PMA Re increased its net loss reserves for prior accident years related to this business based on the information available at that time. During the second quarter of 2003, company actuaries continued to monitor this business and based on new information received and analyzed by the actuaries, observed that reported and incurred claims activity during the second quarter was higher than previously expected. Based on this new information, loss reserves for prior accident years were increased in the second quarter of 2003.

During the first quarter of 2002, company actuaries conducted a quarterly reserve review to determine the impact of any emerging data on 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 this review indicated that net loss reserves needed to be increased by $40 million. This unfavorable prior year development reflected the impact of higher than expected claim severity and, to a lesser extent, frequency, that emerged in the first quarter of 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.

Management believes that its unpaid losses and LAE are fairly stated at June 30, 2003. 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, the impact of regulatory trends on benefit levels for both medical and indemnity payments, changes in 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 June 30, 2003, the related adjustments could have a material adverse impact on the Company’s financial condition, results of operations and liquidity.

8

4. REINSURANCE

The Company follows the customary insurance practice of reinsuring with other insurance companies a portion of the risks under the policies written by its insurance subsidiaries. The Company’s insurance and reinsurance subsidiaries maintain reinsurance to protect themselves 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 components of net premiums written, net premiums earned and losses and LAE incurred are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Premiums written:
Direct	$	126,831		$	138,084		$	335,419		$	387,645
Assumed		235,068			255,045			446,174			393,292
Ceded		(71,243	)		(90,626	)		(140,079	)		(189,793	)
Net	$	290,656		$	302,503		$	641,514		$	591,144
Premiums earned:
Direct	$	147,520		$	153,516		$	285,200		$	307,284
Assumed		197,654			212,210			392,880			342,941
Ceded		(59,552	)		(90,926	)		(118,388	)		(175,751	)
Net	$	285,622		$	274,800		$	559,692		$	474,474
Losses and LAE:
Direct	$	112,900		$	129,237		$	221,908		$	309,129
Assumed		139,267			150,386			292,890			247,826
Ceded		(59,093	)		(73,614	)		(119,139	)		(164,728	)
Net	$	193,074		$	206,009		$	395,659		$	392,227

5. DEBT

(dollar amounts in thousands)	As of June 30, 2003		As of December 31, 2002
Short-term debt:
Bank credit facility	$	--	$	65,000
Long-term debt:
4.25% Convertible debt		86,250		86,250
Trust preferred securities		32,500		--
8.50% Senior notes		57,500		--
Total long-term debt		176,250		86,250
Total debt	$	176,250	$	151,250

At December 31, 2002, the Company had $65 million of short-term debt under its bank credit facility (“Credit Facility”) and $86.25 million aggregate principal amount of 4.25% convertible senior debentures (“Convertible Debt”). In March 2003, the Company repaid $20 million of the Credit Facility and amended the Credit Facility to reduce it to $45 million in borrowing capacity. In the second quarter of 2003, the Company repaid the remaining $45 million outstanding and retired the Credit Facility.

9

During May 2003, the Company privately placed $17.5 million (“Trust Preferred 1”) and $15.0 million (“Trust Preferred 2”) of 30-year floating rate trust preferred securities through two wholly owned statutory trust subsidiaries The Company used all of the approximately $31.5 million of net proceeds from the sales of these securities to pay down a portion of its Credit Facility. These securities have a 30-year maturity and are redeemable by the Company in whole, or in part, after five years from issuance at their stated liquidation amount plus accrued and unpaid interest. The interest rates on Trust Preferred 1 and 2 will equal the three-month London InterBank Offered Rate (“LIBOR”) plus 4.10% and three-month LIBOR plus 4.20%, respectively. Trust Preferred 1 and 2 will bear interest at the rate of 5.41% and 5.48% per annum through the initial interest payment dates of August 15, 2003 and August 23, 2003, respectively. The Company has entered into interest rate swaps that will become effective in August 2003 and will mature in May 2008. The Company has designated the interest rate swaps as cash flow hedges to manage interest costs and cash flows associated with the variable interest rates associated with Trust Preferred 1 and 2. The interest rate swaps have notional amounts of $17.5 million and $15.0 million, and will effectively convert Trust Preferred 1 and 2 floating-rate securities to fixed rate debt with interest rates of 6.70% and 6.80%, respectively. The Company has the right to defer interest payments on Trust Preferred 1 and 2 for up to twenty consecutive quarters but, if so deferred, the Company may not declare or pay cash dividends or distributions on its Class A common stock. The obligations of the statutory trust subsidiaries are guaranteed by PMA Capital with respect to distributions and payments of Trust Preferred 1 and 2, and the Company issued junior subordinated debentures to the statutory trust subsidiaries which have substantially the same terms as Trust Preferred 1 and 2.

In June 2003, the Company issued $57.5 million of 8.50% monthly income senior notes due June 15, 2018, from which it realized net proceeds of approximately $55 million. The Company used the proceeds from the offering to repay the remaining balance outstanding under the Credit Facility, to increase the statutory capital and surplus of its insurance subsidiaries, and for general corporate purposes. The Company has the right to call these securities beginning in June 2008.

In October 2002, the Company issued $86.25 million aggregate principal amount of 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 on March 30 and September 30. 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.

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 June 30, 2003, the aggregate outstanding face value amount of letters of credit issued was $15.0 million. The Letter of Credit Facility is utilized primarily for collateralizing reinsurance obligations of the insurance subsidiaries of the Company. At June 30, 2003, fees for the Letter of Credit Facility were 0.45% per annum on the utilized portion and 0.15% on the unutilized portion. The Letter of Credit Facility is collateralized by securities with a total amortized cost of $21.8 million and a fair value of $22.3 million at June 30, 2003. The securities pledged as collateral are included in fixed maturities on the Balance Sheet.

The covenants supporting the Company’s outstanding debt 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 covenants of the Company’s Letter of Credit Facility 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 covenants of the Letter of Credit Facility place restrictions on dividends to shareholders. Under the most restrictive covenant, the Company would be able to pay dividends of approximately $25 million in 2003.

10

6. COMMITMENTS AND CONTINGENCIES

The Company’s 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 the Company. The eventual effect on the Company of the changing environment in which it operates remains uncertain.

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 June 30, 2003, the Company had recorded a liability of $6.7 million for these assessments, which is included in accounts payable, accrued expenses and other liabilities on the Balance Sheet.

The Company has provided a guaranty of $7.0 million related to loans on properties in which the Company has an interest. This guarantee shall continue to be in force until the related loan has been satisfied. The loan is scheduled to be repaid on November 1, 2004. 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. This program expires on December 31, 2003.

Under the terms of the sale of one of the Company’s insurance subsidiaries in 1998, the Company has agreed to indemnify the buyer, up to a maximum of $15.0 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, 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 recoverables by amounts that would be material to the Company’s financial condition, results of operations or liquidity.

7. SHAREHOLDERS’ EQUITY

In May 2003, shareholders approved an increase in the authorized shares of PMA Capital’s Class A common stock, which has a $5 par value, from 40 million shares to 60 million shares.

11

8. EARNINGS PER SHARE

Shares used as the denominator of the basic and diluted earnings per share were computed as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Basic shares - weighted average shares outstanding		31,328,922		31,279,419		31,328,922		31,240,098
Effect of dilutive stock options		2,275		--		11,560		--
Total diluted shares		31,331,197		31,279,419		31,340,482		31,240,098

For all periods presented, there were no differences in the numerator (net income (loss)), for the basic and diluted earnings per share calculation. The effects of 2.6 million stock options were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2003, and the effect of 3.4 million stock options were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2002, because they would have been anti-dilutive.

The 2003 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.

9. 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 closed on the sale of the capital stock of Caliber One Indemnity Company. The sale generated gross proceeds of approximately $31 million and resulted in a pre-tax gain of $2.5 million, which is included in other revenues in the Statement of Operations for the six months ended June 30, 2003. During the first quarter of 2003, the Company recognized an additional $2.5 million writedown of assets, including approximately $2 million for reinsurance receivables and $500,000 for premiums receivable, reflecting an assessment of their estimated net realizable value. The writedown is included in operating expenses in the Statement of Operations for the six months ended June 30, 2003.

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 on the sale. As a result of the Company’s decision to exit from and run off 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, results for the Run-off Operations for the quarter ended June 30, 2002 included a charge of $43 million pre-tax ($28 million after-tax). Components of the pre-tax charge include approximately $16 million to write-down assets to their estimated net realizable value, including a non-cash charge of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill.

In addition, the $43 million pre-tax charge includes 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. At June 30, 2003, the Company has a remaining obligation of approximately $1.8 million for net lease costs, the majority of which will be paid through 2004, and approximately $270,000 for severance, which will be paid through 2004.

During 2002, approximately 80 Caliber One employees, primarily in the underwriting area, were terminated in accordance with the Company’s exit plan. Approximately 14 positions, primarily claims, remain after the terminations. Involuntary employee termination benefits of approximately $2.6 million have been paid through June 30, 2003, including approximately $600,000 during the first six months of 2003.

12

10. BUSINESS SEGMENTS

The Company’s total revenues, substantially all of which are generated within the U.S., and pre-tax operating income (loss) by principal business segment are presented in the table below. Operating income (loss), which is GAAP net income (loss) excluding net realized investment gains and losses, is the financial performance measure used by the Company’s management and Board of Directors to evaluate and assess the results of the Company’s insurance businesses. Accordingly, the Company reports operating income by segment in this footnote as required by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The Company’s management and Board of Directors use operating income as the measure of financial performance for our business segments because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the 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. Operating income (loss) does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Revenues:
PMA Re	$	159,615		$	183,133		$	319,285		$	278,941
The PMA Insurance Group		147,130			113,191			276,073			231,269
Corporate and Other		503			(207	)		898			(533	)
Run-off Operations(1)		920			5,574			10,627			17,997
Net realized investment gains (losses)		4,451			(17,552	)		8,806			(16,160	)
Total revenues	$	312,619		$	284,139		$	615,689		$	511,514
Components of net income (loss):
Pre-tax operating income (loss):
PMA Re	$	13,107		$	13,769		$	21,684		$	26,706
The PMA Insurance Group		6,838			6,387			15,178			12,794
Corporate and Other		(5,564	)		(3,747	)		(10,238	)		(7,980	)
Run-off Operations(1)		(3	)		(44,407	)		(2	)		(87,495	)
Net realized investment gains (losses)		4,451			(17,552	)		8,806			(16,160	)
Income (loss) before income taxes		18,829			(45,550	)		35,428			(72,135	)
Income tax expense (benefit)		6,662			(15,801	)		12,559			(25,139	)
Net income (loss)	$	12,167		$	(29,749	)	$	22,869		$	(46,996	)

(1) In May 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, formerly known as Caliber One, are reported as Run-off Operations.

13

Net premiums earned by business segment are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
PMA Re:
Finite Risk and Financial Products
Casualty	$	34,819		$	47,011		$	61,517		$	68,157
Property		28,173			25,941			54,916			46,959
Other		745			4,378			3,798			9,491
Total		63,737			77,330			120,231			124,607
Traditional - Treaty
Casualty		40,856			51,793			86,112			64,608
Property		17,711			21,145			39,072			33,782
Other		185			390			575			744
Total		58,752			73,328			125,759			99,134
Specialty - Treaty
Casualty		17,576			13,506			35,398			18,721
Property		62			(2,548	)		958			(2,319	)
Other		76			102			316			210
Total		17,714			11,060			36,672			16,612
Facultative
Casualty		5,024			6,273			10,192			7,848
Property		1,406			1,000			2,912			2,831
Other		4			--			4			--
Total		6,434			7,273			13,108			10,679
Accident
Casualty		79			--			126			--
Other		4,288			--			6,347			--
Total		4,367			--			6,473			--
Total casualty		98,354			118,583			193,345			159,334
Total property		47,352			45,538			97,858			81,253
Total other(1)		5,298			4,870			11,040			10,445
Total premiums earned		151,004			168,991			302,243			251,032
The PMA Insurance Group:
Workers' compensation and integrated disability		110,087			80,174			203,361			165,204
Commercial automobile		14,019			11,966			26,994			23,864
Commercial multi-peril		7,460			6,740			14,567			13,555
Other		2,784			1,809			5,669			3,717
Total premiums earned		134,350			100,689			250,591			206,340
Run-off Operations		392			5,335			7,238			17,535
Corporate and Other		(124	)		(215	)		(380	)		(433	)
Consolidated net premiums earned	$	285,622		$	274,800		$	559,692		$	474,474

(1) Primarily aviation, ocean marine and accident.

14

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition as of June 30, 2003, compared with December 31, 2002, and our results of operations for the three and six months ended June 30, 2003, compared with the same periods last year. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in our Form 10-K for the year ended December 31, 2002 (“2002 Form 10-K”), to which the reader is directed for additional information. The term “GAAP” refers to accounting principles generally accepted in the United States of America.

This 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 32 for a list of factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Also, see Business – Risk Factors in our 2002 Form 10-K for a further discussion of risks that could materially affect our business.

RESULTS OF OPERATIONS

Consolidated Results

We recorded net income of $12.2 million and $22.9 million for the three and six months ended June 30, 2003, respectively, compared to net losses of $29.7 million and $47.0 million for the same periods last year.

Included in net income (loss) are after-tax net realized investment gains of $2.9 million and $5.7 million for the three and six months ended June 30, 2003, respectively, compared to after-tax net realized losses of $11.4 million and $10.5 million for the same periods last year. The net realized losses in 2002 include impairment losses of $10.3 million after-tax on fixed income securities, including $9.2 million for WorldCom.

Also included in the net loss for the second quarter of 2002 was a charge of approximately $28 million after-tax ($43 million pre-tax) for costs to exit from and run off business written by the Run-off Operations (formerly known as the Caliber One operating segment), which we exited in May 2002. The net loss for the first six months of 2002 also included prior year loss development of approximately $26 million after-tax ($40 million pre-tax) at the Run-off Operations in the first quarter of 2002.

In addition to the changes in realized investment results and the losses for the Run-off Operations in 2002 noted above, results for the second quarter and first six months of 2003 reflect improved underwriting results, partially offset by lower net investment income and higher interest expense.

