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 MARCH 31, 2004

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 31,334,403 shares outstanding of the registrant’s Class A Common Stock, $5 par value per share, as of the close of business on April 30, 2004.

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated balance sheets as of March 31, 2004 and December 31, 2003 (unaudited)	1
	Consolidated statements of operations for the three months ended March 31, 2004 and 2003 (unaudited)	2
	Consolidated statements of cash flows for the three months ended March 31, 2004 and 2003 (unaudited)	3
	Consolidated statements of comprehensive income (loss) for the three months ended March 31, 2004 and 2003 (unaudited)	4
	Notes to the unaudited consolidated financial statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	27
Item 4.	Controls and Procedures	27
Part II.	Other Information
Item 5.	Other Information	27
Item 6.	Exhibits and Reports on Form 8-K	27
Signatures		28
Exhibit Index		29

Part I. Financial Information
Item 1. Financial Statements

PMA Capital Corporation
Consolidated Balance Sheets
(Unaudited)

(dollar amounts in thousands)	As of March 31, 2004			As of December 31, 2003
Assets:
Investments and cash:
Fixed maturities available for sale, at fair value
(amortized cost: 2004 - $1,762,124; 2003 - $1,806,090)	$	1,825,076		$	1,854,555
Short-term investments		98,385			151,332
Short-term investments, loaned securities collateral		112,689			6,300
Cash		22,311			28,963
Total investments and cash		2,058,461			2,041,150
Accrued investment income		22,820			20,870
Premiums receivable (net of valuation allowance:
2004 - $8,886; 2003 - $7,972)		316,771			364,125
Reinsurance receivables (net of valuation allowance of $6,769)		1,145,314			1,220,320
Deferred income taxes, net		65,114			76,962
Deferred acquisition costs		71,631			83,975
Funds held by reinsureds		96,147			124,695
Other assets		231,600			255,861
Total assets	$	4,007,858		$	4,187,958
Liabilities:
Unpaid losses and loss adjustment expenses	$	2,438,509		$	2,541,318
Unearned premiums		332,391			403,708
Long-term debt		187,566			187,566
Accounts payable, accrued expenses and other liabilities		282,422			314,830
Funds held under reinsurance treaties		159,913			262,105
Dividends to policyholders		8,292			8,479
Payable under securities loan agreements		112,674			6,285
Total liabilities		3,521,767			3,724,291
Commitments and contingencies (Note 5)
Shareholders' Equity:
Class A Common stock, $5 par value (60,000,000 shares authorized,
34,217,945 shares issued and 31,334,403 outstanding)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		228,268			216,115
Accumulated other comprehensive income		29,894			19,622
Notes receivable from officers		(66	)		(65	)
Treasury stock, at cost (2,883,542 shares)		(52,426	)		(52,426	)
Total shareholders' equity		486,091			463,667
Total liabilities and shareholders' equity	$	4,007,858		$	4,187,958

See accompanying notes to the unaudited consolidated financial statements.

1

PMA Capital Corporation
Consolidated Statements of Operations
(Unaudited)

	Three Months Ended March 31,
(dollar amounts in thousands, except per share data)	2004		2003
Revenues:
Net premiums written	$	158,498	$	350,858
Change in net unearned premiums		47,771		(76,788	)
Net premiums earned		206,269		274,070
Net investment income		16,758		17,645
Net realized investment gains		8,600		4,355
Other revenues		5,738		7,000
Total revenues		237,365		303,070
Losses and expenses:
Losses and loss adjustment expenses		142,190		202,585
Acquisition expenses		47,235		56,220
Operating expenses		24,779		23,872
Dividends to policyholders		1,429		2,036
Interest expense		2,939		1,758
Total losses and expenses		218,572		286,471
Income before income taxes		18,793		16,599
Income tax expense:
Current		325		-
Deferred		6,315		5,897
Total		6,640		5,897
Net income	$	12,153	$	10,702
Net income per share:
Basic	$	0.39	$	0.34
Diluted	$	0.35	$	0.34

See accompanying notes to the unaudited consolidated financial statements.

2

PMA Capital Corporation
Consolidated Statements of Cash Flows
(Unaudited)

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Cash flows from operating activities:
Net income	$	12,153		$	10,702
Adjustments to reconcile net income to net cash flows
used in operating activities:
Deferred income tax expense		6,315			5,897
Net realized investment gains		(8,600	)		(4,355	)
Change in:
Premiums receivable and unearned premiums, net		(23,963	)		(14,443	)
Reinsurance receivables		75,006			(19,020	)
Unpaid losses and loss adjustment expenses		(102,809	)		(1,743	)
Funds held by reinsureds		28,548			(11,118	)
Funds held under reinsurance treaties		(102,192	)		23,799
Deferred acquisition costs		12,344			(14,053	)
Accounts payable, accrued expenses and other liabilities		(24,273	)		20,302
Dividends to policyholders		(187	)		(17	)
Accrued investment income		(1,950	)		(3,826	)
Other, net		27,458			(2,901	)
Net cash flows used in operating activities		(102,150	)		(10,776	)
Cash flows from investing activities:
Fixed maturities available for sale:
Purchases		(171,335	)		(327,124	)
Maturities or calls		41,425			76,843
Sales		176,244			129,269
Net sales of short-term investments		48,442			98,860
Sale of subsidiary, net of cash sold		-			17,676
Proceeds from sale of real estate		1,600			-
Other, net		(878	)		(675	)
Net cash flows provided by (used in) investing activities		95,498			(5,151	)
Cash flows from financing activities:
Dividends paid to shareholders		-			(3,291	)
Repayments of short-term debt		-			(20,000	)
Net cash flows used in financing activities		-			(23,291	)
Net decrease in cash		(6,652	)		(39,218	)
Cash - beginning of period		28,963			43,853
Cash - end of period	$	22,311		$	4,635
Supplementary cash flow information:
Income taxes refunded	$	(3,243	)	$	-
Interest paid	$	3,686		$	2,484

See accompanying notes to the unaudited consolidated financial statements.

3

PMA Capital Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Net income	$	12,153		$	10,702
Other comprehensive income (loss), net of tax:
Unrealized gains on securities:
Holding gains arising during the period		15,026			2,739
Less: reclassification adjustment for gains
included in net income, net of tax
expense: 2004 - $3,010; 2003 - $1,524		(5,590	)		(2,831	)
Total unrealized gain (loss) on securities		9,436			(92	)
Foreign currency translation gain (loss), net of tax
expense (benefit): 2004 - $450; 2003 - ($183)		836			(341	)
Other comprehensive income (loss), net of tax		10,272			(433	)
Comprehensive income	$	22,425		$	10,269

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 owns and operates specialty risk management businesses:

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.

Run-off Operations — Run-off Operations consists of the results of the Company’s former reinsurance and excess and surplus lines businesses. The Company’s former reinsurance operations offered excess of loss and pro rata property and casualty reinsurance protection mainly through reinsurance brokers. In November 2003, the Company decided to withdraw from the reinsurance business. In May 2002, the Company withdrew from its former excess and surplus lines business.

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 2004 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 and the decision to withdraw from the reinsurance business, as well as competitive and other market conditions, operating results for the three months ended March 31, 2004 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 2003 Form 10-K.

B. Stock-Based Compensation – The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s Class A Common stock at grant date or other measurement date over the amount an employee must pay to acquire the Class A Common stock.

5

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

	Three Months Ended March 31,
(dollars amounts in thousands, except per share)	2004			2003
Net income	$	12,153		$	10,702
Add: stock-based compensation expense
(benefit) already included in reported net
income, net of tax		(18	)		38
Less: total stock-based compensation (expense)
benefit determined under fair value based
method, net of tax		310			(218	)
Pro forma net income	$	12,445		$	10,522
Net income per share:
Basic - as reported	$	0.39		$	0.34
Basic - pro forma	$	0.40		$	0.34
Diluted - as reported	$	0.35		$	0.34
Diluted - pro forma	$	0.36		$	0.34

Stock-based compensation increased pro forma net income in the first quarter of 2004 due to the impact of the cancellation of unvested stock options. See Note 6 for additional information.

C. Recent Accounting Pronouncements – In December 2003, the Financial Accounting Standards Board ("FASB") revised Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," to require additional disclosures regarding defined benefit pension plans and other defined benefit postretirement plans. The Company has applied the disclosure provisions of SFAS No. 132 to its Consolidated Financial Statements.

In March 2004, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”  The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired.  The EITF 03-1 guidance for determining other-than-temporary impairment will be effective beginning with the third quarter of 2004. The Company is currently evaluating the impact that EITF 03-1 may have on its financial statements.

6

3. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

At March 31, 2004, 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 March 31, 2004 is $2,438.5 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. This estimate includes amounts for losses occurring on or prior to March 31, 2004 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. Due to the “long-tail” nature of a significant portion of the Company’s business, 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. The Company defines long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. The Company’s major long-tail lines include its workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, reported claims 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.

Management believes that its unpaid losses and LAE are fairly stated at March 31, 2004. 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 March 31, 2004, the related adjustments could have a material adverse impact on the Company’s financial condition, results of operations and liquidity.

The following table summarizes the effect on the Company’s underwriting assets and liabilities of the commutation and novation of certain reinsurance and retrocessional contracts by the Run-off Operations segment occurring in the first quarter of 2004. The commutations and novations did not have a material effect on the Company’s first quarter 2004 results of operations.

(dollar amounts in thousands)
Assets:
Reinsurance receivables	$	(58,926	)
Funds held by reinsureds		(27,133	)
Other assets		(22,170	)
Liabilities:
Unpaid losses and loss adjustment expenses	$	(95,704	)
Unearned premiums		(28,190	)
Funds held under reinsurance treaties		(72,620	)

7

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 and earned, and losses and LAE incurred are as follows:

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Premiums written:
Direct	$	138,519		$	208,588
Assumed		19,341			211,106
Ceded		638			(68,836	)
Net	$	158,498		$	350,858
Premiums earned:
Direct	$	137,988		$	137,680
Assumed		91,189			195,226
Ceded		(22,908	)		(58,836	)
Net	$	206,269		$	274,070
Losses and LAE:
Direct	$	106,523		$	109,008
Assumed		80,950			153,623
Ceded		(45,283	)		(60,046	)
Net	$	142,190		$	202,585

5. COMMITMENTS AND CONTINGENCIES

The Company’s businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could materially 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 March 31, 2004 the Company had recorded a liability of $6.3 million for these assessments, which is included in accounts payable, accrued expenses and other liabilities on the Balance Sheet.

The Company has an interest in a partnership for which it has provided a guaranty of $7.0 million related to loans on properties of the partnership. 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.

Until December 31, 2003, the Company had an executive loan program, through which a financial institution provided personal demand loans to the Company’s officers. The Company had provided collateral and agreed to purchase any loan in default. In November 2003, the financial institution sold the Company’s collateral partially securing the loans of two former officers of the Company in satisfaction of their loans in the aggregate amount of $2.0 million. The Company is

8

seeking repayment of the loans from the former officers and is accruing interest on these loans at a rate of 3.3% as of March 31, 2004. These loans are included in other assets on the Balance Sheet at March 31, 2004.

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.