Consolidated revenues increased to $312.6 million and $615.7 million for the three and six months ended June 30, 2003, respectively, compared to $284.1 million and $511.5 million for the same periods last year. The increases in revenues reflect higher net premiums earned by PMA Re and The PMA Insurance Group due to rate increases over the past few years. Additionally, pre-tax net realized investment gains were $4.5 million and $8.8 million for the second quarter and first six months of 2003, compared to pre-tax net realized investment losses of $17.6 million and $16.2 million for the same periods last year.

In this MD&A, in addition to providing consolidated net income (loss), we also provide segment 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), which is GAAP net income (loss) excluding net realized investment gains and losses, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our insurance businesses. Accordingly, we report operating income by segment in Note 10 to our Unaudited Consolidated Financial Statements as required by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” Our management and Board of Directors use operating income as the measure of financial performance because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the 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

15

individual segments. Operating income (loss) does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

Following is a reconciliation of our segment operating results to GAAP net income (loss). Please see Note 10 to our Unaudited Consolidated Financial Statements for further information.

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Components of net income (loss):
Pre-tax operating income (loss):
PMA Re	$	13,107		$	13,769		$	21,684		$	26,706
The PMA Insurance Group		6,838			6,387			15,178			12,794
Corporate and Other		(5,564	)		(3,747	)		(10,238	)		(7,980	)
Run-off Operations(1)		(3	)		(44,407	)		(2	)		(87,495	)
Net realized investment gains (losses)		4,451			(17,552	)		8,806			(16,160	)
Income (loss) before income taxes		18,829			(45,550	)		35,428			(72,135	)
Income tax expense (benefit)		6,662			(15,801	)		12,559			(25,139	)
Net income (loss)	$	12,167		$	(29,749	)	$	22,869		$	(46,996	)

(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.

We also provide combined ratios and operating ratios for our insurance segments on pages 18 and 22. The “combined ratio “ is a measure of property and casualty underwriting performance. The combined ratio computed using GAAP-basis numbers is equal to losses and loss adjustment expenses (“LAE”), plus acquisition expenses, insurance-related operating expenses and policyholders’ dividends, where applicable, all divided by net premiums earned. A combined ratio of less than 100% reflects an underwriting profit. 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.

16

Business Outlook

Our current expectation is that full year 2003 consolidated premiums for PMA Re and The PMA Insurance Group will increase by approximately 10-15% over 2002 levels. In addition, we expect that the consolidated combined ratio for full year 2003 at PMA Re and The PMA Insurance Group will be approximately equal to the combined ratio achieved in the first half of 2003. This reflects our expectation for continued strong results from the 2001, 2002 and 2003 underwriting years and our current view of the 1998 to 2000 business.

As we have experienced through the first six months of 2003, our invested asset base has grown as underwriting year premiums have been earned and collected. However, investment income is expected to be constrained in 2003 due to the low interest rate environment and the likelihood that interest rates will remain at these low levels through the end of 2003. We do not anticipate changing our current investment strategies due to the present interest rate environment.

Based on management’s current expectations, our estimated range of consolidated after-tax operating income for 2003 is between $1.40 and $1.50 per diluted share. Our range of estimated operating earnings per share for 2003 assumes that rate adequacy will continue; that loss trends run as expected, excluding catastrophes; and that recorded loss reserves for prior accident years are adequate. In addition, our earnings expectations reflect our current view of anticipated investment income in a lower interest rate environment. Our 2003 earnings per share estimate does not reflect any dilution from our 4.25% convertible senior debentures. If you 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 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. Net realized investment gains were 18 cents per diluted share for the first half of 2003. We are unable to reasonably estimate net realized investment gains and losses for any future period, including the next six months, 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 operating 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 32. Also, see Business – Risk Factors described in our 2002 Form 10-K.

Status of Business Outlook

Our corporate representatives authorized to speak on our behalf may meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, our spokespersons may reiterate the foregoing Business Outlook. At the same time, this Business Outlook will remain publicly available. Prior to the start of the Quiet Period (described below), the public can continue to rely on this Business Outlook as still being our current expectation on matters covered, unless we publish a press release stating otherwise.

Beginning on approximately October 16, 2003, PMA Capital will observe a “Quiet Period” during which this Business Outlook no longer constitutes management’s current expectations. During the Quiet Period, this Business Outlook should be considered historical, speaking as of prior to the beginning of the Quiet Period only and should not be relied upon. We expressly disclaim any current intention to update our Business Outlook during the Quiet Period. During the Quiet Period, our spokespersons will not comment on the Business Outlook or our financial results or expectations other than through a press release or other publicly available document. The Quiet Period will last until approximately October 30, 2003, which is when we currently expect to announce our third quarter 2003 results.

17

Segment Results

PMA Re

Summarized financial results of PMA Re are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Net premiums written	$	172,464		$	208,982		$	331,043		$	299,307
Net premiums earned	$	151,004		$	168,991		$	302,243		$	251,032
Net investment income		8,611			14,142			17,042			27,909
Operating revenues		159,615			183,133			319,285			278,941
Losses and LAE		93,280			121,432			205,955			178,856
Acquisition and operating expenses		53,228			47,932			91,646			73,379
Total losses and expenses		146,508			169,364			297,601			252,235
Pre-tax operating income(1)	$	13,107		$	13,769		$	21,684		$	26,706
Combined ratio		97.0	%		100.3	%		98.5	%		100.4	%
Less: net investment income ratio		-5.7	%		-8.4	%		-5.6	%		-11.1	%
Operating ratio		91.3	%		91.9	%		92.9	%		89.3	%

(1) Operating income is the financial performance measure that our management and Board of Directors use to evaluate the results of our insurance businesses. For further information, see pages 15 - 16, and Note 10 to our Unaudited Consolidated Financial Statements.

PMA Re’s pre-tax operating income was $13.1 million and $21.7 million for the three and six months ended June 30, 2003, respectively, compared to $13.8 million and $26.7 million for the same periods in 2002. The declines in pre-tax operating income reflect lower net investment income, partially offset by improved underwriting results.

18

Premiums

PMA Re’s gross premiums written by business unit and major lines of business are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollar amounts in thousands)	2003		2002		2003		2002
Business Unit:
Finite Risk and Financial Products	$	118,461	$	97,095	$	195,280	$	158,418
Traditional - Treaty		68,459		120,463		148,941		173,579
Specialty - Treaty		20,319		18,738		49,508		29,790
Facultative		15,105		16,485		30,707		26,687
Accident		5,516		--		9,543		--
Total	$	227,860	$	252,781	$	433,979	$	388,474
Major Lines of Business:
Casualty lines	$	148,012	$	167,438	$	282,434	$	253,680
Property lines		72,327		80,358		135,398		124,210
Other lines(1)		7,521		4,985		16,147		10,584
Total	$	227,860	$	252,781	$	433,979	$	388,474

(1) Primarily aviation, ocean marine and accident.

PMA Re’s net premiums written by business unit and major lines of business are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollar amounts in thousands)	2003		2002		2003		2002
Business Unit:
Finite Risk and Financial Products	$	82,918	$	91,209	$	126,907	$	142,154
Traditional - Treaty		59,964		93,652		136,655		122,340
Specialty - Treaty		18,414		16,525		47,554		24,008
Facultative		6,404		7,596		12,930		10,805
Accident		4,764		--		6,997		--
Total	$	172,464	$	208,982	$	331,043	$	299,307
Major Lines of Business:
Casualty lines	$	113,058	$	139,313	$	222,742	$	188,018
Property lines		53,523		64,773		96,435		100,872
Other lines(1)		5,883		4,896		11,866		10,417
Total	$	172,464	$	208,982	$	331,043	$	299,307

(1) Primarily aviation, ocean marine and accident.

Gross premiums written were $227.9 million and $434.0 million for the three and six months ended June 30, 2003, respectively, compared to $252.8 million and $388.5 million for the same periods last year. During the second quarter of 2002, we recorded an additional $58.1 million of gross premiums written ($44.2 million of net premiums written) as a result of a change in our estimate of ultimate premiums written. 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 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. The increase in net premiums

19

earned of $35.5 million caused by this adjustment was offset by losses and LAE and acquisition expenses. In addition to the effects this adjustment had on the year-over-year comparisons, the increase in gross premiums written in the second quarter reflects higher premium writings in the Finite Risk and Financial Products unit, and the increase in gross premiums written year-to-date reflects higher premium volume across all of our business units, due primarily to rate increases. During the first six months of 2003, PMA Re renewed 65-70% of its in-force Traditional– and Specialty–Treaty business. Rate increases on this business averaged approximately 30% in 2003, as measured by the level of premium increase on renewed in-force business.

Ceded premiums were $55.4 million and $102.9 million for the three and six months ended June 30, 2003, respectively, compared to $43.8 million and $89.2 million for the same periods last year. Ceded premiums represented 24% of gross premiums written for both the second quarter and first six months of 2003, compared to 17% and 23% for the same periods last year. Ceded premiums for the second quarter and first six months of 2003 reflect ceded premiums of approximately $34 million and $66 million from our Finite Risk and Financial Products unit due under a quota share retrocessional cover that cedes one-third of this unit’s 2003 premiums and losses. This cover allows us to enhance the gross underwriting capacity of this unit and to better manage the growth in net premiums written. Offsetting these premium cessions for the six month period was approximately $26 million in cessions under two of our retrocessional covers in the first six months of 2002, primarily for the Traditional– and Specialty–Treaty units. Such ceded premiums were not required in 2003.

Traditionally, trends in net premiums earned follow patterns similar to net premiums written. 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 experienced-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.

Losses and Expenses

The components of the GAAP combined ratios are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Loss and LAE ratio		61.8%		71.9%		68.1%		71.2%
Expense ratio:
Acquisition expenses		32.7%		25.8%		28.2%		25.7%
Operating expenses		2.5%		2.6%		2.2%		3.5%
Total expense ratio		35.2%		28.4%		30.4%		29.2%
Combined ratio		97.0%		100.3%		98.5%		100.4%

The loss and LAE ratio was 61.8% and 68.1% for the three and six months ended June 30, 2003, respectively, compared to 71.9% and 71.2% for the same periods in 2002. The improvement in the loss and LAE ratios is due primarily to price increases experienced throughout all of our business units that outpaced loss cost trends. Furthermore, the loss and LAE ratio on our Finite Risk and Financial Products premiums was lower than last year reflecting better loss experience. The improvement in loss experience was offset by an increase in ceding commissions required under the terms of these contracts, which is reflected in the acquisition expense ratio. In addition, the loss and LAE ratio on property business improved over the same periods last year due to lower than expected claims activity in 2003.

Partially offsetting this favorable loss trend was unfavorable prior year loss development. During the three and six months ended June 30, 2003, PMA Re increased its net loss reserves for prior accident years by $10.0 million and $19.5 million, which increased the loss and LAE ratio by 6.6 points and 6.5 points for each respective period. Each quarter, our actuaries conduct their quarterly reserve reviews to determine the impact of any emerging data on loss development trends and recorded unpaid losses and LAE reserves. During the first quarter of 2003, our actuaries identified higher than expected reported losses and, to a lesser extent, higher than expected paid losses arising from a limited number of ceding company clients who had recently reported loss development in their general liability line of business. This loss emergence occurred mainly in pro rata business written in 1998 to 2000. PMA Re increased its net loss reserves for prior accident

20

years related to this business based on the information available at that time. During the second quarter of 2003, our actuaries continued to monitor this business and based on new information received and analyzed by the actuaries, observed that reported and incurred claims activity during the second quarter was higher than previously expected. Based on this new information, loss reserves for prior accident years were increased in the second quarter of 2003.

The acquisition expense ratio increased 6.9 points and 2.5 points in the three and six months ended June 30, 2003, respectively, compared to the same periods in 2002. The increases in the acquisition expense ratio primarily reflect the higher ceding commissions required on assumed Finite Risk and Financial Products pro rata contracts due to the lower loss experience on such contracts in 2003.

The operating expense ratio was 2.5% and 2.2% for the three and six months ended June 30, 2003, respectively. Excluding the impact of the premium adjustment described above, the operating expense ratio was 3.3% and 4.1% for the three and six months ended June 30, 2002, respectively. The improvement in the operating expense ratio for the second quarter of 2003, compared to the same period last year, reflects improved results related to our participation in a Lloyd’s of London syndicate and managing general agency. The improvement in the operating expense ratio for the year-to-date period also reflects a benefit of $2.6 million from the sale of an asset in the first quarter of 2003 that is included in operating expenses, and an increase in net premiums earned that outpaced expenses.

Net Investment Income

Net investment income was $8.6 million for the second quarter of 2003, compared to $14.1 million for the same period in 2002, reflecting lower yields on the invested asset portfolio of approximately 160 basis points on an average invested asset base that increased approximately 7%, and lower interest earned of $2.4 million on funds held arrangements, primarily assumed contracts. Net investment income was $17.0 million for the first six months of 2003, compared to $27.9 million for the same period last year, reflecting lower yields on the invested asset portfolio of approximately 130 basis points on an average invested asset base that increased approximately 4%, and lower interest earned of $5.5 million on funds held arrangements. For the three and six months ended June 30, 2003, the reduction in interest earned on funds held arrangements was substantially offset by lower losses on the associated assumed Finite Risk and Financial Products contracts. In a funds held arrangement, the ceding company retains 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 interest rate.

21

The PMA Insurance Group

Summarized financial results of The PMA Insurance Group are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Net premiums written	$	119,440		$	83,647		$	313,679		$	260,100
Net premiums earned	$	134,350		$	100,689		$	250,591		$	206,340
Net investment income		8,203			9,193			16,474			18,031
Other revenues		4,577			3,309			9,008			6,898
Operating revenues		147,130			113,191			276,073			231,269
Losses and LAE		99,201			74,447			183,236			152,428
Acquisition and operating expenses		39,037			29,954			73,569			60,040
Dividends to policyholders		2,054			2,403			4,090			6,007
Total losses and expenses		140,292			106,804			260,895			218,475
Pre-tax operating income (1)	$	6,838		$	6,387		$	15,178		$	12,794
Combined ratio		101.9	%		103.1	%		101.6	%		103.4	%
Less: net investment income ratio		-6.1	%		-9.1	%		-6.6	%		-8.7	%
Operating ratio		95.8	%		94.0	%		95.0	%		94.7	%

(1) Operating income is the financial performance measure that our management and Board of Directors use to evaluate the results of our insurance businesses. For further information, see pages 15 - 16, and Note 10 to our Unaudited Consolidated Financial Statements.

Pre-tax operating income for The PMA Insurance Group improved to $6.8 million and $15.2 million for the three and six months ended June 30, 2003, compared to $6.4 million and $12.8 million for the same periods in 2002. The increases in operating income were primarily due to improved underwriting results, partially offset by lower net investment income.

Premiums

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Workers' compensation and integrated disability:
Direct premiums written	$	96,830		$	73,010		$	271,240		$	226,597
Premiums assumed		7,070			1,865			11,786			4,100
Premiums ceded		(10,683	)		(8,886	)		(25,863	)		(20,737	)
Net premiums written	$	93,217		$	65,989		$	257,163		$	209,960
Commercial Lines:
Direct premiums written	$	29,930		$	22,176		$	64,254		$	61,521
Premiums assumed		138			400			409			718
Premiums ceded		(3,845	)		(4,918	)		(8,147	)		(12,099	)
Net premiums written	$	26,223		$	17,658		$	56,516		$	50,140
Total:
Direct premiums written	$	126,760		$	95,186		$	335,494		$	288,118
Premiums assumed		7,208			2,265			12,195			4,818
Premiums ceded		(14,528	)		(13,804	)		(34,010	)		(32,836	)
Net premiums written	$	119,440		$	83,647		$	313,679		$	260,100

22

Direct workers’ compensation and integrated disability premiums written increased by $23.8 million and $44.6 million for the three and six months ended June 30, 2003 primarily due to price increases of approximately 11% 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. Our retention rate on existing accounts was 86% for the six months ended June 30, 2003. 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 $7.8 million and $2.7 million for the three and six months ended June 30, 2003, compared to the same periods in 2002, primarily due to improved pricing that averaged approximately 16% in the first six months of 2003.

Ceded premiums increased $724,000 and $1.2 million for the three and six months ended June 30, 2003, compared to the same periods in 2002. Premiums ceded for workers’ compensation and integrated disability increased by $1.8 million and $5.1 million as a result of the increase in direct premiums written as well as an increase in rates being charged by reinsurers. Premiums ceded for Commercial Lines decreased by $1.1 million and $4.0 million, primarily because we are retaining more of our Commercial Lines’ risks.

Net premiums written increased 43% and 21% while net premiums earned increased 33% and 21% for the three and six months ended June 30, 2003, respectively, compared to the same periods in 2002. 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:

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
Loss and LAE ratio		73.8%		73.9%		73.1%		73.9%
Expense ratio:
Acquisition expenses		17.0%		17.4%		16.9%		17.5%
Operating expenses(1)		9.6%		9.4%		10.0%		9.1%
Total expense ratio		26.6%		26.8%		26.9%		26.6%
Policyholders' dividend ratio		1.5%		2.4%		1.6%		2.9%
Combined ratio		101.9%		103.1%		101.6%		103.4%

(1) The operating expense ratio equals insurance-related operating expenses divided by net premiums earned. Insurance-related operating expenses were $12.9 million and $25.0 million for the three and six months ended June 30, 2003, respectively, and $9.5 million and $18.8 million for the three and six months ended June 30, 2002, respectively.

The loss and LAE ratios improved 0.1 points and 0.8 points for the three and six months ended June 30, 2003, respectively, compared to the same periods in 2002. The improvement in the loss and LAE ratio for the six months ended June 30, 2003, compared to the same period last year, is primarily due to an improved current accident year loss and LAE ratio. The improvement in the current accident year loss and LAE ratio is primarily due to price increases that have outpaced increasing loss costs. We estimate our medical cost inflation to be approximately 11%, which has contributed to increased severity of workers’ compensation losses. As discussed below, lower policyholder dividends are also used as a means to improve a policy’s overall profitability.

Overall, the total expense ratio was essentially flat for the three and six months ended June 30, 2003, compared to the same periods in 2002, as overall expenses increased in line with higher earned premiums.

23

The policyholders’ dividend ratio improved by 0.9 points and 1.3 points for the three and six months ended June 30, 2003, respectively, compared to the same periods last year. Under policies that are subject to dividend plans, the customer may receive a dividend based upon loss experience during the policy period. The improvement 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 contributes to the overall profitability of our workers’ compensation business.

Net Investment Income

Net investment income was $8.2 million and $16.5 million for the three and six months ended June 30, 2003, compared to $9.2 million and $18.0 million for the same periods in 2002. The lower net investment income primarily reflects a reduction in invested asset yields of approximately 110 and 90 basis points during the second quarter and first six months of 2003, compared to the same periods last year, partially offset by a higher invested asset base that increased approximately 11% and 8% for the three and six months ended June 30, 2003.

Run-off Operations

Summarized financial results of the Run-off Operations are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollar amounts in thousands)	2003			2002			2003			2002
Net premiums written	$	(1,124	)	$	10,089		$	(2,828	)	$	32,170
Net premiums earned	$	392		$	5,335		$	7,238		$	17,535
Net investment income		528			239			889			462
Other revenues		--			--			2,500			--
Operating revenues		920			5,574			10,627			17,997
Losses and LAE		593			10,130			6,468			60,943
Acquisition and operating expenses		330			39,851			4,161			44,549
Total losses and expenses		923			49,981			10,629			105,492
Pre-tax operating loss (1)	$	(3	)	$	(44,407	)	$	(2	)	$	(87,495	)

(1) Operating income is the financial performance measure that our management and Board of Directors use to evaluate the results of our insurance businesses. For further information, see pages 15 - 16, and Note 10 to our Unaudited Consolidated Financial Statements.

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 closed on the sale of the capital stock of Caliber One Indemnity Company. 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 on the sale. As a result of our decision to exit this business, the results of this segment are reported as Run-off Operations.

Pre-tax operating results were essentially breakeven for the Run-off Operations for the three and six months ended June 30, 2003. The first quarter 2003 sale of the capital stock of Caliber One Indemnity Company generated gross proceeds of approximately $31 million and resulted in a pre-tax gain of $2.5 million, which is included in other revenues in the Statement of Operations for the six months ended June 30, 2003. During the first quarter of 2003, the Run-off Operations recognized an additional $2.5 million writedown of assets, including approximately $2 million for reinsurance receivables and $500,000 for premiums receivable, reflecting an assessment of their estimated net realizable value. The writedown is included in operating expenses in the Statement of Operations for the six months ended June 30, 2003.

Pre-tax operating losses were $44.4 million and $87.5 million for the three and six months ended June 30, 2002. As a result of the decision to exit from and run off this business, results for the Run-off Operations for the quarter ended June 30, 2002 included a charge of $43 million pre-tax ($28 million after-tax). Components of the pre-tax charge include

24

approximately $16 million to write-down assets to their estimated net realizable value, including a non-cash charge of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill.

In addition, the $43 million pre-tax charge includes 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. At June 30, 2003, we have a remaining obligation of approximately $1.8 million for net lease costs, the majority of which will be paid through 2004, and approximately $270,000 for severance, which will be paid through 2004.

Pre-tax operating results for the first six months of 2002 also included net unfavorable prior year development of $40 million. During the first quarter of 2002, company actuaries conducted a quarterly reserve review to determine the impact of any emerging data on 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 this review indicated that net loss reserves needed to be increased by $40 million. This unfavorable prior year development reflected the impact of higher than expected claim severity and, to a lesser extent, frequency, that emerged in the first quarter of 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.

Loss Reserves

At June 30, 2003, we estimated that under all insurance policies and reinsurance contracts issued by our insurance businesses our liability for unpaid losses and LAE for all events that occurred as of June 30, 2003 is $2,430.3 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. Our estimate includes amounts for losses occurring prior to June 30, 2003 whether or not these claims have been reported to us.

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, various 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.

Management believes that its unpaid losses and LAE are fairly stated at June 30, 2003. 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, the impact of 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 June 30, 2003, the related adjustments could have a material adverse effect on our financial condition, results of operations and liquidity. See the discussion under PMA Re – Losses and Expenses beginning on page 20 and Run-off Operations beginning on page 24 for additional information regarding increases in loss reserves for prior years.

For additional discussion of loss reserves and reinsurance, see pages 34 to 37 of the MD&A included in our 2002 Form 10-K, as well as pages 13 to 20 of our Form 10-K for the year ended December 31, 2002.

25

Corporate and Other

The Corporate and Other segment includes unallocated investment income and expenses, including debt service. Corporate and Other recorded pre-tax operating losses of $5.6 million and $10.2 million for the three and six months ended June 30, 2003, compared to pre-tax operating losses of $3.7 million and $8.0 million for the same periods in 2002, primarily due to higher interest expense. Interest expense increased by $1.7 million and $2.9 million for the three and six months ended June 30, 2003, compared to the same periods in 2002, primarily due to a higher average amount of debt outstanding in 2003, compared with last year.

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 and net tax payments 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 expenses. In addition, we periodically use cash resources to capitalize subsidiaries and to repurchase shares of our common stock.

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. 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. The PMA Insurance Group’s Pooled Companies can pay up to $27.4 million in dividends to PMACIC during 2003. Dividends received from subsidiaries were $8.0 million and $16.0 million for the three and six months ended June 30, 2003, respectively, and $7.0 million and $14.0 million for the three and six months ended June 30, 2002, respectively.

Net tax payments received from (paid to) subsidiaries were $(27,000) and $2.7 million for the three and six months ended June 30, 2003, compared to $1.6 million and $6.8 million for the same periods in 2002.

In the first quarter of 2003, we repaid $20 million of our bank credit facility (“Credit Facility”), reducing the outstanding balance to $45 million at March 31, 2003, compared to $65 million at December 31, 2002. The remaining $45 million was repaid in the second quarter of 2003 as discussed below.

During May 2003, we privately placed $17.5 million (“Trust Preferred 1”) and $15.0 million (“Trust Preferred 2”) of 30-year floating rate trust preferred securities through two wholly owned statutory trust subsidiaries. We used all of the approximately $31.5 million of net proceeds from the sales of these securities to pay down a portion of our Credit Facility. These securities have a 30-year maturity and are redeemable in whole, or in part, after five years from issuance at their stated liquidation amount plus accrued and unpaid interest. The interest rates on Trust Preferred 1 and 2 will equal the three-month London InterBank Offered Rate (“LIBOR”) plus 4.10% and three-month LIBOR plus 4.20%, respectively. Trust Preferred 1 and 2 will bear interest at the rate of 5.41% and 5.48% per annum, respectively, through the initial interest payment dates of August 15, 2003 and August 23, 2003, respectively. We have entered into interest rate swaps that will become effective in August 2003 and will mature in May 2008. We have designated the interest rate swaps as cash flow hedges to manage interest costs and cash flows associated with the variable interest rates associated with Trust Preferred 1 and 2. The interest rate swaps have notional amounts of $17.5 million and $15.0 million, and will effectively convert Trust Preferred 1 and 2 floating-rate securities to fixed rate debt with interest rates of 6.70% and 6.80%, respectively. We have the right to defer interest payments on Trust Preferred 1 and 2 for up to twenty consecutive quarters but, if so deferred, we may not declare or pay cash dividends or distributions on our Class A common stock. The obligations of the statutory trust subsidiaries are guaranteed by PMA Capital with respect to distributions and payments of Trust Preferred 1 and 2.

In June 2003, we issued $57.5 million of 8.50% monthly income senior notes due June 15, 2018, from which we realized net proceeds of approximately $55 million. We used the proceeds from the offering to repay the remaining balance outstanding under the Credit Facility, to increase the statutory capital and surplus of our insurance subsidiaries, and for general corporate purposes. We have the right to call these securities beginning in June 2008.

26

We also had $86.25 million of 4.25% convertible senior debentures outstanding at both June 30, 2003 and December 31, 2002. We incurred interest expense of $2.2 million and $4.0 million for the three and six months ended June 30, 2003, compared to $572,000 and $1.1 million for the same periods last year. We paid interest of $502,000 and $3.0 million for the three and six months ended June 30, 2003, compared to $258,000 and $863,000 for the same periods last year.

We maintain a $50.0 million secured letter of credit facility (the “Letter of Credit Facility”). The Letter of Credit Facility is utilized primarily for securing reinsurance obligations of our insurance subsidiaries. As of June 30, 2003, we had $15.0 million outstanding under the Letter of Credit Facility.

We paid dividends to shareholders of $3.3 million and $6.6 million, respectively, during the three and six months ended June 30, 2003, compared to $3.3 million and $5.5 million for the same periods last year. The increase in dividends paid for the six months ended June 30, 2003, compared to the same period last year, is due to the additional shares outstanding resulting from our December 2001 issuance of 9,775,000 shares of Class A common stock, which occurred subsequent to the record date for the January 2002 dividend payment. Our dividends to shareholders are restricted by our debt agreements. Under the most restrictive covenant supporting our outstanding debt and Letter of Credit Facility, we would be able to pay dividends of approximately $25 million in 2003.

We did not repurchase any shares during the first six months of 2003. During the first six months of 2002, we repurchased 90,000 shares at a total cost of $1.7 million. Since the inception of our share repurchase program in 1998, we have repurchased a total of approximately 3.9 million shares at a cost of $74.6 million. Our remaining share repurchase authorization at June 30, 2003 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.

We have provided a guaranty of $7.0 million related to a loan on properties in which we have an interest. This guaranty shall continue to be in force until the related loan has been satisfied. The loan is scheduled to be repaid on November 1, 2004. We have also provided guarantees of $2.2 million related to an executive loan program for our officers with a financial institution. The program expires on December 31, 2003.

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.

We currently believe that the existing capital structure is adequate for our current and near term needs. 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. Given our debt-to-total capital ratio of 22%, we believe that we have the financial flexibility to take advantage of favorable market conditions.

27

INVESTMENTS

At June 30, 2003, our investment assets were carried at a fair value of $2,209.8 million and had an amortized cost of $2,128.0 million. The average credit quality of the portfolio is AA. At June 30, 2003, $17.7 million, or 0.9%, of our total investments were below investment grade, of which $4.1 million of these below investment grade investments were in an unrealized loss position, which totaled approximately $205,000. At June 30, 2003, all of our fixed income investments were publicly traded and all were rated by at least one nationally recognized credit rating agency.