On November 6, 2003, several purported class action lawsuits were filed against PMA Capital Corporation and certain other defendants. A purported class action lawsuit captioned Pitt v. PMA Capital Corporation, John W. Smithson and William E. Hitselberger (initiated November 6, 2003) has been filed in the Eastern District of Pennsylvania by alleged shareholders of PMA Capital who seek to represent a class of purchasers of PMA Capital securities from May 7, 2003 to November 3, 2003. The complaints allege, among other things, that the defendants violated Rule 10b-5 of the Securities Exchange Act of 1934, as amended, by making materially false and misleading public statements and material omissions during the class period regarding the Company’s loss reserves.

Several other purported class action lawsuits, captioned Augenbaum v. PMA Capital Corporation, et. al. (initiated November 6, 2003), Klinghoffer v. PMA Capital Corporation, et. al. (initiated November 10, 2003), and Pollin v. PMA Capital Corporation, John W. Smithson and Frederick W. Anton III (initiated November 11, 2003) were filed in the Eastern District of Pennsylvania by alleged purchasers of the Company’s 4.25% Convertible Debentures and 8.50% Monthly Income Senior Notes. The Klinghoffer and Pollin complaints name PMA Capital Corporation, PMA Capital Trust I, PMA Capital Trust II, certain of the Company’s officers and directors and investment banking firms as defendants. The complaints allege, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making materially false and misleading statements about its reserves in the registration statement, prospectuses and prospectus supplements in connection with the debt.

Several purported class action lawsuits captioned Newman v. PMA Capital Corporation, John W. Smithson, William E. Hitselberger and Francis W. McDonnell (initiated November 7, 2003), Appel v. PMA Capital Corporation, John W. Smithson, William E. Hitselberger and Francis W. McDonnell (initiated November 10, 2003), Boyd v. PMA Capital Corporation, John W. Smithson, William E. Hitselberger and Francis W. McDonnell (initiated November 20, 2003), Waller v. PMA Capital Corporation, John W. Smithson, Francis W. McDonnell and William E. Hitselberger (initiated November 12, 2003), Bauer v. PMA Capital Corporation, John W. Smithson, William E. Hitselberger and Francis W. McDonnell (initiated November 21, 2003), and Frey v. PMA Capital Corporation, John W. Smithson, William E. Hitselberger and Francis W. McDonnell (initiated December 11, 2003) were filed in the Eastern District of Pennsylvania by alleged shareholders of PMA Capital who seek to represent a class of purchasers of PMA Capital securities from November 13, 1998 to November 3, 2003. The complaints allege, among other things, that the defendants violated Rule 10b-5 of the Securities Exchange Act of 1934, as amended, by making materially false and misleading public statements and material omissions during the class period regarding the Company's loss reserves.

The lawsuits seek unspecified compensatory damages and reasonable costs and expenses. The Company intends to vigorously defend against the claims asserted in these actions. The lawsuits are in their earliest stages. The lawsuits may have a material adverse effect on the Company’s financial condition, results of operations and liquidity.

9

6. SHAREHOLDERS’ EQUITY

In March 2004, the Stock Option Committee of the Company’s Board of Directors approved the issuance of 176,500 shares of restricted Class A Common stock and 734,500 stock options under the Company’s 2002 Equity Incentive Plan, which was approved by shareholders at the 2002 Annual Meeting of Shareholders. The restricted stock vests (restrictions lapse) during periods of one year. During the vesting period, restricted shares issued are nontransferable and subject to forfeiture, but the shares are entitled to all of the other rights of the outstanding shares. Restricted shares are forfeited if employees terminate employment prior to the lapse of restrictions except upon death or permanent disability. The Company determines the cost of restricted stock awarded, which is recognized as compensation expense over the vesting period, based on the market value of the stock at the time of the award. The Company recognized compensation expense of $57,000 for restricted stock for the first quarter of 2004.

All stock options granted in the first quarter of 2004 were granted with an exercise price that equaled the market value of the Class A Common stock on the grant date, and such options had an exercise price of $5.78 per share and a fair value of $3.08 per share. The stock options vest over a period of one year. During the first quarter of 2004, 534,559 stock options were cancelled or expired. There were 3,071,560 stock options outstanding as of March 31, 2004.

7. EARNINGS PER SHARE

The table below reconciles the numerator and the denominator used in the diluted earnings per share calculation:

	Three Months Ended March 31,
(dollar amounts in thousands)	2004		2003
Numerator:
Net income	$	12,153	$	10,702
Interest on Convertible Debt, net of tax		595		-
Net income before interest on Convertible Debt	$	12,748	$	10,702
Denominator:
Basic shares		31,334,403		31,328,922
Dilutive effect of:
Convertible Debt		5,269,427		-
Restricted stock		40,731		-
Total diluted shares		36,644,561		31,328,922

The dilutive effect of the potential conversion of the Company’s 4.25% Convertible Debt into shares of Class A Common stock was not included in the computation of diluted earnings per share for the first quarter of 2003 because, under the terms of the Convertible Debt agreement, the required conditions for holders to be able to convert the debentures were not met.

The effects of 3.1 million and 2.8 million stock options were excluded from the computation of diluted earnings per share for the first quarters of 2004 and 2003, respectively, because they were anti-dilutive.

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8. EMPLOYEE RETIREMENT, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

The Company sponsors a qualified non-contributory defined benefit pension plan (the “Qualified Pension Plan”) covering substantially all employees and maintains non-qualified unfunded supplemental defined benefit pension plans (the “Non-qualified Pension Plans”) for the benefit of certain key employees. In addition to providing pension benefits, the Company provides certain health care benefits for retired employees and their spouses.

Following are the components of the Company’s net periodic benefit cost for pension and other postretirement benefits:

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003			2004			2003
Components of net periodic benefit cost:
Service cost	$	1,043		$	789		$	105		$	91
Interest cost		1,258			1,140			155			149
Expected return on plan assets		(1,305	)		(1,258	)		-			-
Amortization of transition obligation		(1	)		(1	)		-			-
Amortization of prior service cost		1			1			(30	)		(30	)
Recognized actuarial (gain) loss		406			405			(31	)		(23	)
Net periodic pension cost	$	1,402		$	1,076		$	199		$	187
Weighted average assumptions:
Discount rate		6.25	%		6.25	%		6.25	%		6.25	%
Expected return on plan assets		8.50	%		9.00	%		-			-
Rate of compensation increase		4.00	%		4.00	%		-			-

9. RUN-OFF OPERATIONS

In November 2003, the Company announced its decision to withdraw from the reinsurance business previously served by the PMA Re operating segment. As a result of this decision, the results of PMA Re are now reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines segment, Caliber One.

As a result of the decision to exit from and run off the reinsurance business, results for the Run-off Operations for full year 2003 included a charge of $2.6 million pre-tax, mainly for employee termination benefits. Approximately 75 employees at PMA Re were terminated in accordance with the Company’s exit plan. Employee termination benefits of $2.1 million have been paid in accordance with this plan, including $1.6 million in the first quarter of 2004. Approximately 80 positions, primarily claims and financial, remain at PMA Re after the terminations. The Company has established an employee retention arrangement for the remaining employees. Under this arrangement, the Run-off Operations recorded expenses of $417,000, which include retention bonuses and severance, in the first quarter of 2004, and expects to record expenses of approximately $1.3 million for the remainder of 2004. The majority of these costs will be paid in 2004 and 2005.

In January 2003, the Company closed on the sale of the capital stock of Caliber One Indemnity Company. 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. 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 three months ended March 31, 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 a current assessment of their estimated net realizable value. The writedown is included in operating expenses in the Statement of Operations for the three months ended March 31, 2003.

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During 2002, approximately 80 Caliber One employees, primarily in the underwriting area, were terminated in accordance with the Company’s exit plan. Approximately eight positions, primarily claims, remain after the terminations. Involuntary employee termination benefits of $2.7 million have been paid through March 31, 2004, including approximately $31,000 in the first quarter of 2004. At March 31, 2004, the Company has liability balances of approximately $832,000 for net lease costs and approximately $121,000 for severance, remaining from the second quarter 2002 exit charge.

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 the Company’s 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 March 31,
(dollar amounts in thousands)	2004			2003
Revenues:
The PMA Insurance Group	$	145,413		$	128,943
Run-off Operations (1)		83,155			169,346
Corporate and Other		197			426
Net realized investment gains		8,600			4,355
Total revenues	$	237,365		$	303,070
Components of net income:
Pre-tax operating income (loss):
The PMA Insurance Group	$	6,559		$	8,340
Run-off Operations (1)		8,946			8,547
Corporate and Other		(5,312	)		(4,643	)
Net realized investment gains		8,600			4,355
Income before income taxes		18,793			16,599
Income tax expense		6,640			5,897
Net income	$	12,153		$	10,702

(1) In November 2003, the Company announced its decision to withdraw from the reinsurance business previously served by the PMA Re operating segment. As a result of this decision, the results of PMA Re are now reported as Run-off Operations. Run-off Operations also includes the results of the Company’s former excess and surplus lines segment, Caliber One.

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Net premiums earned by business segment are as follows:

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
The PMA Insurance Group:
Workers' compensation and integrated disability	$	113,172		$	93,274
Commercial automobile		10,307			12,975
Commercial multi-peril		5,410			6,762
Other		2,761			3,230
Total premiums earned		131,650			116,241
Run-off Operations:
Reinsurance:
Traditional - Treaty		36,231			67,007
Finite Risk and Financial Products		17,724			56,494
Specialty - Treaty		18,677			18,958
Facultative		2,803			6,674
Accident Reinsurance		(750	)		2,106
Total reinsurance premiums earned		74,685			151,239
Excess and surplus lines		84			6,846
Total premiums earned - Run-off Operations		74,769			158,085
Corporate and Other		(150	)		(256	)
Consolidated net premiums earned	$	206,269		$	274,070

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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 March 31, 2004, compared with December 31, 2003, and our results of operations for the quarter ended March 31, 2004, compared with the same period last year. This discussion should be read in conjunction with Management’s Discussion and Analysis included in our Form 10-K for the year ended December 31, 2003 (“2003 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements, 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 26 for a list of factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Also, see “Item 1 – Business – Risk Factors” in our 2003 Form 10-K for a further discussion of risks that could materially affect our business.

OVERVIEW

We are a property and casualty insurance holding company, which offers through our subsidiaries workers’ compensation, integrated disability and, to a lesser extent, other standard lines of commercial insurance, primarily in the eastern part of the United States. These products are written through The PMA Insurance Group business segment. Our Run-off Operations include our prior reinsurance and excess and surplus lines operations.

The PMA Insurance Group earns revenue and generates cash primarily by writing insurance policies and collecting insurance premiums. The PMA Insurance Group also earns other revenues by providing risk control and claims adjusting services to customers. Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, we invest the available premiums and earn investment income. From our revenues are deducted:

• losses we pay under insurance policies that we write;

• loss adjustment expenses (“LAE”), which are the expenses of settling claims;

• acquisition and operating expenses, which are direct and indirect costs of acquiring both new and renewal business, including commissions paid to agents and brokers, and the internal expenses to operate the business segment; and

• dividends that are paid to policyholders of certain of our insurance products.

Losses and LAE are the most significant expense items affecting our insurance business and represent the most significant accounting estimates in our financial statements. Like all insurers, we establish reserves representing estimates of future amounts needed to pay claims with respect to insured events that have occurred, including events that have not been reported to us. We also establish reserves for LAE, which represent the estimated expenses of settling claims, including legal and other fees, and general expenses of administering the claims adjustment process. Reserves are merely estimates and do not and cannot represent an exact measure of liability. If actual losses and LAE are larger than our loss reserve estimates, or if our actual claims reported to us exceed our estimate of the number of claims to be reported to us, we have to increase reserves for prior years. Changes in reserve estimates may be due to a wide range of factors, including inflation, changes in claims and litigation trends and legislative or regulatory changes. We incur a charge to earnings in the period the reserves are increased.