The net unrealized gain on our fixed maturities at June 30, 2003 was $81.8 million, or 4.9% of the amortized cost basis. The net unrealized gain included gross unrealized gains of $91.7 million and gross unrealized losses of $9.9 million. For all but one security, which was carried at its fair value of $15.4 million at June 30, 2003, we determine the market value of each fixed income security using prices obtained in the public markets. For this security, whose fair value is not reliably determined from these public market sources, 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).

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 our ability and intent 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 there currently is no need to sell any of the fixed maturity investments prior to their scheduled/expected maturity to fund anticipated claim payments.

As of June 30, 2003, our investment asset portfolio had gross unrealized losses of $9.9 million. For securities that were in an unrealized loss position at June 30, 2003, 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		71	$	57.6	$	58.5	$	0.9		98	%
6 to 9 months		4		4.2		4.5		0.3		93	%
9 to 12 months		6		19.2		22.1		2.8		87	%
More than 12 months		6		26.4		31.7		5.4		83	%
Subtotal		87		107.4		116.8		9.4		92	%
U.S. Treasury and
Agency securities		30		132.6		133.1		0.5		100	%
Total		117	$	240.0	$	249.9	$	9.9		96	%

Of the 6 securities that have been in an unrealized loss position for more than 12 months, 5 securities have an unrealized loss of less than $1 million each and/or less than 20% of each security’s amortized cost. These 5 securities have an average unrealized loss per security of approximately $149,000. We own one security with an unrealized loss in excess of $1 million and/or less than 20% of its amortized cost at June 30, 2003. This security, a structured security backed by a

28

U.S. Treasury Strip, is rated AAA and has a market value of $15.4 million and a cost of $20 million. The security matures in 2011 at a value of $20 million, and we have both the ability and intent to hold it until maturity.

The contractual maturity of securities in an unrealized loss position at June 30, 2003 was as follows:

(dollar amounts in millions)	Fair Value		Amortized Cost		Unrealized Loss		Percentage Fair Value to Amortized Cost
2004-2007	$	2.5	$	2.6	$	0.1		96%
2008-2012		26.9		27.5		0.6		98%
2013 and later		26.5		27.5		1.0		96%
Mortgage-backed and other
asset-backed securities		51.5		59.2		7.7		87%
Subtotal		107.4		116.8		9.4		92%
U.S. Treasury and
Agency securities		132.6		133.1		0.5		100%
Total	$	240.0	$	249.9	$	9.9		96%

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.

Based on our evaluation as of June 30, 2003, we determined there were other than temporary declines in market value of securities issued by one company, resulting in an impairment charge of $244,000 pre-tax during the quarter ended June 30, 2003. 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. Impairment charges for the six months ended June 30, 2003 were $1.3 million, related primarily to securities issued by airline companies.

During the three and six months ended June 30, 2002, we determined there were other than temporary declines in market value for 8 securities of 3 issuers, resulting in an impairment charge of $15.8 million pre-tax, including $14.2 million for WorldCom.

During the six months ended June 30, 2003, we had gross realized gains and losses of $10.3 million and $1.5 million, respectively. The gross realized losses were primarily attributable to impairment losses as discussed above.

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.

29

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 (“NAIC”) 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.

Recent Accounting Pronouncements

Effective December 31, 2002, we adopted the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amended 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.

Effective January 1, 2003, we adopted the recognition provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). We have previously applied the disclosure provisions of FIN 45 to our year end 2002 financial statements. 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. Adoption of FIN 45 did not have a material effect on our consolidated financial condition, results of operations or liquidity.

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 were effective January 1, 2002. SFAS No. 144 supercedes 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 is running 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 we will report the results of the Run-off segment as discontinued operations. The long-lived assets of this segment have been tested for impairment in accordance with the provisions of SFAS No. 144.

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.

30

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. During the second quarter of 2002, we recognized an impairment charge of $1.3 million associated with the goodwill of the Run-off Operations, which is included in operating expenses. As of June 30, 2003, we had no goodwill which is subject to the provisions of SFAS No. 142. We have approximately $3.0 million of equity method goodwill (included in other assets on the Balance Sheet), which is accounted for under the provisions of APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.”

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 must consolidate a VIE if the company has a variable interest that will absorb a majority of the VIEs expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur or both. FIN 46 also requires the disclosure of certain information related to VIEs in which a company holds a significant variable interest. FIN 46 is effective for new VIEs established subsequent to January 31, 2003, and for existing VIEs as of July 1, 2003.

We are currently assessing the impact that implementing FIN 46 may have on our consolidated financial statements. In this regard, we are currently 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 disclosure in our future financial statements. If we were to conclude that we must consolidate Trabaja into our financial statements in accordance with FIN 46, we currently estimate that this would result in an increase in investments of approximately $280 million and a decrease in reinsurance receivables of approximately $370 million on the Balance Sheet, and we currently estimate that any impact from the initial adoption of FIN 46 would be a non-cash cumulative effect adjustment of no more than approximately $60 million after-tax. Any impact resulting from the implementation of FIN 46 would be subsequently reflected as earnings in future periods. In addition, we are currently evaluating the impact, if any, of FIN 46 on reporting for two of our wholly owned statutory trusts, which issued $32.5 million of trust preferred securities that are included on our Balance Sheet at June 30, 2003. See Note 5 to the Unaudited Consolidated Financial Statements for additional information about the trust preferred debt. We currently do not expect the application of FIN 46 to these wholly owned statutory trusts to be material to our financial condition, results of operations or liquidity. We are required to adopt FIN 46 in the third quarter of 2003. FIN 46 will have no effect on the statutory capital or results of operations of our insurance subsidiaries.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. We do not expect adoption of this statement to have a material impact on our financial condition, results of operations or liquidity.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for instruments entered into or modified after May 31, 2003 and the disclosure requirements are effective for the third quarter of 2003. Adoption of this statement did not have an impact on our financial statements.

Critical Accounting Estimates

Our critical accounting estimates can be found on pages 45 to 47 of the MD&A included in our 2002 Form 10-K.

31

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, 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 could differ materially from those expected by our management. 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 effect on our reinsurance premium writings if we are unable to attract and retain business, particularly facultative reinsurance and treaty reinsurance for cedants with a very high level of surplus, as a result of the lowering of our financial strength rating by A.M. Best to "A- (Excellent)" in February 2003;

• the lowering or loss of one or more of the financial strength, claims paying or debt ratings, and the impact that any such downgrade may have on our ability to write business or raise capital;

• adequacy of reserves for claim liabilities;

• adverse property and casualty loss development for events that 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 the impact of 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.

32

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There has been no material change regarding our market risk position from the information provided under the caption “Market Risk of Financial Instruments” on page 43 of the MD&A included in our 2002 Form 10-K.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we 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-15(e) 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. During the most recent fiscal quarter, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II. Other Information

Item 5. Submission of Matters to a Vote of Security Holders

Our 2003 Annual Meeting of Shareholders (“Annual Meeting”) was held on May 21, 2003. At the Annual Meeting, the shareholders acted upon the following matters:

1. Proposal to elect four nominees as members of our Board of Directors to serve for terms expiring at the 2006 Annual Meeting and until their successors are elected:

Name of Nominee	Votes Cast For	Votes Withheld
Frederick W. Anton III	27,393,841	209,666
Joseph H. Foster	27,265,221	338,286
James F. Malone III	27,373,741	229,766
L.J. Rowell, Jr.	27,219,439	384,068

2. Proposal to amend the Restated Articles of Incorporation to increase authorized shares of Class A common stock from 40,000,000 to 60,000,000 was approved as follows:

	Total Votes
Votes in favor	26,379,215
Votes against	1,221,697
Abstentions	2,595

3. Proposal to ratify the appointment of Deloitte & Touche LLP as the Independent Auditors:

	Total Votes
Votes in favor	26,680,331
Votes against	921,525
Abstentions	1,651

33

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The Exhibits are listed in the Exhibit Index on page 36.

(b) Reports on Form 8-K filed during the quarter ended June 30, 2003:

During the quarterly period ended June 30, 2003, we filed the following Reports on Form 8-K:

- dated April 2, 2003, Items 4 and 7 - containing information regarding a change in independent auditors.

- dated April 17, 2003, Items 7 and 9, as amended by Form 8-K/A dated April 17, 2003, - containing a news release announcing the expected release of first quarter 2003 earnings.

- dated May 7, 2003, Items 7 and 9 - containing an earnings release and a news release announcing our private placement offering.

- dated May 7, 2003, Items 7 and 9 - containing information from our first quarter 2003 statistical supplement.

- dated May 19, 2003, Items 7 and 9 - containing news releases announcing our senior debt offering and the webcast of the 2003 annual meeting.

- dated May 20, 2003, Items 5 and 7 - containing a news release announcing our private placement offering.

- dated May 21, 2003, Items 5 and 7 - containing information regarding approval of proposals presented at the annual shareholders' meeting and containing a news release announcing declaration of our regular quarterly shareholder dividend.

- dated May 22, 2003, Items 5 and 7 - containing a news release announcing the sale of private placement securities.

- dated May 29, 2003, Items 7 and 9 - containing a news release announcing the pricing of our senior debt offering.

- dated May 29, 2003, Items 5 and 7 - containing information regarding our senior debt offering.

- dated June 5, 2003, Items 5 and 7 - containing information regarding the closing of our senior debt offering.

34

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PMA CAPITAL CORPORATION
Date: August 12, 2003	By: /s/ William E. Hitselberger
	William E. Hitselberger
	Senior Vice President,
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)

35

Exhibit Index

Exhibit No.	Description of Exhibit	Method of Filing
(3)	Articles of Incorporation and Bylaws
3.1	Restated Articles of Incorporation as last amended June 16, 2003	Filed herewith
3.2	Bylaws as last amended and restated May 21, 2003	Filed herewith
(12)	Computation of Ratio of Earnings to Fixed Charges	Filed herewith
(31)	Rule 13a - 14(a)/15d - 14 (a) Certificates
31.1	Certification of CEO Pursuant to Rule 13a -14(a) of the Securities Exchange Act of 1934	Filed herewith
31.2	Certification of CFO Pursuant to Rule 13a -14(a) of the Securities Exchange Act of 1934	Filed herewith
(32)	Section 1350 Certificates
32.1	Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

The registrant will furnish to the Commission, upon request, a copy of any of the registrant’s agreements with respect to its long-term debt not otherwise filed with the Commission.

36

EX-3

Exhibit 3.1

RESTATED ARTICLES OF INCORPORATION

1.      The name of the Corporation is: PMA Capital Corporation.

2.      The location and post office address of the registered office of the Corporation in this Commonwealth is 1735 Market Street, Suite 2800, Philadelphia, Pennsylvania 19103-7590, Philadelphia County.

3.      The Corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purposes: The Corporation shall have unlimited power to engage in and to do any or all lawful business for which corporations may be incorporated under the Act of Assembly approved May 5, 1933, P.S. 364, as amended, under which Act the Corporation is incorporated, including without limitation of the foregoing, the power to manufacture, buy, sell, trade and generally deal in products, merchandise, goods and articles of any kind and description whatsoever.

4.      The term for which the Corporation is to exist is perpetual.

5. The aggregate number of shares which the Corporation shall have authority to issue is: Forty Million (40,000,000) shares of Class A Common Stock, $5.00 par value per share (“Class A Common Stock”) and Two Million (2,000,000) shares of Preferred Stock, $.01 par value per share (“Preferred Stock”).

     A.      Class A Common Stock

          Except as otherwise required by the Pennsylvania Business Corporation Law or as otherwise provided in these Articles of Incorporation, with respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to give consent, every holder of any outstanding shares of the Class A Common Stock shall be entitled to cast thereon one (1) vote in person or by proxy for each share of the Class A Common Stock standing in his name. In all elections for directors, holders of Class A Common Stock shall not be entitled to cumulate their votes.

     B.      Conversion of the Common Stock

          Each share of Common Stock, $5.00 par value per share (“Common Stock”), shall automatically, and without any action by the holder thereof, effective as of 5 p.m. (Eastern Time) on April 24, 2000

(“Effective Time”), be converted into one fully paid and nonassessable share of Class A Common Stock. The issuance of a certificate or certificates for shares of Class A Common Stock, if requested by the holder thereof by reason of the foregoing conversion of shares of Common Stock, shall be made without charge. As of the Effective Time, the holder of any shares of Common Stock shall be treated for all purposes as having become the holder of the identical number of shares of Class A Common Stock at such time and shall have and may exercise all the rights and powers appertaining thereto. No adjustments in respect of past cash dividends shall be made by reason of the foregoing conversion of shares of Common Stock; provided, however, that if any shares of Common Stock shall be converted subsequent to the record date for the payment of a cash or stock dividend or other distribution on shares of Common Stock but prior to such payment, the registered holder of such shares at the close of business on such record date shall be entitled to receive the cash or stock dividend or the distribution payable to holders of the Common Stock.

     C.      Preferred Stock

          (1)      The Preferred Stock may be issued from time to time in one or more series by action of the Board of Directors of the Corporation. The Board of Directors of the Corporation shall have the full authority permitted by the Pennsylvania Business Corporation Law to establish by resolution one or more series, to determine the designation and the number of shares constituting each such series and to determine the voting rights, preferences, limitations, conversion rights and special or relative rights of any series of the Preferred Stock that may be desired. Except as otherwise provided in the terms of any series of the Preferred Stock and subject to the limitation on the total number of shares of Preferred Stock that the Corporation has authority to issue hereunder, the Board of Directors of the Corporation is also authorized to increase or decrease the number of shares of any series, subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolutions originally fixing the number of shares of such series. Without limiting the generality of the foregoing, the Board of Directors of the Corporation shall have full authority with respect to:

     (a) the designation of the series and the number of shares to constitute each series;

     (b) the dividend rate on the shares of each series, any conditions on which and times at which dividends are payable, whether dividends shall be cumulative, and the preference or relation (if any) with respect to such dividends (including possible preferences

2

               over dividends on the Class A Common Stock or any other class or classes or series of stock);

     (c) whether the series will be redeemable (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event) and, if so, the redemption prices and the conditions and times upon which redemption may take place and whether for cash, property or rights, including securities of the Corporation or another corporation;

     (d) the terms and amount of any sinking, retirement or purchase fund;

     (e) the conversion or exchange rights (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event), if any, including the conversion or exchange price and other terms of conversion or exchange;

     (f) the voting rights, if any (other than any voting rights that the Preferred Stock may have as a matter of law);

     (g) any restrictions on the issue or reissue or sale of additional Preferred Stock;

     (h) the rights of the holders upon voluntary or involuntary liquidation of the Corporation (including preferences over the Class A Common Stock or any other class or classes or series of stock);

     (i) the preemptive rights, if any, to subscribe to additional issues of stock or securities of the Corporation; and

     (j) such other special rights and privileges, if any, for the benefit of the holders of the Preferred Stock, as shall not be inconsistent with provisions of these Articles of Incorporation.

          (2)      All shares of Preferred Stock of the same series shall be identical in all respects, except that shares of any one series issued at different times may differ as to dates, if any, from which dividends thereon may accumulate. All shares of Preferred Stock of each series shall be of equal rank and shall be identical in all respects except that any series may differ from any other series with respect to any one or more of the designations, relative rights, preferences and limitations described or referred to in subparagraph 5.C. (1) hereof.

3

6.      Subchapters E, F, G, H, I and J of Chapter 25 and Sections 2538 and 2539 of Subchapter D of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation.

4

Annex A

Resolutions of the Board of Directors of
PMA Capital Corporation

Establishing General Terms of Preferred Stock and Designating
First Series Thereof Entitled
“Series A Junior Participating Preferred Stock”

   A.         General Terms of Preferred Stock

             RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of PMA Capital Corporation (herein called the “Corporation”) by Article 5 of the Amended and Restated Articles of Incorporation of the Corporation, (“Articles of Incorporation”) the Board of Directors hereby fixes and determines the number of shares and the voting rights, designations, preferences, limitations and special rights applicable to all shares of all series of the class of stock hereby designated as the “Preferred Stock” as follows:

             Section 1.      General. The class of Preferred Stock shall consist of 2,000,000 shares, par value $.01 per share. The shares of Preferred Stock may be divided into and issued in series from time to time. All shares of any particular series of Preferred Stock shall be identical to all other shares of that series. Except as otherwise subordinated in a resolution or resolutions of the Board of Directors creating a series of the Preferred Stock (any such resolution referred to hereinafter as an “Adopting Resolution”), all shares of Preferred Stock of all series shall rank ratably as to dividends and assets according to the respective rates and amounts provided in this resolution and in any Adopting Resolution.

   B.          Specific Terms of Series A Junior Participating Preferred Stock

             RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article 5 of the Articles of Incorporation, the Board of Directors hereby fixes and determines the number of shares and the voting rights, designations, preferences, limitations and special rights of shares of a series of Preferred Stock, by establishing and designating such series as follows:

             Section 1. Designation.

             There shall be a series of Preferred Stock which shall consist of 40,000 shares and designated as the “Series A Junior Participating Preferred Stock” (such series being herein called the “Series A Preferred Stock”). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the

5

number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.

             Section 2.      Definitions.

             (A) The term “Common Stock” as used in this resolution shall be deemed to mean the Class A Common Stock of the Corporation and stock of the Corporation of any class, whether now or hereafter authorized, which has the right to participate in the distribution of either earnings or assets of the Corporation without limit as to the amount or percentage.

             (B) The term “Dividend Parity Stock” as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking equally therewith as to the payment of dividends. The term “Liquidation Parity Stock” as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking equally therewith as to distribution of assets upon liquidation.

             (C) The term “Junior Stock” as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean the Common Stock and all other stock of the Corporation ranking junior to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation.

             (D) The term “Senior Stock” as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking senior to the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation.

             Section 3.       Dividends and Distributions.

             (A) Subject to the rights of the holders of any shares of any class of Senior Stock, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 10th day of January, April, July and October in each year (or, in each case if not a date the Corporation is open for business, the next date on which the Corporation is so open) (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, one thousand times the aggregate per share amount of all cash dividends, and one thousand times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision

6

of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

             (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

             (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 90 days prior to the date fixed for the payment thereof.

             Section 4.      Voting Rights.

             The holders of shares of Series A Preferred Stock shall have the following voting rights:

7

             (A)      Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to one thousand votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event; provided, however, that in no event shall any share of Series A Preferred Stock have more than one thousand votes per share.

             (B)      Except as otherwise provided herein, in any other Adopting Resolution, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

             (C)      Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

              Section 5.      Certain Restrictions.

             (A)      Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 3 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

     (1) declare or pay dividends or make any other distributions, on any shares of Junior Stock;

     (2) declare or pay dividends, or make any other distributions, on any shares of Dividend Parity Stock, except dividends paid ratably on the Series A Preferred Stock and all such Dividend Parity Stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

     (3) redeem or purchase or otherwise acquire for consideration shares of any Junior Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such Junior Stock in exchange for shares of any other class of Junior Stock; or

     (4) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of Dividend Parity Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

     (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner.

             Section 6.      Reacquired Shares.

             Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Adopting Resolution creating another series of Preferred Stock or as otherwise required by law.

             Section 7.      Liquidation, Dissolution or Winding Up.

             (A) Upon any liquidation, dissolution or winding up (collectively a “Liquidation”) of the Corporation, no distribution shall be made (1) to the holders of shares of Junior Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision of adjustment hereinafter set forth, equal to one thousand times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of Dividend Parity Stock, except distributions made ratably on the Series A Preferred Stock and all such Dividend Parity Stock in proportion to the total amounts to which the holders of all such shares are entitled upon Liquidation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares

9

of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the provision in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

             (B) None of the following shall be considered a Liquidation within the meaning of this section:

     (1) a consolidation or merger of the Corporation with or into any other corporation;

     (2) a merger of any other corporation into the Corporation;

     (3) a reorganization of the Corporation;

     (4) the purchase or redemption of all or part of the outstanding shares of any class or classes of the Corporation;

     (5) a sale or transfer of all or any part of the assets of the Corporation;

     (6) a share exchange to which the Corporation is a party; or

     (7) a division of the Corporation

             Section 8.      Consolidation, Merger, etc.

             In case the Corporation shall enter into any consolidation, merger, division, share exchange, business combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, or a combination thereof, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to one thousand times the aggregate amount of stock, securities, cash or any other property, or a combination thereof (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the

10

denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

         Section 9.      No Redemption.

          The shares of Series A Preferred Stock shall not be redeemable.

          Section 10.    Rank.

          The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, junior to all other classes of Preferred Stock (and series thereof) of the Corporation, whether now or hereafter authorized.

         Section 11.      Amendment.

          The Articles of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.

11

PENNSYLVANIA DEPARTMENT OF STATE
CORPORATION BUREAU

ARTICLES OF AMENDMENT-DOMESTIC CORPORATION
(15 Pa.C.S.)

Entity Number
742680

_________________

[X] Business Corporation (§ 1915)

[ ] Nonprofit Corporation (§ 5915)

Name CT-CORP-COUNTER	Document will be returned to the
Address __________________________________	name and address you enter to the left
City ____________ State _____ Zip Code

Fee $52	Filed in the Dept of State on May 21, 2003
	/s/ Pedro C. Curtis
	Secretary of the Commonwealth

        In compliance with the requirements of the applicable provisions ( relating to articles of amendment), the undersigned corporation, desiring to amend its Articles, hereby states that:

1. The name of the corporation is:

        PMA Capital Corporation

2. The (a) address of this corporation’s current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):

(a)	Number and Street	City	State	Zip	County
	1735 Market Street Suite 2800	Philadelphia	PA	19103-7590	Philadelphia
(b) Name of Commercial Registered Office Provider					County

c/o

3. The statute by or under which it was incorporated: Act of May 5, 1993, P.L. 364, as amended.

4. The date of its incorporation: February 23, 1982

5. Check, and if appropriate complete, one of the following:

[X] The amendment shall be effective upon filing these Articles of Amendment in the Department of State.

[ ] The resolution shall be effective on :
                    at                  
         Date           Hour

6. Check one of the following:

[X] The amendment was adopted by the shareholders or members pursuant to 15 Pa.C.S. § 1914(a) and (b) or § 5914(a).

[ ] The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. § 1914(c) or § 5914(b).

7. Check, and if appropriate complete, one of the following:

[ ] The amendment adopted by the corporation, set forth in full, is as follows:

[X] The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof.

8. Check if the amendment restates the Articles:

[ ] The restated Articles of Incorporation supersede the original articles and all amendments thereto.

                     IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 21st day of May, 2003 .

PMA Capital Corporation     
Name of Corporation

/s/ Charles A. Brawley, III     
Signature

Charles A. Brawley, III, Vice President, Assistant
General Counsel and Assistant Secretary
Title

EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF
PMA CAPITAL CORPORATION

        The first paragraph of Article 5 of the Restated Articles of Incorporation of PMA Capital Corporation is amended and restated as follows:

        “The aggregate number of shares which the Corporation shall have authority to issue is: Sixty Million (60,000,000) shares of Class A Common Stock, $5.00 par value per share (“Class A Common Stock”) and Two Million (2,000,000) shares of Preferred Stock, $.01 par value per share (“Preferred Stock”).”

PENNSYLVANIA DEPARTMENT OF STATE
CORPORATION BUREAU

Statement with Respect to Shares
Domestic Business Corporation
(15 Pa.C.S. §1522)

Entity Number
742680

_________________

Name CT-CORP-COUNTER	Document will be returned to the
Address __________________________________	name and address you enter to the left
City ____________ State _____ Zip Code

Fee $52	Filed in the Dept of State on June 16, 2003
	/s/ Pedro C. Curtis
	Secretary of the Commonwealth

        In compliance with the requirements of 15 Pa.C.S.§ 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that:

1. The name of the corporation is:

        PMA Capital Corporation

2. Check and complete one of the following:

[ ] The resolution amending the Articles under 15 Pa. C.S. § 1522 (b) (relating to divisions and determinations by the board), set forth in full, is as follows:

[X] The resolution amending the Articles under 15 Pa. C.S. § 1522(b) is set forth in full in Exhibit A attached hereto and made a part hereof.

3. The aggregate number of shares of such class of series established and designated by (a) such resolution, (b) all prior statements, if any, filed under 15 Pa. C.S. §1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the Articles is $2,000,000 shares of Preferred Stock, $.01 par value per share and 60,000 shares of Series A Junior Participating Preferred Stock.

4. The resolution was adopted by the Board of Directors or an authorized committee thereon on:
   May 21, 2003.

5. Check, and if appropriate complete, one of the following:

[X] The resolution shall be effective upon the filing of this statement with respect to shares in the Department of State.

[ ] The resolution shall be effective on :
                    at                  
         Date           Hour

                     IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement to be signed by a duly authorized officer thereof this 13th day of June, 2003 .

PMA Capital Corporation     
Name of Corporation

/s/ Charles A. Brawley, III     
Signature

Charles A. Brawley, III, Vice President, Assistant
General Counsel and Assistant Secretary
Title

EXHIBIT A
ATTACHED TO
STATEMENT WITH RESPECT TO SHARES - DOMESTIC BUSINESS CORPORATION

       RESOLUTIONS OF THE BOARD OF DIRECTORS OF PMA CAPITAL CORPORATION

PMA CAPITAL CORPORATION
AMENDING SPECIFIC TERMS OF PREFERREED STOCK ENTITLED
“SERIES A JUNIOR PARTICIPATING PREFERRED STOCK”

B. Specific Terms of Series A Junior Participating Preferred Stock

        RESOLVED, that pursuant to authority vested in the Board of Directors, the Statement with Respect to Shares –Domestic Business Corporation filed with the Department of State of the Commonwealth of Pennsylvania on May 3, 2000, which sets forth the number of shares and the voting rights, designations, preferences, limitations and special rights of shares of Series A Junior Participating Preferred Stock of the Corporation, be, and it hereby is, amended so that the first sentence of “Section 1- Designation” of Part B, “Specific Terms of Series A Junior Participating Preferred Stock” thereof be, and read, as follows:

                     “There shall be a series of Preferred Stock which shall consist of 60,000 shares and designated as the “Series A Junior Participating Preferred Stock” (such series being herein called the “Series A Preferred Stock”).”

        FURTHER RESOLVED, that in all other respects, the Specific Terms of Series A Junior Participating Preferred Stock shall remain in full force and effect.

EX-3

EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS OF
PMA CAPITAL CORPORATION

May 21, 2003

                                                 Table of Contents
                                                 -----------------


   Article/Section       Title                                                       Page No
   ---------------       -----                                                       -------

  Article 1               Corporate Office .........................................    1
  Section 1.1             Registered Office ........................................    1
  Section 1.2             Other Offices ............................................    1

  Article  2              Shareholder; Share Certificates ..........................    1
  Section 2.1             Shares; Share Certificates  ..............................    1
  Section 2.2             Lost Certificates ........................................    1
  Section 2.3             Transfer of Shares  ......................................    1
  Section 2.4             Transfer Agents and Registrars  ..........................    2
  Section 2.5             Transfer Rules  ..........................................    2
  Section 2.6             Uncertificated Shares  ...................................    2

  Article 3               Shareholders Meetings  ...................................    2
  Section 3.1             Place of Meeting  ........................................    2
  Section 3.2             Annual Meetings  .........................................    2
  Section 3.3             Special Meetings  ........................................    2
  Section 3.4             Notice of Meetings  ......................................    2
  Section 3.5             Notice of Meeting Not Required  ..........................    2
  Section 3.6             Electronic Shareholder Meetings  .........................    3
  Section 3.7             Nomination of Directors  .................................    3
  Section 3.8             Notice of Shareholder Business  ..........................    4

  Article 4               Quorum of Shareholders  ..................................    5
  Section 4.1             Requirement of Quorum  ...................................    5
  Section 4.2             Quorum  ..................................................    5
  Section 4.3             Continuation of Business  ................................    6
  Section 4.4             Adjournments  ............................................    6
  Section 4.5             Limits on Adjournments  ..................................    6
  Section 4.6             Votes Necessary  .........................................    6

  Article 5               Proxies  .................................................    6
  Section 5.1             Proxies; Revocability  ...................................    6
  Section 5.2             Multiple Proxies  ........................................    7

  Article 6               Record Date  .............................................    7
  Section 6.1             Fixing of Record Date  ...................................    7

  Article 7               Shareholder List  ........................................    7
  Section 7.1             Shareholder List  ........................................    7
  Section 7.2             Validity of Action  ......................................    7
  Section 7.3             Transfer Books  ..........................................    7
  Section 7.4             Registered Shareholders  .................................    8