The PMA Insurance Group (Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company), or the Pooled Companies, our primary insurance subsidiaries, have A.M. Best financial strength ratings of B++ (5^th of 16). We believe that one of the most significant challenges that we have in 2004 is restoring the A- A.M. Best rating of The PMA Insurance Group. The B++ financial strength rating of The PMA Insurance Group has constrained its ability to attract and retain business. We believe the restoration of the A- rating is necessary for the growth of our primary insurance operations. As a result, we have requested the approval of the Pennsylvania Insurance Department to “unstack” the Pooled Companies from PMA Capital Insurance Company, our reinsurance subsidiary, which would make the Pooled Companies direct subsidiaries of PMA Capital Corporation. While there can be no assurance that

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the Department’s approval of our request will result in a ratings change, we believe this is an important step towards having The PMA Insurance Group’s A- rating restored by A.M. Best.

Another significant challenge for 2004 is ensuring that we maintain sufficient cash at the holding company level to pay corporate overhead, including debt service and operating expenses. See “Liquidity and Capital Resources” beginning on page 22 for additional information. In December 2003, we entered into a voluntary agreement with our lead regulator, the Pennsylvania Insurance Department, whereby, among other things, we would seek the Department’s prior approval for any dividends paid from our insurance subsidiaries. See “Item 1 – Business –Regulatory Matters” in the 2003 Form 10-K for additional information about this voluntary agreement. As these dividends are a significant source of cash to the holding company, we will continue to work cooperatively with the Department to demonstrate to them our belief that our insurance subsidiaries have adequate statutory capital to support their expected level of business production, the satisfaction of their existing liabilities and the servicing of the holding company debt and overhead obligations.

RESULTS OF OPERATIONS

Consolidated Results

We recorded net income of $12.2 million for the first quarter of 2004, compared to $10.7 million for the same period last year. Included in net income are after-tax net realized investment gains of $5.6 million and $2.8 million for the first quarters of 2004 and 2003, respectively. Partially offsetting the increase in net realized gains were lower underwriting results at The PMA Insurance Group and higher interest expense.

Consolidated revenues were $237.4 million for the first quarter of 2004, compared to $303.1 million for the same period last year. The decrease reflects lower net premiums earned due to our fourth quarter 2003 withdrawal from the reinsurance business.

In this MD&A, in addition to providing consolidated net income, 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 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 the Unaudited Consolidated Financial Statements as required by Statement of Financial Accounting Standards 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 individual segments. Operating income (loss) does not replace net income as the GAAP measure of our consolidated results of operations.

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Following is a reconciliation of our segment operating results to GAAP net income. See Note 10 to our Unaudited Consolidated Financial Statements for additional information.

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Components of net income:
Pre-tax operating income:
The PMA Insurance Group	$	6,559		$	8,340
Run-off Operations(1)		8,946			8,547
Corporate and Other		(5,312	)		(4,643	)
Net realized investment gains		8,600			4,355
Income before income taxes		18,793			16,599
Income tax expense		6,640			5,897
Net income	$	12,153		$	10,702

(1) In November 2003, we announced our decision to withdraw from the reinsurance business previously served by our PMA Re operating segment. As a result of this decision, the results of PMA Re are now reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines segment, Caliber One.

We provide combined ratios and operating ratios for The PMA Insurance Group on page 17. 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 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.

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Segment Results

The PMA Insurance Group

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

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Net premiums written	$	135,286		$	194,239
Net premiums earned	$	131,650		$	116,241
Net investment income		8,028			8,271
Other revenues		5,735			4,431
Total revenues		145,413			128,943
Losses and LAE		98,831			84,035
Acquisition and operating expenses		38,594			34,532
Dividends to policyholders		1,429			2,036
Total losses and expenses		138,854			120,603
Pre-tax operating income	$	6,559		$	8,340
Combined ratio		102.9	%		101.3	%
Less: net investment income ratio		6.1	%		7.1	%
Operating ratio		96.8	%		94.2	%

Pre-tax operating income for The PMA Insurance Group was $6.6 million for the first quarter of 2004, compared to $8.3 million for the same period in 2003, primarily reflecting lower underwriting results.

Premiums

The PMA Insurance Group's premiums written are as follows:

	Three Months Ended March 31,
(dollar amounts in thousands)	2004			2003
Workers' compensation and integrated disability:
Direct premiums written	$	122,918		$	174,410
Premiums assumed		7,423			4,716
Premiums ceded		(8,597	)		(15,180	)
Net premiums written	$	121,744		$	163,946
Commercial Lines:
Direct premiums written	$	15,637		$	34,324
Premiums assumed		508			271
Premiums ceded		(2,603	)		(4,302	)
Net premiums written	$	13,542		$	30,293
Total:
Direct premiums written	$	138,555		$	208,734
Premiums assumed		7,931			4,987
Premiums ceded		(11,200	)		(19,482	)
Net premiums written	$	135,286		$	194,239

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Direct workers’ compensation and integrated disability premiums written were $122.9 million for the three months ended March 31, 2004, compared to $174.4 million for the same period in 2003, reflecting the impact of the November 2003 lowering of our A.M. Best financial strength rating from A- to B++. The B++ rating has negatively affected our ability to write new business as well as our ability to retain existing business. Our renewal retention rate on existing workers’ compensation accounts was 63% in the first quarter of 2004, compared to 88% in the first quarter of 2003. Traditionally, approximately 30% to 35% of our total business written is subject to renewal in the first quarter. New workers’ compensation and integrated disability production was $15.1 million in the first quarter of 2004, compared to $49.6 million for the same period in 2003. We obtained price increases for our workers’ compensation business of approximately 6% in the first quarter of 2004, compared to 12% for the same period last year. We believe the deceleration of price increases is due to increased competition in the workers’ compensation market.

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”) decreased by $18.7 million for the three months ended March 31, 2004, compared to the same period in 2003, reflecting the impact of our A.M. Best financial strength rating, partially offset by price increases that averaged 17%. Our renewal retention rate on existing Commercial Lines accounts was 31% in the first quarter of 2004, compared to 79% in the first quarter of 2003.

Premiums assumed increased $2.9 million, primarily due to an increase in the amount of residual market business in The PMA Insurance Group’s principal marketing territories. Companies which write premiums in certain states generally must share in the risk of insuring entities that cannot obtain insurance in the voluntary market. Typically, an insurer’s share of this residual market business is dependent upon its market share in terms of direct premiums in the voluntary market for the prior year, and the assignments are accomplished either by direct assignment or by assumption from pools of residual market business.

Premiums ceded for workers’ compensation and integrated disability decreased $6.6 million as a result of lower direct premiums written for those lines. Additionally, ceded premiums written for workers’ compensation and integrated disability decreased because The PMA Insurance Group increased its aggregate annual deductible for losses in excess of $250,000 to $18.8 million from $5 million on its workers’ compensation reinsurance program. Premiums ceded for Commercial Lines decreased $1.7 million, primarily as a result of the decrease in direct premiums written for commercial lines.

Net premiums written decreased 30% and net premiums earned increased 13% in 2004, compared to 2003. 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. In periods of decreasing premium writings, the decrease in net premiums written will typically be greater than the decrease in net premiums earned. Premiums earned in the first quarter of 2004 reflected a larger portion of premiums written in 2003, and because of this, first quarter premiums earned increased, compared to decreasing premiums written. 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.

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Losses and Expenses

The components of the GAAP combined ratios are as follows:

	Three Months Ended March 31,
	2004			2003
Loss and LAE ratio		75.1	%		72.3	%
Expense ratio:
Acquisition expenses		17.5	%		16.8	%
Operating expenses(1)		9.2	%		10.4	%
Total expense ratio		26.7	%		27.2	%
Policyholders' dividend ratio		1.1	%		1.8	%
Combined ratio (1)		102.9	%		101.3	%

(1) The operating expense ratio equals insurance-related operating expenses divided by net premiums earned. Insurance-related operating expenses were $12.1 million for both the first quarter of 2004 and 2003, respectively.

The loss and LAE ratio increased 2.8 points in the first quarter of 2004, compared to the same period last year, primarily due to a higher current accident year loss and LAE ratio. Overall loss trends in workers’ compensation are rising modestly ahead of price increases. Medical cost inflation, which has contributed to increased severity of workers’ compensation losses, was the primary reason for the increasing loss costs in 2004. We estimate our medical cost inflation for 2004 to be approximately 11%, compared to 10% for the first quarter of 2003. We expect medical cost inflation to remain a significant component of loss costs throughout the remainder of 2004.

The total expense ratio declined 0.5 points in the first quarter of 2004, compared with the same period in 2003. We have not reduced our level of expenses in order to remain in position to be able to write a level of business more consistent with The PMA Insurance Group’s past, if its A- rating is restored. We will continue to evaluate The PMA Insurance Group’s operating expenses in light of future developments.

The policyholders’ dividend ratio improved 0.7 points to 1.1% for the first quarter of 2004, compared to 1.8% for the same period in 2003. 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. To a lesser extent, the policyholders’ dividend ratio improved due to the higher loss and LAE ratio described above. Under these types of policies, higher losses result in lower dividends being paid under the policy. 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 $8.0 million for the three months ended March 31, 2004, compared to $8.3 million for the same period in 2003. The decrease in net investment income primarily reflects a reduction in invested asset yields of approximately 60 basis points, partially offset by a higher average invested asset base that increased by approximately 11%.

Other Revenues

Other revenues were $5.7 million for the three months ended March 31, 2004, compared to $4.4 million for the same period in 2003. The increase in other revenues reflects higher service revenues for claims, risk management and related services provided primarily to self-insureds on an unbundled basis. Also included in other revenues for the first quarter of 2004 is a $458,000 gain on sale of real estate.

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Run-off Operations

In November 2003, we announced our decision to withdraw from the reinsurance business previously served by our PMA Re operating segment. We are no longer writing new reinsurance business. As a result of this decision, the results of PMA Re are reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines segment, Caliber One. See Note 9 for additional information regarding Run-off Operations.

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

	Three Months Ended March 31,
(dollar amounts in thousands)	2004		2003
Net premiums written	$	23,362	$	156,875
Net premiums earned	$	74,769	$	158,085
Net investment income		8,386		8,761
Other revenues		-		2,500
Total revenues		83,155		169,346
Losses and LAE		43,359		118,550
Acquisition and operating expenses		30,850		42,249
Total losses and expenses		74,209		160,799
Pre-tax operating income	$	8,946	$	8,547

The Run-off Operations recorded pre-tax operating income of $8.9 million for the first quarter of 2004, compared to $8.6 million for the same period in 2003. Results of the Run-off Operations are driven principally by underwriting results from our former PMA Re operating segment. We do not expect the Run-off Operations to continue to report the same level of results over the remainder of 2004 due to our expectation that earned premiums will decrease significantly over the remainder of 2004 and the unpredictability of the impact of future commutations on such results. The commutations and novations did not have a material effect on our first quarter 2004 results of operations. See Note 3 for additional information regarding commutations.