  Article 8               Judges of Election  ......................................    8
  Section 8.1             Appointment  .............................................    8
  Section 8.2             Vacancy  .................................................    8
  Section 8.3             Duties  ..................................................    8
  Section 8.4             Reports  .................................................    8

  Article 9               No Consent of Shareholders in Lieu of Meeting                 8
  Section 9.1             No Action by Consent  ....................................    8

  Article 10              Directors  ...............................................    9
  Section 10.1            Number; Powers  ..........................................    9
  Section 10.2            Election  ................................................    9
  Section 10.3            Qualification  ...........................................    9
  Section 10.4            Meeting without Notice  ..................................    9
  Section 10.5            Regular Meetings  ........................................    9
  Section 10.6            Special Meetings  ........................................    9
  Section 10.7            Quorum  ..................................................    9
  Section 10.8            Electronic Meetings  .....................................    9

  Article 11              Removal of Directors  ....................................    10
  Section 11.1            Removal by Shareholders  .................................    10
  Section 11.2            Declared Vacancies .......................................    10
  Section 11.3            Removal of Board  ........................................    10

  Article12               Vacancies in the Board of Directors  .....................    10
  Section 12.1            Filling Vacancies ........................................    10
  Section 12.2            Vacancies; Resignations  .................................    10

  Article 13              Director Action by Unanimous Written Consent                  10
  Section 13.1            Unanimous Consent  .......................................    10

  Articles 14             Compensation of Directors  ...............................    11
  Section 14.1            Compensation  ............................................    11

  Article 15              Committees  ..............................................    11
  Section 15.1            Establishment  ...........................................    11
  Section 15.2            Executive Committees  ....................................    11
  Section 15.3            Audit Committee  .........................................    11
  Section 15.4            Alternative Members  .....................................    12
  Section 15.5            Status of Committee Action  ..............................    12

  Article 16              Liability of Directors  ..................................    12
  Section 16.1            Fiduciary Duties  ........................................    12
  Section 16.2            Fiduciary Duties; Consideration  .........................    12
  Section 16.3            Presumption of Good Faith  ...............................    13
  Section 16.4            No Personal Liability; Exceptions.........................    13
  Section 16.5            Amendments  ..............................................    13

  Article 17              Officers  ................................................    13
  Section 17.1            Numbers and Qualifications  ..............................    13
  Section 17.2            Election; Resignation  ...................................    13
  Section 17.3            Actions in Good Faith  ...................................    14
  Section 17.4            Removal  .................................................    14
  Section 17.5            Voting of Stock in Other Corporations ....................    14

  Article 18              Duties of Officers  ......................................    14
  Section 18.1            Chairman of the Board  ...................................    14
  Section 18.2            President  ...............................................    14
  Section 18.3            Vice President  ..........................................    15
  Section 18.4            Secretary  ...............................................    15
  Section 18.5            Treasurer  ...............................................    15
  Section 18.6            Assistant Secretary  .....................................    15
  Section 18.7            Assistant Treasurer  .....................................    15
  Section 18.8            Assistant Officers  ......................................    15
  Section 18.9            Bonds  ...................................................    15
  Section 18.10           Designations  ............................................    16

  Article 19              Indemnification of Officers, Directors, Employees, and
                          Agents  ..................................................    16
  Section 19.1            Indemnification  .........................................    16
  Section 19.2            Non-Exclusivity ..........................................    16
  Section 19.3            Expenses  ................................................    16
  Section 19.4            Continuation  ............................................    16
  Section 19.5            Securing Obligations  ....................................    16
  Section 19.6            Separate Agreement  ......................................    17
  Section 19.7            Defense of Claims  .......................................    17
  Section 19.8            Insurance  ...............................................    17
  Section 19.9            Amendment  ...............................................    18

  Article 20              Fiscal Year  .............................................    18
  Section 20.1            Fiscal Year  .............................................    18

  Article 21              Notices  .................................................    18
  Section 21.1            Manner of Giving Written Notice  .........................    18
  Section 21.2            Waiver of Notice  ........................................    18

  Article 22              Amendments  ..............................................    19
  Section 22.1            Amendments Requiring Shareholder Approval  ...............    19
  Section 22.2            Amendments Requiring Notice  .............................    19
  Section 22.3            Other Amendments  ........................................    19

AMENDED AND RESTATED BYLAWS OF
PMA CAPITAL CORPORATION

ARTICLE 1

Corporate Office

        Section 1.1 Registered Office. The Corporation shall have and continuously maintain in the Commonwealth of Pennsylvania a registered office at an address to be designated from time to time by the Board of Directors which may, but need not, be the same as its place of business.

        Section 1.2 Other Offices. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate or the business of the Corporation may require.

ARTICLE 2

Shareholders; Share Certificates

        Section 2.1 Shares; Share Certificates. Except as set forth in Section 2.6, all shares issued by the Corporation shall be represented by certificates. The share certificates of the Corporation shall be numbered and registered in a share register as they are issued; shall state that the Corporation is incorporated under the laws of the Commonwealth of Pennsylvania; shall bear the name of the registered holder, the number and class of shares and the designation of the series, if any, represented thereby, the par value, if any, of each share or a statement that the shares are without par value, as the case may be; shall be signed by the President or a Vice President, and the Secretary or the Treasurer or any other person properly authorized by the Board of Directors, and shall bear the corporate seal, which seal may be facsimile engraved or printed. Where the certificate is signed by a transfer agent or a registrar, the signature of any corporate officer on such certificate may be a facsimile engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, such share certificate may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue.

        Section 2.2 Lost Certificates. Duplicate certificates may be issued for those lost or destroyed, under such terms as may be prescribed by the Board of Directors.

        Section 2.3 Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation of a share certificate duly endorsed by the person named in the certificate or by attorney duly appointed in writing and accompanied where necessary by the proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto and the old certificate canceled and the transfer recorded on the share register of the Corporation. A transferee of shares of the Corporation shall not be a record holder of such shares entitled to the rights and benefits associated therewith unless and until the share transfer has been recorded on the share transfer books of the Corporation. No transfer shall be made if it would be inconsistent with the provisions of (i) Article 8 of the Pennsylvania Uniform Commercial Code or (ii) Article 2 of these Bylaws.

1

        Section 2.4 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

        Section 2.5 Transfer Rules. The Board of Directors may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.

        Section 2.6 Uncertificated Shares. Notwithstanding anything herein to the contrary, any or all classes and series of shares, or any part thereof, may be represented by uncertificated shares to the extent determined by the Board of Directors, except that shares represented by a certificate that is issued and outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof, a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class and series shall be identical. Notwithstanding anything herein to the contrary, the provisions of Section 2.3 shall be inapplicable to uncertificated shares and in lieu thereof the Board of Directors shall adopt alternative procedures for registration of transfers.

ARTICLE 3

Shareholders Meetings

        Section 3.1 Place of Meetings. All meetings of the shareholders shall be held at such time and place, within or without the Commonwealth of Pennsylvania, as may be determined from time to time by the Board of Directors and need not be held at the registered office of the Corporation.

        Section 3.2 Annual Meetings. An annual meeting of the shareholders for the election of directors and the transaction of such other business as may properly be brought before the meeting shall be held in each calendar year at such time and place as may be determined by the Board of Directors.

        Section 3.3 Special Meetings. Special meetings of the shareholders, may be called at any time only by the Chairman, President or the Board of Directors.

        Section 3.4 Notice of Meetings. Notice of each meeting other than an adjourned meeting of shareholders, stating the place and time, and, in the case of a special meeting of shareholders, the general nature of the business to be transacted, shall be provided to each shareholder of record entitled to vote at the meeting at such address as appears on the books of the Corporation. Business transacted at any special meeting shall be limited to the purposes stated in the notice. Such notice shall be given, in accordance with the provisions of Article 21 of these Bylaws, at least ten days prior to the day named for a meeting.

        Section 3.5 Notice of Meeting Not Required. Whenever the Corporation has been unable to communicate with a shareholder for more than 24 consecutive months because communications to the shareholder are returned unclaimed or the shareholder has otherwise failed to provide the Corporation with a current address, the giving of notice to such shareholder pursuant to Section 3.4 of these Bylaws shall not be required. Any action or meeting that is taken or held without notice or

2

communication to that shareholder shall have the same validity as if the notice or communication had been duly given. Whenever a shareholder provides the Corporation with a current address this Section 3.5 shall cease to be applicable to such shareholder. The Corporation shall not be required to give notice to any shareholder pursuant to Section 3.4 hereof if and for as long as communication with such shareholder is unlawful.

        Section 3.6 Electronic Shareholder Meetings. The Board of Directors may provide by resolution with respect to a specific meeting or with respect to a class of meetings that one or more shareholders may participate in such meeting or meetings of shareholders by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear one another. Participation in the meeting by such means shall constitute presence in person at the meeting. Any notice otherwise required to be given in connection with any meeting at which participation by conference telephone or other communications equipment is permitted shall so specify.

        Section 3.7 Nomination of Directors.

               (a) Nominations of persons for election to the Board of Directors of the Corporation may be made at an annual meeting of shareholders (x) by or at the direction of the Board of Directors or by a Nominating Committee appointed by the Board of Directors and consisting of directors continuing in office (the “Nominating Committee”) or (y) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.7(a), who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.7(a). Such nominations, other than those made by or at the direction of the Board of Directors or Nominating Committee, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 90^thday before the date of the Corporation’s proxy statement in connection with the previous year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or after the first year anniversary date of the prior year’s annual meeting, notice by the shareholder to be timely, must be so received not later than the close of business on the later of the 90^thday prior to such annual meeting or the 10^thday following the earlier of the date on which public announcement of the date of the annual meeting is first made or the date the notice of the meeting is first mailed to shareholders. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder’s notice as described above. Such shareholder’s notice shall set forth (x) as to each person whom the shareholder proposes to nominate for election or reelection as a director the name and address of such person and all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (y) as to the shareholder giving notice (i) the name and address of the shareholder as they appear on the Corporation’s share transfer books who intends to make the nomination (“Nominating Shareholder”); (ii) the name and address of the beneficial owner, if different than the Nominating Shareholder, of any of the shares owned of record by the Nominating Shareholder (“Beneficial Holder”); (iii) the number of shares of each class and series of shares of the Corporation which are owned of record and beneficially by the Nominating Shareholder and the number which are owned beneficially by any Beneficial Holder; (iv) a description of all arrangements and understandings between the Nominating Shareholder and any Beneficial Holder and any other person or persons (naming such person or persons) pursuant to which the nomination is being made; and (v) a

3

representation that the Nominating Shareholder is at the time of giving of the notice, was or will be on the record date for the meeting, and will be on the meeting date a holder of record of shares of the Corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. No person shall be eligible for election at any meeting of shareholders as a director of the Corporation unless nominated in compliance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in compliance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nominations shall be disregarded. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.7.

               (b) Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (x) by or at the direction of the Board of Directors or by the Nominating Committee or (y) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.7(b) who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.7(b). In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons ( as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareholder’s notice in the form required by Section 3.7(a) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90^thday prior to such special meeting and not later than the close of business on the later of the 60^thday prior to such special meeting or the 10^thday following the earlier of the date on which public announcement is first made of the date of the special meeting or the date the notice of the special meeting is first mailed to shareholders. In no event shall the pubic announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.

               (c) For purposes of this Section 3.7, “public announcement”shall mean disclosure in a press release reported by the Dow Jones News Service, PR Newswire, Associate Press or comparable national news or wire service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act.

        Section 3.8 Notice of Shareholder Business. At the annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be a proper subject for shareholder action under these Bylaws and Pennsylvania law and must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the annual meeting by a shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section and who shall be entitled to vote at the meeting. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 90^thday before the date of the Corporation’s proxy statement in connection with the previous year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or after the first year anniversary date of the prior year’s annual meeting, notice by the shareholder, to be timely,

4

must be so received not later than the close of business on the later of the 90^thday prior to such annual meeting or the 10^thday following the earlier of the date on which public announcement of the date of the annual meeting is first made or the date notice of the meeting is first mailed to shareholders. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for giving of a shareholder’s notice as described above. A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) the name and address of the shareholder as it appears on the Corporation’s share transfer books who intends to bring the business before the annual meeting (“Proposing Shareholder”); (b) the name and address of the beneficial owner, if different than the Proposing Shareholder, of any of the shares owned of record by the Proposing Shareholder (“Beneficial Owner”); (c) the number of shares of each class and series of shares of the Corporation which are owned of record and beneficially by the Proposing Shareholder and the number which are owned beneficially by any Beneficial Owner; (d) any interest (other than an interest solely as a shareholder) which the Proposing Shareholder or a Beneficial Owner has in the business being proposed by the Proposing Shareholder; (e) a description of all arrangements and understandings between the Proposing Shareholder and any Beneficial Owner and any other person or persons (naming such person or persons) pursuant to which the proposal in the Shareholder Notice is being made; (f) a description of the business which the Proposing Shareholder seeks to bring before the annual meeting, the reason for doing so and, if a specific action is to be proposed, the text of the resolution or resolutions which the Proposing Shareholder proposes that the Corporation adopt; and (g) a representation that the Proposing Shareholder is at the time of giving the Shareholder Notice, was or will be on the record date for the meeting, and will be on the meeting date a holder of record of shares of the Corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to bring the business specified in the shareholder notice before the meeting. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in compliance with the procedures set forth in this Section 3.8. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in compliance with the provisions of this Section 3.8, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. For purposes of this Section 3.8, “public announcement”shall have the same meaning as set forth in Section 3.7(c).

ARTICLE 4

Quorum of Shareholders

        Section 4.1 Requirement of Quorum. A meeting of shareholders duly called shall not be organized for the transaction of business unless a quorum is present.

        Section 4.2 Quorum. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter to be voted upon at the meeting shall constitute a quorum for purposes of consideration and action on such matters. To the extent that a quorum is present with respect to consideration of and action on a particular matter or matters but a quorum is not present as to another matter or matters, consideration of an action on the matter or matters for which a quorum is present may occur and, after such consideration and action, the meeting may be adjourned for purposes of the consideration of and action on the matter or matters for which a quorum is not present.