Gross and net premiums written and net premiums earned declined significantly in the first quarter of 2004, compared to the same period last year. Generally, trends in net premiums earned follow patterns similar to net premiums written. In periods of decreasing premium writings, the decrease in net premiums written will typically be greater than the decrease in net premiums earned, as was the case in 2004. Premiums are earned principally on a pro rata basis over the coverage periods of the underlying policies. However, with respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustments may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premium in the period in which the adjustment is made.

Losses and LAE incurred decreased $75.2 million for the first quarter of 2004, compared to the first quarter of 2003, primarily due to the effects of lower net premiums earned in 2004, compared to 2003. Losses and LAE in the first quarter of 2003 include unfavorable prior year loss development of $9.5 million. During the first quarter of 2003, our actuaries conducted their quarterly reserve review to determine the impact of any emerging data on loss development trends and recorded unpaid losses and LAE reserves. In 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.

Acquisition and operating expenses for the three months ended March 31, 2004 decreased $11.4 million, compared to the same period in 2003, primarily reflecting lower commissions due to lower premium volume and, to a lesser extent, lower employee costs, partially offset by higher professional and advisory fees due to our decision to withdraw from the reinsurance business. Operating expenses in the first quarter of 2003 included asset writedowns of $2.5 million, made up of approximately $2 million for reinsurance receivables and $500,000 for premiums receivable, reflecting an assessment

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of their estimated net realizable value. Also included in operating expenses for the first quarter of 2003 was a benefit of $2.6 million from the sale of an asset.

Net investment income was $8.4 million for the first quarter of 2004, compared to $8.8 million for the same period last year. The decrease in the first quarter of 2004 reflects lower interest earned of approximately $962,000 on the invested asset portfolio, due to a drop in yields of approximately 50 basis points on an average invested asset base that increased approximately 4%. Partially offsetting the lower interest earned on the portfolio was lower interest credited on funds held arrangements of $587,000. 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.

Other revenues for the first quarter of 2003 reflects the sale of the capital stock of Caliber One Indemnity Company, which resulted in a pre-tax gain of $2.5 million. Pursuant to the agreement of sale, we have retained all assets and liabilities related to the in-force policies and outstanding claim obligations relating to Caliber One’s business written prior to closing on the sale.

Corporate and Other

The Corporate and Other segment includes unallocated investment income and expenses, including debt service. Corporate and Other recorded a pre-tax operating loss of $5.3 million for the first quarter of 2004, compared to $4.6 million for the same period last year, primarily due to higher interest expense. Interest expense in the first quarter of 2004 was $1.2 million higher than in the first quarter of 2003, due to a higher average amount of debt outstanding.

Loss Reserves

At March 31, 2004, we estimated that under all insurance policies and reinsurance contracts issued by our insurance businesses the ultimate amount that we would have to pay for all events that occurred as of March 31, 2004 is $2,438.5 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. Our estimate includes amounts for losses occurring on or prior to March 31, 2004 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. Due to the “long-tail” nature of a significant portion of our business, 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. We define long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. Our major long-tail lines include our workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, 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. See the discussion under Run-off Operations beginning on page 20 for additional information regarding the first quarter 2003 increase in loss reserves for prior years.

Management believes that its unpaid losses and LAE are fairly stated at March 31, 2004. 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 March 31, 2004, the related adjustments could have a material adverse impact on our financial condition, results of operations and liquidity.

For additional discussion of loss reserves and reinsurance, see pages 11 to 16 and 47 to 50 of our 2003 Form 10-K.

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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. Our insurance operations generate cash by writing insurance policies and collecting premiums. The cash generated is used to pay losses and LAE and operating expenses. Any excess cash is invested and earns investment income. Operating cash flows declined significantly in the first quarter of 2004, compared to the same period in 2003, primarily reflecting the commutation and novation of certain reinsurance and retrocessional contracts by the Run-off Operations occurring in the first quarter of 2004. See Note 3 for additional information regarding commutations and novations by the Run-off Operations. At the holding company level, our primary sources of liquidity are dividends and net tax payments received from subsidiaries and capital raising activities. 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. As a result, dividends from The PMA Insurance Group’s Pooled Companies may not be paid directly to PMA Capital. Instead, only PMA Capital Insurance Company, a Pennsylvania domiciled company, may pay dividends directly to PMA Capital. As of March 31, 2004, PMA Capital Insurance Company had statutory surplus of $517.1 million and unassigned surplus of $33.5 million. Under Pennsylvania law, $33.5 million of dividends would be available to be paid by PMA Capital Insurance Company to us in 2004 without the prior approval of the Pennsylvania Insurance Department as of March 31, 2004. However, PMA Capital Insurance Company has agreed with the Pennsylvania Insurance Department that PMA Capital Insurance Company will not pay dividends to us without the prior approval of the Pennsylvania Insurance Department. The PMA Insurance Group’s Pooled Companies can pay up to $23.2 million in dividends to PMA Capital Insurance Company during 2004. PMA Capital received dividends of $8.0 million in the first quarter of 2003. We have requested that the Pennsylvania Insurance Department approve an “unstacking” of the Pooled Companies from PMA Capital Insurance Company. See “Overview” beginning on page 14 for additional information.

Net tax payments received from subsidiaries were $1.6 million and $2.8 million for the three months ended March 31, 2004 and 2003, respectively. Additionally, we received a tax refund of $3.2 million from the Internal Revenue Service in the first quarter of 2004.

As of March 31, 2004, we had $11.8 million in cash and short-term investments at the holding company. We believe that our available holding company cash, combined with expected receipts from our tax sharing agreements, will be sufficient for us to meet our Corporate cash obligations into early 2005 without any need for dividends from our subsidiaries. Our ability to meet our long-term obligations will depend on our ability to receive dividends from our insurance subsidiaries. As a result, unless the Pennsylvania Insurance Department permits such dividends, we may not be able to receive dividends from our operating subsidiaries in sufficient amounts to pay these long-term obligations. Further, any event that would have a material adverse effect on the $11.8 million of holding company cash and short-term investments or the results of operations of our insurance subsidiaries could affect our liquidity and ability to meet our contractual obligations and operating needs.

We had $187.6 million in outstanding debt at both March 31, 2004 and December 31, 2003. We incurred interest expense of $2.9 million and $1.8 million, and paid interest of $3.7 million and $2.5 million in the first quarters of 2004 and 2003, respectively. The increase in interest expense and interest paid is due to a higher average amount of debt outstanding in the first quarter of 2004, compared to the same period in 2003. We expect to pay interest of approximately $7 million for the remainder of 2004.

As of March 31, 2004, we had $6.3 million outstanding in letters of credit, which we utilize primarily for securing reinsurance obligations of our insurance subsidiaries. The letters of credit were issued under our letter of credit facility, which was terminated during 2003. The lender agreed to waive certain defaults under the letter of credit facility and renewed the letters of credit for one year.

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. Because of our current debt ratings, it is unlikely that we would be able to refinance our outstanding debt obligations with the same terms and conditions as presently exist.

22

We did not declare or pay dividends in the first quarter of 2004 and we have suspended common stock dividends at the current time. We paid dividends of $3.3 million in the first quarter of 2003.

INVESTMENTS

At March 31, 2004, our investment assets, including short-term investments, were carried at a fair value of $2,036.2 million and had an amortized cost of $1,973.2 million. The average credit quality of the portfolio is AA. At March 31, 2004, all of our fixed income investments were publicly traded and all were rated by at least one nationally recognized credit rating agency. In addition, at March 31, 2004, $16.4 million, or 0.8%, of our total investments were below investment grade, of which $1.5 million of these below investment grade investments were in an unrealized loss position, which totaled $387,000.

The net unrealized gain on our investment assets at March 31, 2004 was $63.0 million, or 3.2% of the amortized cost basis. The net unrealized gain included gross unrealized gains of $70.2 million and gross unrealized losses of $7.2 million. For all but one security, which was carried at its fair value of $14.9 million at March 31, 2004, 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 March 31, 2004, our investment asset portfolio had gross unrealized losses of $7.2 million. For securities that were in an unrealized loss position at March 31, 2004, 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		25	$	37.3	$	37.6	$	(0.3	)		99	%
6 to 9 months		15		12.8		12.9		(0.1	)		99	%
9 to 12 months		32		29.4		29.9		(0.5	)		98	%
More than 12 months		3		17.9		23.3		(5.4	)		77	%
Subtotal		75		97.4		103.7		(6.3	)		94	%
U.S. Treasury and
Agency securities		42		88.6		89.5		(0.9	)		99	%
Total		117	$	186.0	$	193.2	$	(7.2	)		96	%

23

Two of the three securities that have been in an unrealized loss position for more than 12 months have an unrealized loss of less than $1 million each and/or less than 20% of each security’s amortized cost. These two securities have an average unrealized loss per security of $146,000. The third security, a structured security backed by a U.S. Treasury Strip and rated AAA, has a market value of $14.9 million and a cost of $20.0 million. This security matures in 2011 at a value of $20.0 million, and we have both the ability and intent to hold this security until it matures.

The contractual maturity of securities in an unrealized loss position at March 31, 2004 was as follows:

(dollar amounts in millions)	Fair Value		Amortized Cost		Unrealized Loss			Percentage Fair Value to Amortized Cost
2004	$	0.9	$	0.9	$	-			100	%
2005-2008		6.8		6.9		(0.1	)		99	%
2009-2013		22.2		22.7		(0.5	)		98	%
2014 and later		8.9		9.0		(0.1	)		99	%
Mortgage-backed and other
asset-backed securities		58.6		64.2		(5.6	)		91	%
Subtotal		97.4		103.7		(6.3	)		94	%
U.S. Treasury and Agency
securities		88.6		89.5		(0.9	)		99	%
Total	$	186.0	$	193.2	$	(7.2	)		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.

There were no impairment losses in the first quarter of 2004. Based on our evaluation as of March 31, 2003, we determined there were other than temporary declines in market value of securities issued by three companies, resulting in an impairment charge of $1.1 million pre-tax during the first quarter of 2003, related primarily to securities issued by airline companies. 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.

24

OTHER MATTERS

Other Factors Affecting Our Business

In general, our businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could materially 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.

The Pennsylvania Department of Insurance is currently conducting examinations of PMA Capital Insurance Company and the Pooled Companies as of December 31, 2002. Although we have not received the final report of the Department, we do not expect any material adjustments to our statutory capital in our previously filed statutory financial statements as a result of such examinations. In addition, we do not expect any material qualitative matters to be raised as a result of the examination.

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 (“SAP”). Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners publications. Permitted SAP encompasses all accounting practices that are not prescribed. Our domestic insurance subsidiaries use SAP to prepare various financial reports for use by insurance regulators.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (“FASB”) revised Statement of Financial Accounting Standards (“SFAS”) No. 132, “Employers’ Disclosures About Pensions and Other Postretirement Benefits,” to require additional disclosures regarding defined benefit pension plans and other defined benefit postretirement plans. We have applied the disclosure provisions of SFAS No. 132 to our Consolidated Financial Statements.

In March 2004, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”  The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired.  The EITF 03-1 guidance for determining other-than-temporary impairment will be effective beginning with the third quarter of 2004. We are currently evaluating the impact that EITF 03-1 may have on our financial statements.

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 2003 Form 10-K.

Critical Accounting Estimates

Our critical accounting estimates can be found beginning on page 59 of our 2003 Form 10-K.

25

CAUTIONARY STATEMENTS

Except for historical information provided in Management’s Discussion and Analysis and otherwise in this report, statements made throughout 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:

• our ability to effect an efficient withdrawal from the reinsurance business, including the commutation of reinsurance business with certain large ceding companies, without incurring any significant liabilities;

• regulatory or tax 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, including any future action with respect to our business taken by the Pennsylvania Insurance Department or any other state insurance department;

• The PMA Insurance Group’s ability to have its A- A.M. Best financial strength rating restored and the effect of its B++ A.M. Best rating on its premium writings and profitability as well as the adverse impact of any potential future downgrade of its rating;

• the effect on The PMA Insurance Group’s premium writings, profitability and ratings due to its status as a subsidiary of PMA Capital Insurance Company, if the unstacking of The PMA Insurance Group companies is not approved;

• the ability of the Company to have sufficient cash at the holding company to meet its debt service and other obligations, including any restrictions such as in our letter agreement with the Pennsylvania Insurance Department on receiving dividends from its insurance subsidiaries in an amount sufficient to meet such obligations;

• the lowering or loss of one or more of the Company’s debt ratings, and the adverse impact that any such downgrade may have on our ability to raise capital and our liquidity and financial condition;

• adequacy of reserves for claim liabilities;

• adverse property and casualty loss development for events that we insured in prior years, including unforeseen increases in medical costs;

• the impact of future results on the recoverability of our deferred tax asset;

• adequacy and collectibility of reinsurance that we purchased;

• the outcome of any litigation against the Company, including the outcome of the purported class action lawsuits;

• 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 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;

• severity of natural disasters and other catastrophes, including the impact of future acts of terrorism, in connection with insurance and reinsurance policies;

• changes in general economic conditions, including the performance of financial markets, interest rates and the level of unemployment;

• 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

26

occurrence of unanticipated events. Also, see “Item 1 – Business – Risk Factors” in our 2003 Form 10-K for a further discussion of risks that could materially affect our business.

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” beginning on page 57 of our 2003 Form 10-K.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we, under the supervision and with the participation of our management, including Vincent T. Donnelly, President and Chief Executive Officer, and William E. Hitselberger, Executive Vice President, Chief Financial Officer and Treasurer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. 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 period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 5. Other Information

On May 6, 2004, Vincent T. Donnelly, President and Chief Executive Officer, William E. Hitselberger, Executive Vice President, Chief Financial Officer and Treasurer, and Robert L. Pratter, Senior Vice President and General Counsel, executed employment agreements with us. Copies of the employment contracts are attached hereto as Exhibits 10.1, 10.2 and 10.3.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The Exhibits are listed in the Exhibit Index on page 29.

(b) Reports on Form 8-K filed during the quarter ended March 31, 2004:

        During the quarterly period ended March 31, 2004, we filed the following Reports on Form 8-K:

— dated January 20, 2004, Items 5 and 7 – announcing that PMA Capital Insurance Company entered into a letter agreement with the Pennsylvania State Insurance Department.

— dated February 5, 2004, Items 7 and 12 – containing an earnings release and our fourth quarter 2003 statistical supplement.

— dated March 8, 2004, Item 9 – announcing the spouse of one of our directors entered into a written stock trading plan.

27

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: May 7, 2004	By: /s/ William E. Hitselberger
	William E. Hitselberger
	Executive Vice President,
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)

28

Exhibit Index

Exhibit No.	Description of Exhibit	Method of Filing
(10)	Material Contracts
10.1	Employment Agreement by and between Company and William E. Hitselberger.	Filed herewith
10.2	Employment Agreement by and between Company and Robert L. Pratter.	Filed herewith
10.3	Employment Agreement by and between Company and Vincent T. Donnelly.	Filed herewith
10.4	Amendment No. 1 to Company's 2002 Equity Incentive Plan.	Filed as Exhibit 10.25 to the    Company’s Annual Report    on Form 10-K/A for the year    ended December 31, 2003    and incorporated herein by    reference.
(12)	Computation of Ratio of Earnings to Fixed Charges	Filed herewith
(31)	Rule 13a - 14(a)/15d - 14 (a) Certificates
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a -14(a) of the Securities Exchange Act of 1934	Filed herewith
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a -14(a) of the Securities Exchange Act of 1934	Filed herewith
(32)	Section 1350 Certificates
32.1	Certification of Chief Executive Officer 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 Chief Financial Officer 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.

29

EX-10

                                                                    Exhibit 10.1


                         EXECUTIVE EMPLOYMENT AGREEMENT


                  THIS EXECUTIVE EMPLOYMENT AGREEMENT, made and entered into as
of the 15th day of March, 2004, by and between PMA Capital Corporation, a
Pennsylvania corporation, with its principal place of business at Mellon Bank
Center, Suite 2800, 1735 Market Street, Philadelphia, Pennsylvania 19103-7590
and/or such of its affiliates and/or subsidiaries as it designates (hereinafter
collectively referred to as "PMA Capital") and WILLIAM E. HITSELBERGER, residing
at 7 Barrington Drive, West Windsor, New Jersey 08550 ("Executive").

                  WHEREAS, Executive has significant experience in the insurance
industry and currently serves as the Chief Financial Officer of PMA Capital;

                  WHEREAS, PMA Capital desires to continue to avail itself of
the expertise possessed by Executive and to employ Executive as Chief Financial
Officer and Executive Vice President, in which position he will have access to
confidential information of PMA Capital;

                  WHEREAS, Executive desires to be so employed by PMA Capital.

                  NOW, THEREFORE, in consideration of the promises and mutual
covenants contained herein, and each intending to be legally bound hereby, the
parties agree as follows:

                  1. Employment. Subject to the terms of this Agreement, PMA
Capital hereby continues to employ Executive as Chief Financial Officer and,
effective as of April 16, 2004, also will employ Executive as Executive Vice
President. In this capacity, Executive will perform such duties as are
appropriate to the management of the financial and operational aspects of PMA
Capital's business and such other duties, consistent with the foregoing duties
and his position, as directed by the Board of Directors of PMA Capital and the
Chief Executive Officer of PMA Capital. Executive shall report directly to the







Chief Executive Officer of PMA Capital. Executive hereby accepts such employment
and agrees to serve PMA Capital on a full-time basis and to perform such duties
faithfully, diligently and to the best of his ability and in conformity with all
federal, state and local statutes, regulations and rules applicable to PMA
Capital. Executive further agrees not to engage in any outside for-profit
business, employment or commercial activity, without first obtaining approval in
writing from the Chief Executive Officer of PMA Capital.

                  2. Compensation. PMA Capital agrees to pay Executive, and
Executive agrees to accept from PMA Capital, in full payment for Executive's
services, compensation consisting of the following:

                  (a) A minimum base salary at an annual rate of $350,000 up to
and including April 15, 2004, at which time the salary will be increased to be
based on an annual rate of $425,000 for the remainder of the term, payable on a
semi-monthly basis or on such other basis that PMA Capital may adopt as its
regular payroll practice. The Compensation Committee of the Board of Directors
of PMA Capital will review the base salary on at least an annual basis at the
same time that it reviews the annual incentive compensation;

                  (b) The standard benefits PMA Capital makes available from
time to time to its senior executive employees and, in addition, Executive will
participate in the following employee benefit plans according to their terms:
the 401(k) Excess Plan dated March 2001; the Executive Deferred Compensation
Plan dated March 2001; the Executive Management Pension Plan dated March 2001
and the Supplemental Executive Retirement Plan dated March 2001;

                  (c) Annual incentive compensation based on performance
objectives established for 2004 and 2005 to be provided as described in Exhibit
A;




                                       2


                  (d) The nonqualified stock option award that was granted to
Executive under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004 to
purchase 128,500 shares of Class A common stock, exercisable at a price and for
a period of time and on such other terms as are set forth in the 2004 Stock
Option and Restricted Stock Grant, which is attached as Exhibit B; and

                  (e) The 17,700 shares of Restricted Stock that Executive was
granted under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004,
subject to such restrictions and other terms as set forth in the 2004 Stock
Option and Restricted Stock Grant, which is attached as Exhibit B.

                  3. Expenses. PMA Capital will reimburse Executive for such of
his out-of-pocket expenses as are reasonably necessary in connection with
services rendered by Executive pursuant to this Agreement, as provided in the
business expense policies adopted by PMA Capital from time to time.

                  4. Term. The term of this Agreement is from March 15, 2004
through March 14, 2006. During the first two weeks of January, 2006, Executive
shall inform the Chief Executive Officer of PMA Capital in writing whether or
not he is interested in negotiating an extension of this Agreement for a new
term and, if so, propose the terms and conditions for such an extension. Within
one week of receiving such written notice from Executive, PMA Capital will
inform Executive if it is willing to negotiate an extension of this Agreement.
If both parties are interested in negotiating an extension of this Agreement,
they then will engage in good faith negotiations for an extension of this
Agreement, with the negotiations to be concluded by no later than February 15,
2006; provided, however, that Executive's failure to negotiate in good faith
will not be deemed to be "Cause" for termination of Executive's employment
hereunder, and will not be the basis for PMA Capital's denial of or failure to





                                       3


pay any severance payments, compensation or benefits due to Executive pursuant
to the provisions of this Agreement.

                  5. Termination. Executive's employment may be terminated
before the end of the term of this Agreement as follows:

                  (a) By PMA Capital, at any time, for Cause, after providing
Executive with at least three (3) weeks written notice, specifying the
circumstances amounting to Cause and, if requested by Executive, the opportunity
for Executive and his counsel to appear before the Audit Committee of the Board
of Directors of PMA Capital to address those circumstances. "Cause" shall mean
Executive: (i) commits any act of fraud, embezzlement, theft or commission of a
felony in the course of his employment; (ii) engages in knowing and willful
misconduct or gross negligence in the performance of his duties; (iii)
unlawfully appropriates a corporate opportunity of PMA Capital or its affiliates
and subsidiaries (as defined in paragraph 24 below); or (iv) knowingly and
willfully breaches any of Executive's representations, warranties or covenants
contained in this Agreement in any material respect, each as reasonably
determined by the Audit Committee of the Board of Directors of PMA Capital after
the recommendation of the Chief Executive Officer of PMA Capital. In the event
that "Cause" is based on gross negligence, PMA Capital shall give Executive
written notice specifying in reasonable detail the conduct that it believes
amounts to gross negligence, and shall provide Executive with the three (3) week
notice period specified above to cease or correct such conduct;

                  (b) Automatically on the date of Executive's death;

                  (c) Automatically if Executive becomes disabled or otherwise
incapacitated so that Executive cannot perform the essential functions of his
job with or without reasonable accommodation for a continuous period of more
than one hundred eighty (180) days or for more than one hundred eighty (180)
cumulative days in any one (1) year period ("Permanent Disability"). Any




                                       4


question as to the existence of Permanent Disability upon which Executive and
PMA Capital cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if Executive is unable to make such
selection, such selection shall be made by an adult member of Executive's
immediate family or Executive's legal representative) and approved by PMA
Capital, said approval not to be unreasonably withheld. The determination of
such physician shall be communicated in writing to PMA Capital and to Executive
and shall be final and conclusive for all purposes of this Agreement. Until the
date of termination as defined herein by reason of Permanent Disability,
Executive shall continue to receive the compensation and benefits as set forth
in paragraph 2 of this Agreement. No termination of this Agreement for Permanent
Disability shall impair any rights of Executive to collect benefits according to
the terms of any disability policy maintained by PMA Capital for that Permanent
Disability;

                  (d) By PMA Capital, at any time, for other than Cause upon
thirty (30) days written notice to Executive; or

                  (e) By Executive's voluntary resignation (before the end of
the term) for other than Good Reason upon not less than thirty (30) days prior
written notice to PMA Capital; or

                  (f) By Executive's voluntary resignation for Good Reason,
which shall mean Executive has given thirty (30) days prior written notice that
he intends to resign due to: (i) a change in his duties, authority or
responsibilities that is inconsistent with his role as Chief Financial Officer
and Executive Vice President; (ii) his being required to relocate his office
outside of an area within a fifty (50) mile radius of Philadelphia,
Pennsylvania; (iii) there being a Change in Control of PMA Capital; (iv) there
being a material reduction in the overall value of the employee benefits being
provided to him pursuant to paragraph 2(b); or (v) a material breach by PMA





                                       5


Capital of any of its obligations to Executive under this Agreement so long as
Executive gives such notice within sixty (60) days of the circumstances in
subparagraphs 5(f)(i), (ii), (iv) or (v) believed by Executive to constitute
Good Reason and PMA Capital fails to remedy those circumstances within three (3)
weeks.