5

        Section 4.3 Continuation of Business. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

        Section 4.4 Adjournments.If a meeting of shareholders cannot be organized because a quorum is not present, those present in person or by proxy, may, except as otherwise provided by statute, adjourn the meeting to such time and place as they may determine, without notice other than an announcement at the meeting, until the requisite number of shareholders for a quorum shall be present in person or by proxy.

        Section 4.5 Limits on Adjournments. Notwithstanding the provisions of Sections 4.1, 4.2, 4.3 and 4.4 of these Bylaws:

(1) Any meeting at which directors are to be elected may be adjourned only from day to day, or for such longer periods not exceeding 15 days each, as the shareholders present and entitled to vote shall direct.

(2) Those shareholders entitled to vote who attend a meeting called for election of directors that has been once previously adjourned for lack of a quorum, although less than a quorum as fixed in these Bylaws, shall nevertheless constitute a quorum for the purpose of electing directors.

(3) Those shareholders entitled to vote who attend a meeting that has been previously adjourned for one or more periods aggregating at least 15 days because of an absence of a quorum, although less than a quorum as fixed in these Bylaws, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter.

        Section 4.6 Votes Necessary. Except as otherwise provided by statute, the Articles of Incorporation or these Bylaws, at any duly organized meeting of shareholders, the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon shall decide any question brought before such meeting, and, if any shareholders are entitled to vote thereon as a class, the affirmative vote of a majority of the votes by the shareholders entitled to vote as a class shall decide any such question.

ARTICLE 5

Proxies

        Section 5.1 Proxies; Revocability. Every shareholder entitled to vote at a meeting of shareholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him by proxy. Every proxy shall be executed or authenticated by the shareholder or his duly authorized attorney-in-fact and filed with or transmitted to the Secretary of the Corporation or its designated agent. A shareholder or his duly authorized attorney-in-fact may execute or authenticate a writing or transmit an electronic message authorizing another person to act for him by proxy. A telegram, telex, cablegram, datagram, e-mail, Internet communication or other means of electronic transmission from a shareholder or attorney-in-fact, or photographic, facsimile or similar reproduction of a writing executed by a shareholder or attorney-in-fact may be treated as properly executed or authenticated and shall so be so treated if it sets forth or utilizes a

6

confidential and unique identification number or mark furnished by the Corporation to the shareholder for the purposes of a particular meeting or transaction. A proxy, unless coupled with an interest shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice in writing or by electronic transmission thereof has been given to the Secretary of the Corporation or its designated agent. An unrevoked proxy shall not be valid after three years from the date of its execution unless a longer time is expressly provided therein. A proxy shall not be revoked by the death or incapacity of the maker, unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation.

        Section 5.2 Multiple Proxies. Where two or more proxies of a shareholder are present, the Corporation shall, unless otherwise expressly provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among those persons.

ARTICLE 6

Record Date

        Section 6.1 Fixing of Record Date. The Board of Directors may fix a time prior to the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall not be more than 90 days prior to the date of the meeting of shareholders. Only shareholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting, notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may similarly fix a record date for the determination of shareholders of record for any other purpose, such as the payment of a distribution or conversion or exchange of shares.

ARTICLE 7

Shareholder List

        Section 7.1 Shareholder List.The officer or agent having charge of the share transfer books of the Corporation shall make a complete alphabetical list of the shareholders entitled to vote at any meeting, with their addresses and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting for inspection by any shareholder during the entire meeting except that if the Corporation has 5,000 or more shareholders, in lieu of the making of the list the Corporation may make the information available at the meeting by other means.

        Section 7.2 Validity of Action. Failure to comply with the provisions of Section 7.1 of these Bylaws shall not affect the validity of any action taken at a meeting prior to a demand at the meeting by any shareholder entitled to vote thereat to examine the list.

        Section 7.3 Transfer Books. The original transfer books for shares of the Corporation, or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to who are the shareholders entitled to examine the list or transfer books for shares or to vote at any meeting.

7

        Section 7.4 Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of a share of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments, if any, a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the BCL.

ARTICLE 8

Judges of Election

        Section 8.1 Appointment. Prior to any meeting of shareholders, the Board of Directors may appoint judges of election, who may but need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the presiding officer of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three. No person who is a candidate for an office to be filled at the meeting shall act as a judge of election.

        Section 8.2 Vacancy. In case any person appointed as a judge of election fails to appear or fails or refuses to act, the vacancy so created may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the presiding officer thereof.

        Section 8.3 Duties. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies. The judges of election shall also receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result and do such other acts as may be proper to conduct the election or vote with fairness to all shareholders. The judges of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as practicable. If there are three judges of election, the decision, act or certificate of a majority shall be the decision, act or certificate of all.

        Section 8.4 Reports. On request of the presiding officer of the meeting or of any shareholder, the judges of election shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts found by them.

ARTICLE 9

No Consent of Shareholders in Lieu of Meeting

        Section 9.1 No Action by Consent. No action of the shareholders shall be taken by either unanimous consent or partial consent or other consent in lieu of a meeting.

8

ARTICLE 10

Directors

        Section 10.1 Number; Powers. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors of not less than 9 or more than 24 directors. The number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the Board of Directors. The Board of Directors shall be divided into three classes consisting of as nearly equal in number of directors as possible, and directors of each class shall be elected for a term of three years and until their successors are elected and qualified or until their earlier death, resignation or removal. A decrease in the number of directors shall not have the effect of shortening the term of any incumbent director. The Board of Directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors that constitute the full Board of Directors in order to ensure that the three classes shall be as nearly equal in number of directors as possible. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are required or permitted to be exercised and done by statute, the Articles of Incorporation or these Bylaws.

        Section 10.2 Election. In all elections of directors, each shareholder, or his proxy, shall be entitled to the number of votes to which the shares of stock owned by him are entitled to cast under the Articles of Incorporation of the Corporation and shall not be entitled to cumulate his votes.

        Section 10.3 Qualification. Each director shall be a natural person of at least 18 years of age and need not be a resident of the Commonwealth of Pennsylvania or a shareholder of the Corporation. The Board may adopt such policies regarding qualifications for directors as it deems appropriate.

        Section 10.4 Meeting without Notice. A meeting of the Board of Directors may be held immediately following the annual meeting of shareholders at which directors have been elected without the necessity of notice to the directors.

        Section 10.5 Regular Meetings. Regular Meetings of the Board of Directors shall be held at such times and places within or without the Commonwealth of Pennsylvania as may be designated by the Board of Directors or in the notice of meeting.

        Section 10.6 Special Meetings. A special meeting of the Board of Directors may be called at any time by the Chairman of the Board or the President on 24 hours’notice to each director, either by telephone, or if in writing, in accordance with Article 21 of these Bylaws and shall be called by either of them or, in their absence, by the Secretary, upon the request of three members of the Board of Directors. Such special meeting of the Board of Directors shall be held at a time and place designated in the notice.

        Section 10.7 Quorum. A majority of the directors then in office shall constitute a quorum for the transaction of business at any regular or special meeting of the Board of Directors, and the acts of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws.

        Section 10.8. Electronic Meetings. One or more directors may participate in any meeting of the Board of Directors, or of any committee thereof, by means of a conference telephone or other electronic technology communication equipment by means of which all persons participating in the

9

meeting can hear one another. Participation in a meeting by such means shall constitute presence in person at the meeting.

ARTICLE 11

Removal of Directors

        Section 11.1 Removal by Shareholders. Except as otherwise provided in Section 11.3 of these Bylaws, the entire Board of Directors, or any class of the Board of Directors or any individual director, may be removed from office by vote of the shareholders entitled to vote thereon only for cause. If any directors are so removed, new directors may be elected at the same meeting.

        Section 11.2 Declared Vacancies. The Board of Directors may declare vacant the office of a director who has been judicially declared of unsound mind or who has been convicted of an offense punishable by imprisonment for a term of more than one year.

        Section 11.3 Removal of Board. The Board of Directors may be removed at any time with or without cause by the unanimous vote of shareholders entitled to vote thereon.

ARTICLE 12

Vacancies in the Board of Directors

        Section 12.1 Filling Vacancies. Vacancies in the Board of Directors occurring for any reason, including vacancies resulting from an increase in the number of directors, shall be filled by a majority vote of the remaining members of the Board of Directors, though less than a quorum, or by a sole remaining director, and each person so elected shall be a director to serve for the balance of the unexpired term and until his successor has been elected and qualified or until his earlier death, resignation or removal.

        Section 12.2 Vacancies; Resignations. When one or more directors resign from the Board of Directors effective at a future date, the directors then in office, including those who have so resigned, shall have the power by a majority vote to fill the vacancies, the vote thereon to take effect when the resignations become effective.

ARTICLE 13

Director Action by Unanimous Written Consent

        Section 13.1 Unanimous Consent. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto by all of the directors is filed with the Secretary of the Corporation.

10

ARTICLE 14

Compensation of Directors

        Section 14.1 Compensation. Directors, as such, may receive a stated salary for their services or a fixed sum and expenses for attendance at regular and special meetings, or any combination of the foregoing as may be determined from time to time by resolution of the Board of Directors, and nothing contained herein shall be construed to preclude any director from receiving compensation for services rendered to the Corporation in any other capacity.

ARTICLE 15

Committees

        Section 15.1 Establishment. The Board of Directors may, by resolution adopted by a majority of the directors in office, establish one or more committees consisting of one or more directors as may be deemed appropriate or desirable by the Board of Directors to serve at the pleasure of the Board. Any committee, to the extent provided in the resolution of the Board of Directors pursuant to which it was created, shall have and may exercise all of the powers and authority of the Board of Directors, except that no committee shall have any power or authority as to the following:

(1) The submission to shareholders of any action requiring approval of shareholders;

(2) The creation or filling of vacancies in the Board of Directors;

(3) The adoption, amendment or repeal of these Bylaws;

(4) The amendment or repeal of any resolution of the Board of Directors that by its terms is amendable or repealable only by the Board of Directors; and

(5) Action on matters committed by the Bylaws or resolution of the Board of Directors to another committee of the Board of Directors, except that the Executive Committee of the Board of Directors may take action upon a subject matter committed by the Bylaws or resolution of the Board of Directors to another committee of the Board of Directors, unless the Bylaws or resolution of the Board of Directors expressly provides that another committee shall have exclusive authority with respect to such matters.

        Section 15.2 Executive Committee. There shall be an Executive Committee, which shall consist of at least three (3) and not more than six (6) directors. The Executive Committee shall have supervision of all business of the Corporation and shall have the authority in between the time of regular meetings of the Board of Directors to exercise all powers of the Corporation and do all such lawful acts and things as are required or permitted to be exercised and done by statute, the Articles of Incorporation or these Bylaws. The Executive Committee shall have the power to create offices and titles as deemed desirable or advisable. The holders of such offices need not be directors of the Corporation.

        Section 15.3 Audit Committee. There shall be an Audit Committee, which shall consist of at least three (3) members of the Board of Directors, none of whom shall be an officer or employee of the Corporation or of any entity controlling, controlled by or under common control with the Corporation and who are not beneficial owners of a controlling interest in the voting stock of the Corporation or any such entity. The Audit Committee shall perform such duties as are set forth in its charter.

11

        Section 15.4 Alternate Members. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified members at any meeting of the committee or for the purposes of any action by the committee. In the absence or disqualification of a member and alternate member or members of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of the absent or disqualified member.

        Section 15.5 Status of Committee Action. The term “Board of Directors”or “Board,”when used in any provision of these Bylaws relating to the organization or procedures of or the manner of taking action by the Board of Directors, shall be construed to include and refer to any committee of the Board of Directors. Any provision of these Bylaws relating or referring to action to be taken by the Board of Directors or the procedure required thereafter shall be satisfied by the taking of corresponding action by a committee of the Board of Directors to the extent the authority to take the action has been delegated to the committee by the Board of Directors.

ARTICLE 16

Liability of Directors

        Section 16.1 Fiduciary Duties. A director of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his duties as a director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (i) one or more officers or employees of the Corporation whom the director reasonably believes to be reliable and competent in the matters presented; (ii) legal counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such persons; or (iii) a committee of the Board of Directors upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted.

        Section 16.2 Fiduciary Duties; Consideration. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors may, in considering the best interests of the Corporation, consider to the extent they deem appropriate those factors set forth in Section 1715 of the BCL, including without limitation:

(1) The effects of any action upon any or all groups affected by such action, including shareholders, employees, suppliers, customers and creditors of the Corporation, and upon communities in which offices or other establishments of the Corporation are located.

(2) The short-term and long-term interests of the Corporation, including benefits that may accrue to the Corporation from its long-term plans and possibility that these interests may be best served by the continued independence of the Corporation.

(3) The resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of the Corporation.

12

(4) All other pertinent factors.

The consideration of these factors shall not constitute a violation of Section 16.1 of this Article 16.

        Section 16.3 Presumption of Good Faith. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or any failure to take any action shall be presumed to be in the best interests of the Corporation.

        Section 16.4 No Personal Liability; Exceptions. A director of the Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless: (i) the director has breached or failed to perform the duties of his office under Sections 16.1 through 16.3 of this Article 16; and (ii) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. The provisions of this Section 16.4 of this Article 16 shall not apply to: (i) the responsibility or liability of a director pursuant to any criminal statute; or (ii) the liability of a director for the payment of taxes pursuant to local, state or federal law.

        Section 16.5 Amendments. Notwithstanding any other provisions of these Bylaws, the approval by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation shall be required to amend, repeal or adopt any provision as part of these Bylaws that is inconsistent with the purpose or intent of Sections 16.1, 16.2, 16.3, 16.4, or 16.5 of this Article 16, and, if any such action shall be taken, it shall become effective only on a prospective basis from and after the date of such shareholder approval. The provisions of Section 16.1, 16.3, and 16.4 were originally adopted by the shareholders of the Corporation on April 27, 1987.

ARTICLE 17

Officers

        Section 17.1 Numbers and Qualifications. The Corporation shall have a Chairman of the Board, a President, a Secretary and a Treasurer or persons who shall act as such, regardless of the name or title by which they may be designated, elected or appointed and may have such other officers and assistant officers as the Board of Directors may authorize from time to time. The Chairman of the Board, President and Secretary shall be natural persons of at least 18 years of age. The Treasurer may be a corporation, but if a natural person shall be of at least 18 years of age. The Chairman of the Board or the President shall be the chief executive officer of the Corporation, as the Board of Directors may determine from time to time. The Chairman of the Board of Directors and the President shall be, and each officer may be, a director of the Corporation. The offices of Secretary and Treasurer may be filled by one person.