                  For purposes of this Agreement, "Change in Control" has the
same definition as is set forth in paragraph 9(b) of the PMA Capital Corporation
2002 Equity Incentive Plan.

                  6. Incidents of Termination.

                  (a) If Executive's employment is terminated under subparagraph
5(a), (b), (c) or (e) above, PMA Capital shall have no further obligation under
this Agreement, except as provided under paragraph 17 and except the obligation
to: (i) pay Executive an amount equal to the portion of his compensation and
out-of-pocket business expenses, as defined in paragraph 3, as may be accrued
and unpaid on the date of termination; (ii) pay Executive such portion of
Executive's annual incentive compensation for the year in which termination
occurs as the Compensation Committee of the Board of Directors of PMA Capital
shall determine was earned by Executive; and (iii) provide all benefits set
forth pursuant to the benefit, medical, pension or other plans and programs
provided by PMA Capital for which Executive qualifies (collectively "Benefits")
as are due under the terms of the Benefits plans and programs, recognizing that
Executive's employment has terminated. In the event of Executive's death, any
sums and benefits due to Executive under any provision of this Agreement shall
be paid to his estate or heirs, as applicable.

                  (b) If Executive's employment is terminated under subparagraph
5(d) or 5(f) above or if Executive's employment ends at the end of the term
(including by reason of Executive's decision not to review or extend his
employment for any reason), then PMA Capital shall pay Executive as described in
paragraph 6(a) above, plus it will pay any cash portion of the annual incentive




                                       6


compensation for the year in which termination occurs that is earned because
Executive accomplished certain identifiable tasks as of the date of termination.
It is specifically understood that objectives related to profitability, revenue
growth, stock price and similar performance measures are not intended to be
measured other than at year end and accordingly will not qualify as identifiable
tasks on an interim basis and these are not eligible for payment of incentive
compensation unless deemed appropriate by the Compensation Committee of the
Board of Directors of PMA Capital in connection with their consideration of
payments as discussed above. In addition, PMA Capital shall pay Executive the
greater of: (i) eighteen (18) months of severance pay at one hundred twenty
percent (120%) of Executive's then current base salary, minus any appropriate
withholdings and deductions; or (ii) severance pay at one hundred percent (100%)
of the amount of Executive's then current base salary that otherwise would be
due for the remainder of the term of this Agreement; each without regard to
whether Executive obtains another position with a new employer. These severance
payments will be made on or about the regular pay dates recognized by PMA
Capital, beginning on the next regular pay date following Executive's last
regular pay date on which he is paid his base salary. Further, if Executive
elects to continue his health insurance benefits under COBRA, PMA Capital will
continue to pay the same monthly subsidy of the premiums for such insurance
continuation as was being paid by PMA Capital before Executive's employment
terminated, with the remainder of the premium being deducted from Executive's
severance payments, through the earlier of the end of the severance period and
the date Executive becomes eligible to receive and/or obtain alternative health
insurance coverage through new employment. PMA Capital's obligation to provide
the severance pay and benefits provided in this paragraph is conditioned upon




                                       7


Executive signing and not revoking a valid general release agreement in the form
attached hereto as Exhibit C. The severance payments and benefits provided for
in this Agreement shall be offset by any severance pay or benefits that are
actually paid to Executive upon termination of employment under the PMA Capital
Corporation and PMA Capital Insurance Company Severance Pay Plan or any other
applicable severance plan or severance policy of PMA Capital.

                  (c) If Executive's employment is terminated under
subparagraphs 5(b), (c), (d) or (f) above or if Executive's employment ends at
the end of the term: (i) Executive shall have a fully (100%) vested and
nonforfeitable interest in his "Past Service Retirement Benefit" under the PMA
Capital Corporation Executive Management Pension Plan ("Executive Management
Pension Plan") or any successor or replacement plan, notwithstanding anything in
the Executive Management Pension Plan to the contrary; and (ii) Executive's
benefit under the PMA Capital Corporation Supplemental Executive Retirement Plan
(the "SERP") shall be increased to the extent necessary so that his aggregate
retirement benefit payable under the PMA Capital Corporation Pension Plan, the
Executive Management Pension Plan and the SERP is not less than the aggregate
benefit that would have been payable under such plans if Executive's employment
had continued to the end of the term, assuming that Executive is paid at the
same salary rate during such period as in effect as of his termination of
employment.

                  7. Excise Taxes. If the value of any compensation (in whatever
form) provided pursuant to this Agreement is counted as a "parachute payment"
within the meaning of section 280G of the Internal Revenue Code of 1986, as
amended, (the "Code") and the value of all such parachute payments would exceed
two hundred ninety-nine percent (299%) of the "base amount" applicable to
Executive under section 280G, then the amount of such parachute payments shall
be reduced to the extent necessary so that the sum of such parachute payments
equals exactly two hundred ninety-nine percent (299%) of Executive's "base
amount," provided, however, that this section shall not apply if the value of
all such parachute payments, after application of the excise tax under section




                                       8


4999 of the Code, is greater than two hundred ninety-nine percent (299%) of
Executive's "base amount."

                  8. Trade Secrets and Confidential Information. Executive shall
not disclose or use at any time either during or after employment by PMA
Capital, any Confidential Information (as defined below) of which he becomes
aware, whether or not any such information is developed by him, except to the
extent that such disclosure or use is required or appropriate in the performance
of the duties assigned to him by PMA Capital or if Executive is required to
testify under subpoena or court order after Executive gives sufficient advance
written notice of such requirement to PMA Capital so that it may seek to limit
or otherwise protect such testimony from public disclosure. Executive shall
follow all procedures established by PMA Capital to safeguard Confidential
Information and to protect it against disclosure, misuse, espionage, loss or
theft. "Confidential Information" shall mean information that is not generally
known or available to the public, which is used, developed or obtained by PMA
Capital, relating to its business and the businesses of its clients, vendors,
agents, brokers or customers including, but not limited to: business and
marketing strategies; distribution channels; products or services; fees, costs
and pricing structures; marketing information; advertising and pricing
strategies; analyses; reports; computer software, including operating systems,
applications and program listings; flow charts; manuals and documentation; data
bases; accounting and business methods; inventions and new developments and
methods, whether patentable or unpatentable and whether or not reduced to
practice; all copyrightable works; PMA Capital's existing and prospective
clients, vendors, agents, brokers or customers and their confidential
information; existing and prospective client, vendor, agent, broker or customer
lists and other data related thereto; all trade secret information protected by
the federal Economic Espionage Act of 1996, 18 U.S.C. ss.1831 et seq., the
Pennsylvania Uniform Trade Secrets Act and all similar and related information





                                       9


in whatever form. Confidential Information shall not include any information
that has been published in a form generally available to the public prior to the
date upon which Executive proposes to disclose such information.

                  9. Creative Works and Other Property.

                  (a) Executive will promptly disclose to PMA Capital all
inventions, concepts, processes, improvements, methodologies and other creative
works, including, without limitation, insurance products, whether or not they
can be patented or copyrighted, that during his employment were or were caused
to be conceived or developed by him, either solely or jointly with others,
relating to PMA Capital's business (collectively "Creative Works") and Executive
agrees that all such Creative Works shall be the sole property of PMA Capital.
Upon the request and at the expense of PMA Capital, Executive will at any time
(whether during his employment or after its termination for any reason) assist
PMA Capital and fully cooperate with it to protect PMA Capital's interest in
such Creative Works and to obtain, for PMA Capital's benefit, patents or
copyrights for any and all Creative Works in the United States and in any and
all foreign countries. This paragraph does not apply to any Creative Work that
Executive develops entirely on his own time and for which no equipment,
supplies, facility or Confidential Information of PMA Capital was used, unless:
(a) the Creative Work relates to PMA Capital's business or to the actual or
anticipated research or development activities of PMA Capital; or (b) the
Creative Work results from any work Executive performs for PMA Capital.

                  (b) Upon the termination of Executive's employment for PMA
Capital, Executive shall immediately, and without request, deliver to PMA
Capital all copies and embodiments, in whatever form, of all Confidential
Information and all other documents, materials or property belonging to PMA
Capital even if they do not contain Confidential Information, including but not
limited to: written records, notes, photographs, manuals, computers, cell




                                       10


phones, notebooks, reports, keys, credit cards, documentation, flow charts and
all magnetic media such as tapes, disks or diskettes, wherever located, and, if
requested by PMA Capital, shall provide PMA Capital with written confirmation
that all such materials have been returned. Executive has no claim or right to
the continued use, possession or custody of such information, documents,
materials or property following the termination of his employment with PMA
Capital.

                  10. Restrictive Covenants. While employed by PMA Capital and
through the period ending one (1) year after termination of employment (whether
voluntary or involuntary and regardless of the reason for termination),
Executive agrees that, unless he obtains written approval in advance from the
Chief Executive Officer of PMA Capital, he shall not, except on behalf of PMA
Capital, in any way, directly or indirectly:

                  (a) contact, employ, hire, solicit or attempt to persuade any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been an employee, agent, broker or
independent contractor of PMA Capital to terminate his, her or its relationship
with PMA Capital or do any act that may result in the impairment of the
relationship between PMA Capital on the one hand and the employees, agents,
brokers or independent contractors of PMA Capital on the other hand;

                  (b) contact, solicit, serve or sell to, in furtherance of or
in the context of any business that directly competes with PMA Capital, any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been a client, customer, agent, or broker
or a prospective client, customer, agent or broker of PMA Capital or attempt to
persuade any such person or entity to purchase or otherwise acquire or use any
product(s) or service(s) offered by any business of the same or similar nature
as products or services offered by PMA Capital. (For purposes of this





                                       11


sub-paragraph, a "prospective client, customer, agent or broker" means a person
or entity with whom or which PMA Capital has had direct contact and made a
proposal to provide products or services.); or

                  (c) engage in any activities or make any statements that may
disparage or reflect negatively on PMA Capital, its Directors, Officers or
employees, except as required to enforce the provisions of this Agreement or any
of the Benefits plans.