        Section 17.2 Election; Resignation.The officers shall be elected by the Board of Directors, or the Board of Directors may authorize the Chairman of the Board or President to appoint one or more classes of officers with such titles (including the titles of Vice President, Secretary and Treasurer), powers, duties and compensation as may be approved by such persons. Each officer shall hold office at the pleasure of the Board of Directors and until his successor has been elected and qualified or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The resignation shall be effective upon receipt thereof by the Corporation or at such subsequent time as may be specified in the notice of resignation.

13

        Section 17.3 Actions in Good Faith. Except as otherwise provided in the Articles of Incorporation, an officer shall perform his duties as an officer in good faith, in a manner he reasonably believes to be in the best interests of the Corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. A person who so performs his duties shall not be liable by reason of having been an officer of the Corporation.

        Section 17.4 Removal. Any officer or agent of the Corporation may be removed by the Board of Directors, with or without cause, at any time. Any officer appointed by the Chairman of the Board or President may also be removed, either with or without cause, at any time, by the Chairman of the Board or President. The removal shall be without prejudice to the contract rights, if any, of any person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

        Section 17.5 Voting of Stock in Other Corporations. If authorized by the Board of Directors, any officer of the Corporation may appoint an attorney or attorneys (who may be or include such officer), in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation any of whose shares or other securities are held by or for the Corporation, at meetings of the holders of the shares or other securities of such other corporation, or in connection with the ownership of such shares or other securities, to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its seal such written proxies or other instruments as such proxy may deem necessary or proper in the circumstances.

ARTICLE 18

Duties of Officers

        Section 18.1 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. To be eligible to serve, the Chairman of the Board must be a director of the Corporation. He may serve as a member of any committee of the Board, attend all meetings of any such committee and participate in the discussions of any such committee, except as may otherwise be determined by the Board or provided in these Bylaws. He shall perform all duties incident to the office of Chairman of the Board and such other duties as may be from time to time assigned to him by the Board of Directors.

        Section 18.2 President. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. He shall be the chief executive of the Corporation, unless the Chairman of the Board is serving as Chief Executive Officer in which event the President shall be the Chief Operating Officer of the Corporation. Except as otherwise provided herein, the President shall be responsible for the general and active management of the business of the Corporation; shall see that all orders and resolutions of the Board of Directors are put into effect, subject, however, to the right of the Board of Directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the Corporation; and shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. He may serve as

14

a member of any committee of the Board, attend all meetings of any such committee and participate in the discussions of any such committee, except as may otherwise be determined by the Board or provided in these Bylaws. He shall perform all duties incident to the office of President and such other duties as may be from time to time assigned to him by the Board of Directors.

        Section 18.3 Vice President. The Vice President or, if more than one, the Vice Presidents in the order, if any, established by the Board of Directors shall, in the absence or incapacity of the President, have the authority to exercise all the powers and perform the duties of the President. The Vice Presidents, respectively, shall also have such other authority and perform such other duties as may be provided in the Bylaws or as shall be determined by the Board of Directors or the President. Any Vice President may, in the discretion of the Board of Directors, be designated as “executive,”“senior”or by departmental or functional classification.

        Section 18.4 Secretary. The Secretary shall act under the direction and superintendence of the Corporation’s chief executive officer; attend all the meetings of shareholders, directors and committees, and keep in suitable books the minutes thereof; superintend the keeping and have charge of the seal, books, papers and records pertaining to his office, sign such documents as shall require his attention, issue notices for all meetings; and perform generally all the duties incident to the office of Secretary and such other duties as may be assigned to him by the Board of Directors or the President.

        Section 18.5 Treasurer. The Treasurer shall be responsible for the custody of the corporate funds and securities; shall be responsible for full and accurate accounts of receipts and disbursements in books belonging to the Corporation; and shall perform such other duties as may be assigned to him by the Board of Directors or the President. He shall give bond in such sum and with such surety as the Board of Directors may from time to time direct.

        Section 18.6 Assistant Secretary. The Assistant Secretary (and if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there is no determination then by seniority)) shall, in the absence of the Secretary, perform the duties of the Secretary and such other duties as may be assigned to him by the Board of Directors, Chairman of the Board, President, Secretary, or such other officer as may be designated by one of the foregoing.

        Section 18.7 Assistant Treasurer. The Assistant Treasurer (and if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there is no determination then by seniority)) shall, in the absence of the Treasurer, perform the duties of the Treasurer and such other duties as may be assigned to him by the Board of Directors, Chairman of the Board, President, Treasurer, or such other officer as may be designated by one of the foregoing.

        Section 18.8 Assistant Officers. Each assistant officer shall assist in the performance of the duties of the officer to whom he is assistant and shall perform such duties in the absence of the officer. He shall perform such additional duties as the Board of Directors, the President or the officer to whom he is assistant may from time to time assign him. Such officers may be given such functional titles as the Board of Directors shall from time to time determine.

        Section 18.9 Bonds. If required by the Board of Directors, any officer or employee shall give bond for the faithful performance of their duties in such amount as is required by the Board of Directors or the Executive Committee of the Board of Directors.

15

        Section 18.10 Designations. The Board of Directors may, by resolution, designate one or more officers to be any of the following: Chief Operating Officer, Chief Financial Officer, General Counsel, or Chief Accounting Officer.

ARTICLE 19

Indemnification of Officers, Directors, Employees, and Agents

        Section 19.1 Indemnification.The Corporation shall indemnify any director or officer, and may indemnify any other employee or agent who was or is a party to, or is threatened to be made a party to or who is called as a witness in connection with, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness.

        Section 19.2 Non-Exclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 19 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of shareholders or disinterested directors or pursuant to the direction, howsoever embodied, of any court of competent jurisdiction or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. It is the policy of the Corporation that indemnification of, and advancement of expenses to, directors and officers of the Corporation shall be made to the fullest extent permitted by law. To this end, the provisions of this Article 19 shall be deemed to have been amended for the benefit of directors and officers of the Corporation effective immediately upon any modification of the BCL or any modification or adoption of any other laws that expands or enlarges the power or obligation of corporations organized under the BCL to indemnify, or advance expenses to, directors and officers of corporations.

        Section 19.3 Expenses. The Corporation shall pay expenses incurred by an officer or director, and may pay expenses incurred by any other employee or agent in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation.

        Section 19.4 Continuation. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 19 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

        Section 19.5 Securing Obligations. The Corporation shall have the authority to create a fund of any nature, which may, but need not, be under the control of an independent trustee, or otherwise secure or insure in any manner, its indemnification obligations, whether arising under these Bylaws or otherwise. The authority shall include, without limitation, the authority to: (i) deposit funds in trust or in escrow, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by

16

grant of a security interest, mortgage or other lien on the assets of the Corporation or (iv) establish a letter of credit, guaranty or surety arrangement for the benefit of such persons in connection with the anticipated indemnification or advancement of expenses contemplated by this Article 19. The provisions of this Article 19 shall not be deemed to preclude the indemnification of, or advancement of expenses to, any person who is not specified in Section 19.1 of this Article 19 but whom the Corporation has the power or obligation to indemnify, or to advance expenses for, under the provisions of the BCL or otherwise. The authority granted by this Section 19.5 shall be exercised by the Board of Directors of the Corporation.

        Section 19.6 Separate Agreement. The Corporation shall have the authority to enter into a separate indemnification agreement with any officer, director, employee or agent of the Corporation or any subsidiary providing for such indemnification of such person as the Board of Directors shall determine up to the fullest extent permitted by law.

        Section 19.7 Defense of Claims. As soon as practicable after receipt by any person specified in Section 19.1 of this Article 19 of notice of the commencement of any action, suit or proceeding specified in Section 19.1 of this Article 19, such person shall, if a claim with respect thereto may be made against the Corporation under Article 19 of these Bylaws, notify the Corporation in writing of the commencement or threat thereof; however, the omission so to notify the Corporation shall not relieve the Corporation from any liability under Article 19 of the Bylaws unless the Corporation shall have been prejudiced thereby or from any other liability which it may have to such person other than under Article 19 of these Bylaws. With respect to any such action as to which such person notifies the Corporation of the commencement or threat thereof, the Corporation may participate therein at its own expense, and except as otherwise provided below, to the extent that it desires, the Corporation, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel selected by the Corporation to the reasonable satisfaction of such person. After notice from the Corporation to such person of its election to assume the defense thereof, the Corporation shall not be liable to such person under Article 19 of these Bylaws for any legal or other expenses subsequently incurred by such person in connection with the defense thereof other than as otherwise provided below. Such person shall have the right to employ his own legal counsel in such action, but the fees and expenses of such legal counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of such person unless: (i) the employment of legal counsel by such person shall have been authorized by the Corporation; (ii) such person shall have reasonably concluded that there may be a conflict of interest between the Corporation and such person in the conduct of the defense of such proceeding; or (iii) the Corporation shall not in fact have employed legal counsel to assume the defense of such action. The Corporation shall not be entitled to assume the defense of any proceeding brought by or on behalf of the Corporation or as to which such person shall have reasonably concluded that there may be a conflict of interest. If indemnification under Article 19 of these Bylaws or advancement of expenses are not paid or made by the Corporation, or on its behalf, within 90 days after a written claim for indemnification or a request for an advancement of expenses has been received by the Corporation, such person may, at any time thereafter, bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. The right to indemnification and advancement of expenses provided hereunder shall be enforceable by such person in any court of competent jurisdiction. The burden of proving that indemnification is not appropriate shall be on the Corporation. Expenses reasonably incurred by such person in connection with successfully establishing the right to indemnification or advancement of expenses, in whole or in part, shall also be indemnified by the Corporation.

        Section 19.8 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the

17

Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another domestic or foreign corporation for profit or not-for-profit, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 19.

        Section 19.9 Amendment. Notwithstanding any other provisions of these Bylaws, the approval by (i) the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation or (ii) a majority vote of the members of the Board of Directors shall be required to amend, repeal or adopt any provision as part of these Bylaws which is inconsistent with the purpose or intent of this Article 19, and, if any such action shall be taken, it shall become effective only on a prospective basis from and after the date of such approval. The provisions of Sections 19.1, 19.2, 19.3, 19.4, 19.5, 19.6, 19.7 and 19.8 were originally adopted by the shareholders of the Corporation on April 27, 1987.

ARTICLE 20

Fiscal Year

        Section 20.1 Fiscal Year. The fiscal year of the Corporation shall be a calendar year, unless otherwise determined by the Board of Directors.

ARTICLE 21

Notices

        Section 21.1 Manner of Giving Notice. Whenever notice is required to be given to any person under the provisions of these Bylaws or the BCL, it may be given to the person either personally or by sending a copy thereof (i) by first class or express mail, postage prepaid, or courier service, charges prepaid, to his postal address appearing on the books of the Corporation or, in the case of directors, supplied by him to the corporation for the purpose of notice. Notice pursuant to this subparagraph shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a courier service for delivery to that person; or (ii) by facsimile transmission, e-mail or other electronic communication to his facsimile number or address for e-mail or other electronic communications supplied by him to the corporation for the purpose of notice. Notice pursuant to this subparagraph shall be deemed to have been given to the person entitled thereto when sent. A notice of meeting shall specify the day and hour and geographic location, if any of the meeting and any other information required by any other provision of the subpart.

        Section 21.2 Waiver of Notice. Any notice required to be given to any person under the provisions of the BCL, the Corporation's Articles of Incorporation or these Bylaws may be waived by the person entitled to such notice whether before or after the time stated therein. Except as otherwise required by statute, and except in the case of a special meeting, neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice. In the case of a special meeting of shareholders, the waiver of notice shall specify the general nature of the business to be transacted. Attendance of any person, whether in person or by proxy, at any meeting shall

18

constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened.

ARTICLE 22

Amendments

        Section 22.1 Amendments Requiring Shareholder Approval. Neither this Section 22.1 nor Article 16 of these Bylaws may be altered, amended or repealed unless approved by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting of shareholders called for that purpose, provided that 30 days’notice of the proposed amendments shall have been mailed to the last recorded address of each shareholder as furnished to the Corporation, and that the same shall have been submitted to the Board of Directors at least 30 days prior to such meeting.

        Section 22.2 Amendments Requiring Notice. Neither this Section 22.2 nor Article 19 of these Bylaws may be altered, amended or repealed unless approved by: (i) the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting called for that purpose, provided that 30 days’notice of the proposed amendments shall have been mailed to the last recorded address of each shareholder as furnished to the Corporation, and that the same shall have been submitted to the Board of Directors at least 30 days prior to such meeting, or (ii) a majority vote of the members of the Board of Directors at any regular meeting or any special meeting duly convened after notice to the directors of that purpose, subject to the power of the shareholders to change such action by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at any duly organized meeting called for that purpose.

        Section 22.3 Other Amendments. All provisions of these Bylaws other than Articles 16 and 19 and Sections 22.1 and 22.2 may be altered, amended or repealed: (i) by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting called for that purpose, or (ii) by a majority vote of the members of the Board of Directors at any regular meeting or any special meeting duly convened after notice to the directors of that purpose, subject to the power of the shareholders to change such action by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at any duly organized meeting called for that purpose.

19

EX-31

EXHIBIT 31.1

Certification

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

1. I have reviewed this quarterly report on Form 10-Q of PMA Capital Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2003	/s/ John W. Smithson
	John W. Smithson President and Chief Executive Officer

EX-31

EXHIBIT 31.2

Certification

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

1. I have reviewed this quarterly report on Form 10-Q of PMA Capital Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2003	/s/ William E. Hitselberger
	William E. Hitselberger Senior Vice President, Chief Financial Officer and Treasurer

EX-32

EXHIBIT 32.1

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 Quarterly Report of PMA Capital Corporation on Form 10-Q for the quarter ended June 30, 2003, 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. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ John W. Smithson

John W. Smithson
President and Chief Executive Officer

August 12, 2003

EX-32

EXHIBIT 32.2

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 Quarterly Report of PMA Capital Corporation on Form 10-Q for the quarter ended June 30, 2003, 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. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ William E. Hitselberger

William E. Hitselberger,
Senior Vice President,
Chief Financial Officer and Treasurer

August 12, 2003