                  11. Reasonableness of Restrictions. Executive agrees and
acknowledges that the type and scope of restrictions described in paragraphs 8,
9 and 10 are fair and reasonable and that the restrictions are intended to
protect the legitimate interests of PMA Capital and not to prevent him from
earning a living. Executive recognizes that his key position as Chief Financial
Officer and Executive Vice President and his access to Confidential Information
make it necessary for PMA Capital to restrict his post-employment activities, as
set forth in this Agreement. Executive represents and warrants that the
knowledge, ability and skill he currently possesses are sufficient to enable him
to earn a livelihood satisfactory to him for a period of one (1) year in the
event his employment with PMA Capital terminates, without violating any
restriction in this Agreement. If, however, any of the restrictions set forth in
paragraphs 8, 9 or 10 are held invalid by a court by reason of length of time,
area covered, activity covered or any or all of them, then such restriction or
restrictions shall be reduced only to the minimum extent necessary to cure such
invalidity.

                  12. Remedies. Executive agrees that if he should breach any of
the covenants contained in paragraphs 8, 9 or 10, irreparable damage would
result to PMA Capital and that damages arising out of such breach may be
difficult to determine. Executive therefore further agrees that, in addition to
all other remedies provided at law or at equity, PMA Capital shall be entitled
as a matter of course to specific performance and temporary and permanent
injunctive relief from any court of competent jurisdiction to prevent any
further breach of any such covenant by Executive, without the necessity of





                                       12


proving actual damage to PMA Capital by reason of any such breach, and Executive
acknowledges that his employers, employees, partners, agents or other
associates, or any of them, may similarly be enjoined. If either party prevails
in any lawsuit claiming breach of paragraphs 8, 9 or 10 of this Agreement, the
other party shall reimburse the prevailing party for its or his expenses
incurred in connection with such a lawsuit, including without limitation,
attorney's fees and costs. (For purposes of this paragraph, PMA Capital will be
considered to have prevailed in a lawsuit if it is established by written
adjudication that Executive has breached in any material respect any provision
of paragraphs 8, 9 or 10 as written or as modified under paragraph 11. Executive
will be considered to have prevailed in a lawsuit if it is established by
written adjudication that he did not breach in any material respect any
provision of paragraphs 8, 9 or 10 as written or as modified under paragraph
11).

                  13. Previous Employment. Executive represents and warrants
that he is not under any legal restraint or restriction that would prevent or
make unlawful his execution of this Agreement or his performing the obligations
under this Agreement and that Executive has disclosed to PMA Capital any and all
restraints, confidentiality commitments or employment restrictions that
Executive has with any other employer or organization.

                  14. Cooperation. At all times during the term of this
Agreement and for a period of three (3) years thereafter, Executive will
reasonably cooperate with PMA Capital in any litigation or administrative
proceedings involving any matters with which Executive was involved during his
employment by PMA Capital; provided that, following the term of this Agreement,
such activities will be scheduled at such times and locations as PMA Capital and
Executive may mutually agree. PMA Capital will reimburse Executive for his
reasonable out-of-pocket expenses, if any, incurred in providing such
assistance. In addition, if such assistance is provided by Executive after his




                                       13


employment has terminated and at a time when he is not receiving severance
payments under paragraph 6(b), then he also shall be paid $205 per hour.

                  15. Reimbursement of Attorney's Fees. PMA Capital will
reimburse Executive for the reasonable attorney's fees and costs, if any,
incurred by Executive in connection with the negotiation and preparation of this
Agreement, up to a maximum of $15,000.

                  16. Assignment. Neither PMA Capital nor Executive shall have
the right to assign this Agreement or any obligation hereunder without the
written consent of the other, except that, subject to Executive's rights under
paragraph 5(f) above if there is a change of control, PMA Capital may assign
this Agreement to a successor or assignee in connection with a merger,
consolidation, sale or transfer of assets of PMA Capital, provided that such
successor or assignee expressly assumes all obligations of PMA Capital under
this Agreement.

                  17. Indemnification. PMA Capital shall indemnify Executive or
his estate to the full extent provided in its articles of incorporation and/or
its bylaws as of the date of this Agreement.

                  18. No Mitigation. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in this Agreement or the
Benefits plans by seeking other employment or otherwise, nor shall the amount of
any payment or benefit provided for in this Agreement or the Benefits plans be
reduced by any compensation or benefits earned by Executive either as a result
of his engaging in business or his employment by another employer, or by
retirement benefits payable after the termination of this Agreement.

                  19. Indulgences. The failure of PMA Capital or Executive at
any time or times to enforce its or his rights under this Agreement strictly in
accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific provisions of this Agreement or as
having in any way or manner modified or waived the same.




                                       14


                  20. Notices. Any notice required or permitted to be given by
this Agreement shall be in writing and shall be sufficiently given to the
parties if delivered in person or sent by United States registered or certified
mail or nationally recognized overnight courier (return receipt requested) or by
telefax (with evidence of successful transmission) addressed to the respective
parties at the following addresses or at such other addresses as may from time
to time be designated in writing by the parties:

        If to Executive:                    If to PMA Capital:

        William E. Hitselberger             PMA Capital Corporation
        7 Barrington Drive                  c/o Chief Executive Officer
        West Windsor, NJ 08550              Mellon Bank Center,
        Telefax Number:  (215) 665-5043     Suite 2800
                                            1735 Market Street
                                            Philadelphia, PA 19103-7590
                                            Telefax Number:  (215) 665-5038

                  21. Entire Agreement. This Agreement, together with the
attachments hereto and PMA Capital's Benefits plans, sets forth the entire
agreement between the parties with respect to the matters covered herein, and
supersedes all other agreements and understandings. No waiver or amendment to
this Agreement shall be effective unless reduced to writing and executed by the
parties hereto.

                  22. Arbitration. In order to obtain the many benefits of
arbitration over court proceedings, including speed of resolution, lower costs
and fees and more flexible rules of evidence, all disputes between Executive and
PMA Capital (except those relating to unemployment compensation and workers'
compensation and except as provided in paragraph 12 of this Agreement) arising
out of Executive's employment or concerning the interpretation or application of
this Agreement or its subject matter (including without limitation those
relating to any claimed violation of any federal, state or local law, regulation
or ordinance, such as Title VII of the Civil Rights Act, the Age Discrimination
in Employment Act, the Americans with Disabilities Act and their state and local





                                       15


counterparts, if any) shall be resolved exclusively by binding arbitration in
Philadelphia, Pennsylvania pursuant to the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, with the prevailing
party being awarded its or his reasonable attorney's fees and costs. The parties
expressly waive their rights to have any such claims resolved by jury trial.
Arbitration must be demanded within three hundred (300) days of the time when
the demanding party knows or should have known of the events giving rise to the
claim. The arbitration opinion and award shall be final, binding and enforceable
by any court under the Federal Arbitration Act.

                  23. Controlling Law and Dispute Resolution. This Agreement
shall be construed and applied in accordance with the laws of the Commonwealth
of Pennsylvania without giving effect to the principles of conflicts of law
under Pennsylvania law. The parties agree to submit to the jurisdiction and
revenue of the state and federal courts located in Pennsylvania in the event
that there is any claim that this Agreement has been breached and that any such
claim is not subject to arbitration as provided in paragraph 22 of this
Agreement.

                  24. Affiliates and/or Subsidiaries. The affiliates and/or
subsidiaries of PMA Capital Corporation referred to in the first paragraph of
this Agreement are: PMA Capital Insurance Company; Pennsylvania Manufacturers
Association Insurance Company; Manufacturers Alliance Insurance Company;
Pennsylvania Manufacturers Indemnity Company; and such other entity that comes
into existence after the date of this Agreement that is controlled by or under
common control with PMA Capital Corporation at the time of reference. PMA
Capital and each such affiliate and/or subsidiary of PMA Capital Corporation
shall be jointly and severally liable for the obligations to Executive under
this Agreement.




                                       16


                  IN WITNESS WHEREOF, this Agreement has been duly executed by
and on behalf of the parties hereto as of the day and year first above written.

                                   PMA CAPITAL CORPORATION; PMA CAPITAL
                                   INSURANCE COMPANY; PENNSYLVANIA MANUFACTURERS
                                   ASSOCIATION INSURANCE COMPANY; MANUFACTURERS
                                   ALLIANCE INSURANCE COMPANY; AND PENNSYLVANIA
                                   MANUFACTURERS INDEMNITY COMPANY



                                   By: /s/  Vincent T. Donnelly
                                       -------------------------------------
                                         Name:  Vincent T. Donnelly
                                         Title: Chief Executive Officer
                                         Date:  May 7, 2004

                                       /s/ WILLIAM E. HITSELBERGER
                                       -------------------------------------
                                   Name:        WILLIAM E. HITSELBERGER
                                   Date:        May 7, 2004








                                       17


                                    EXHIBIT A

                  Executive will be eligible for a cash incentive award with
respect to 2004 under the 2002 PMA Capital Corporation Equity Incentive Plan
targeted at $106,250, to be paid no later than March 14, 2005, for successful
achievement of goals and performance criteria as determined by the Chief
Executive Officer and approved by the Compensation Committee of the Board of
Directors of PMA Capital.

                  Executive will be eligible for an incentive award with regard
to 2005 under the 2002 PMA Capital Corporation Equity Incentive Plan that will
be targeted at a minimum of 90% and a maximum of 110% of his annual base salary,
with any cash portion to be paid no later than March 14, 2006, for successful
achievement of goals and performance criteria as determined by the Chief
Executive Officer and approved by the Compensation Committee of the Board of
Directors of PMA Capital. Payment of the 2005 annual incentive compensation
award will be in the amount and in the form(s) (e.g., stock options, restricted
stock, cash) as determined by the Chief Executive Officer and approved by the
Compensation Committee of the Board of Directors of PMA Capital.




                                    EXHIBIT B

May 6, 2004

Name:
SS#:

      PMA Capital Corporation 2004 Stock Option And Restricted Stock Grant

         PMA Capital Corporation (the "Company") has awarded you a Stock Option
and Restricted Stock under the Company's 2002 Equity Incentive Plan (the "Plan")
as follows:

                                   Number of Shares of Class A
  Date of                                 Common Stock              Per Share
   Grant      Type of Award           Related to the Award        Exercise Price
  5/6/04   Nonqualified Stock                128,500                $7.02
                 Option
  5/6/04    Restricted Stock                  17,700                N/A


         The Options and Restricted Stock are subject to the provisions of the
Plan, a copy of which can be found in this package, this letter and to the terms
and conditions listed in the Attachments to this letter. Also enclosed is a Plan
Prospectus. You have already received a copy of the Company's most recent Annual
Report and Proxy Statement. Please be aware that transactions in the Company's
stock are subject to the Company's Insider Trading Policy.

         If you wish to accept your grant of Options and Restricted Stock,
please sign below where indicated and return only the signed copy of this letter
to me at the above address. You should retain a copy of this letter for your
records. If you have any questions about your Options or Restricted Stock,
please call me at the above telephone number.

Very truly yours,


Vincent T. Donnelly
Chief Executive Officer

By signing below, I hereby agree to the provisions of the Plan, this letter and
the terms and conditions set forth in the Attachments to this letter.


/s/ Vincent T. Donnelly
Name                                                 Date:  May 7, 2004



                                      B-1



                                    EXHIBIT C
                            General Release Agreement

                  THIS GENERAL RELEASE AGREEMENT (hereinafter "Release") is made
and entered into as of this ____ day of _______________, 20__, by and among PMA
Capital Corporation, PMA Capital Insurance Company, Pennsylvania Manufacturers
Association Insurance Company, Manufacturers Alliance Insurance Company, and
Pennsylvania Manufacturers Indemnity Company (collectively "PMA Capital") on the
one hand and William E. Hitselberger (hereinafter "Executive") on the other
hand.

                  WHEREAS, PMA Capital and Executive entered into the Executive
Employment Agreement (the "Employment Agreement") effective as of March 15,
2004;

                  WHEREAS, under the terms of the Employment Agreement,
Executive is entitled to severance payments as provided therein;

                  WHEREAS, the Employment Agreement conditions receipt of the
severance payments upon Executive's signing and not revoking a valid General
Release Agreement.

                  NOW THEREFORE, intending to be legally bound hereby and in
consideration of receipt of the severance payments provided for in the
Employment Agreement and for other good and valuable consideration, Executive,
for himself, and his executors, administrators, heirs and assigns, agrees as
follows:

                  1. Executive hereby fully waives, releases, and forever
discharges PMA Capital and each and all of its past and present subsidiaries,
parent and related corporations, companies and divisions, and their past and
present respective officers, directors, shareholders, trustees, employees,
attorneys, agents and affiliates, and their predecessors, successors and assigns
(hereinafter collectively referred to as "Releasees") of and from any and all
rights, debts, claims, actions, liabilities, agreements, damages, or causes of
action (hereinafter collectively referred to as "claims"), of whatsoever kind or
nature, whether in law or equity, whether known or unknown, that Executive ever
had or now has in any capacity, either individually, or as a director, officer,



                                      C-1


representative, agent or employee of Releasees against any or all of the
Releasees, for, upon, or by reason of any cause, matter, thing or event
whatsoever occurring at any time up to and including the date Executive signs
this Release. Executive acknowledges and understands that the claims and rights
being released in this paragraph include, but are not limited to, all claims and
rights arising from or in connection with any agreement of any kind Executive
may have had with any of the Releasees, or in connection with Executive's
employment or termination of employment, all claims and rights for wrongful
discharge, breach of contract, either express or implied, interference with
contract, emotional distress, back pay, front pay, benefits, fraud,
misrepresentation, defamation, claims and rights arising under the Civil Rights
Acts of 1964 and 1991, as amended, (which prohibits the discrimination in
employment based on race, color, national origin, religion or sex), the
Americans with Disabilities Act (ADA), as amended (which prohibits
discrimination in employment based on disability), the Age Discrimination in
Employment Act (ADEA), as amended (which prohibits age discrimination in
employment), Worker Adjustment and Retraining Notification Act (WARN), the
National Labor Relations Act, the Fair Labor Standards Act, the Employee
Retirement Income Act of 1974 (ERISA), as amended, the Family and Medical Leave
Act (FMLA), as amended, the Pennsylvania Wage and Hour Laws, the Pennsylvania
Wage Payment and Collection Law, the Pennsylvania Human Relations Act, the
Health Insurance Portability and Accountability Act (HIPPA), and any and all
other claims or rights whether arising under federal, state, or local law, rule,
regulation, constitution, ordinance or public policy. Executive agrees that he
will not initiate any civil complaint or institute any civil lawsuit, or file
any arbitration against Releasees, or any one of them, based on the fact or
circumstance occurring up to and including the date of the execution by
Executive of this Release. This Release does not cover claims relating to: (i)

                                      C-2


Executive's right to indemnification under paragraph 17 of the Employment
Agreement, or pursuant to PMA Capital's articles of incorporation or bylaws as
they may exist from time to time, or pursuant to applicable law; (ii)
Executive's right to benefits under the Benefits plans; (iii) Executive's right
to payments under the Employment Agreement; or (iv) the validity or enforcement
of this Release.

                  2. Executive hereby agrees to waive any provisions of state or
federal law that explicitly or implicitly would prevent the application of this
Release to claims of which Executive does not know or expect to exist in
Executive's favor at the time of executing this Release which, if known by
Executive, would have materially affected his decision to execute this
Agreement. In addition, Executive hereby agrees to waive any provisions of state
or federal law which might require a more detailed specification of the claims
being released pursuant to the provisions of this Release.

                  3. Executive acknowledges that he has carefully read and
understands the provisions of this Release, that he has had twenty-one (21) days
from the date he received copy of this Release to consider entering into this
Release and accepting the severance payments, that if he signs and returns this
Release before the end of the 21-day period, he will have voluntarily waived his
right to consider this Release for the full twenty-one (21) days and that he has
executed this Release voluntarily and with full knowledge of its significance,
meaning and binding effect. Executive also acknowledges that PMA Capital has
advised him in writing to consult with an attorney of his own choosing with
regard to entering into this Release and accepting the severance payments.
Finally, Executive acknowledges that his decision to sign this Release has not
been influenced in any way by fraud, duress, coercion, mistake or misleading
information and that he has not relied on any information except what is set
forth in this Release and the Employment Agreement.


                                      C-3


                  4. Executive acknowledges that he may revoke this Release
within seven (7) days of his execution of this document by submitting written
notice of his revocation to ___________________________________________.
Executive also understands that this Release shall not become effective or
enforceable until the expiration of that 7-day period.

                  5. Executive agrees that if any provision of this Release is
or shall be declared invalid or unenforceable by a court of competent
jurisdiction, then such provision will be modified only to the extent necessary
to cure such invalidity and with a view to enforcing the parties' intention as
set forth in this Release to the extent permissible and the remaining provisions
of this Release shall not be affected thereby and shall remain in full force and
effect.


Date: May 7, 2004                          /s/ WILLIAM E. HITSELBERGER
                                           -----------------------------------
                                            WILLIAM E. HITSELBERGER





                                      C-4

EX-10

                                                                    Exhibit 10.2

                         EXECUTIVE EMPLOYMENT AGREEMENT


                  THIS EXECUTIVE EMPLOYMENT AGREEMENT, made and entered into as
of the 15th day of March, 2004, by and between PMA Capital Corporation, a
Pennsylvania corporation, with its principal place of business at Mellon Bank
Center, Suite 2800, 1735 Market Street, Philadelphia, Pennsylvania 19103-7590
and/or such of its affiliates and/or subsidiaries as it designates (hereinafter
collectively referred to as "PMA Capital") and ROBERT L. PRATTER, residing at
821 Harriton Road, Bryn Mawr, Pennsylvania 19010 ("Executive").

                  WHEREAS, Executive has significant experience in the insurance
industry and currently serves as the Senior Vice President and General Counsel
of PMA Capital;

                  WHEREAS, PMA Capital desires to continue to avail itself of
the expertise possessed by Executive and to employ Executive as Senior Vice
President and General Counsel, in which position he will have access to
confidential information of PMA Capital;

                  WHEREAS, Executive desires to be so employed by PMA Capital.

                  NOW, THEREFORE, in consideration of the promises and mutual
covenants contained herein, and each intending to be legally bound hereby, the
parties agree as follows:

                  1. Employment. Subject to the terms of this Agreement, PMA
Capital hereby continues to employ Executive as Senior Vice President and
General Counsel. In that capacity, Executive will perform such duties as are
appropriate to the direction and management of the legal aspects of PMA
Capital's business and such other duties, consistent with the foregoing duties
and his position, as directed by the Board of Directors of PMA Capital and the
Chief Executive Officer of PMA Capital. Executive shall report directly to the
Chief Executive Officer of PMA Capital. Executive also may communicate with the
Board of Directors of PMA Capital on those matters which may constitute a






material violation as defined in Regulation 205.2(i) of the Rules of Practice of
the Securities and Exchange Commission, or as appropriate in accordance with or
required by the Pennsylvania Rules of Professional Conduct or other applicable
codes of ethics. Executive hereby accepts such employment and agrees to serve
PMA Capital on a full-time basis and to perform such duties faithfully,
diligently and to the best of his ability and in conformity with all federal,
state and local statutes, regulations and rules applicable to PMA Capital.
Executive further agrees not to engage in any outside for-profit business,
employment or commercial activity, without first obtaining approval in writing
from the Chief Executive Officer of PMA Capital.

                  2. Compensation. PMA Capital agrees to pay Executive, and
Executive agrees to accept from PMA Capital, in full payment for Executive's
services, compensation consisting of the following:

                  (a) A minimum base salary at an annual rate of $368,000,
payable on a semi-monthly basis or on such other basis that PMA Capital may
adopt as its regular payroll practice. The Compensation Committee of the Board
of Directors of PMA Capital will review the base salary on at least an annual
basis at the same time that it reviews the annual incentive compensation;

                  (b) The standard benefits PMA Capital makes available from
time to time to its senior executive employees and, in addition, Executive will
participate in the following employee benefit plans according to their terms:
the 401(k) Excess Plan dated March 2001; the Executive Deferred Compensation
Plan dated March 2001; the Executive Management Pension Plan dated March 2001
and the Supplemental Executive Retirement Plan dated March 2001;




                                       2


                  (c) Annual incentive compensation based on performance
objectives established for 2004 and 2005 to be provided as described in Exhibit
A;

                  (d) The nonqualified stock option award that was granted to
Executive under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004 to
purchase 75,750 shares of Class A common stock, exercisable at a price and for a
period of time and on such other terms as are set forth in the 2004 Stock Option
and Restricted Stock Grant, which is attached as Exhibit B; and

                  (e) The 10,400 shares of Restricted Stock that Executive was
granted under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004,
subject to such restrictions and other terms as set forth in the 2004 Stock
Option and Restricted Stock Grant, which is attached as Exhibit B.

                  3. Expenses. PMA Capital will reimburse Executive for such of
his out-of-pocket expenses as are reasonably necessary in connection with
services rendered by Executive pursuant to this Agreement, as provided in the
business expense policies adopted by PMA Capital from time to time.

                  4. Term. The term of this Agreement is from March 15, 2004
through March 14, 2006. During the first two weeks of January, 2006, Executive
shall inform the Chief Executive Officer of PMA Capital in writing whether or
not he is interested in negotiating an extension of this Agreement for a new
term and if so, propose the terms and conditions for such an extension. Within
one week of receiving such written notice from Executive, PMA Capital will
inform Executive if it is willing to negotiate an extension of this Agreement.
If both parties are interested in negotiating an extension of this Agreement,
they then will engage in good faith negotiations for an extension of this
Agreement, with the negotiations to be concluded by no later than February 15,
2006; provided, however, that Executive's failure to negotiate in good faith




                                       3


will not be deemed to be "Cause" for termination of Executive's employment
hereunder, and will not be the basis for PMA Capital's denial of or failure to
pay any severance payments, compensation or benefits due to Executive pursuant
to the provisions of this Agreement.

                  5. Termination. Executive's employment may be terminated
before the end of the term of this Agreement as follows:

                  (a) By PMA Capital, at any time, for Cause, after providing
Executive with at least three (3) weeks written notice, specifying the
circumstances amounting to Cause and, if requested by Executive, the opportunity
for Executive and his counsel to appear before the Audit Committee of the Board
of Directors of PMA Capital to address these circumstances. "Cause" shall mean
Executive: (i) commits any act of fraud, embezzlement, theft or commission of a
felony in the course of his employment; (ii) engages in knowing and willful
misconduct or gross negligence in the performance of his duties; (iii)
unlawfully appropriates a corporate opportunity of PMA Capital or its affiliates
and subsidiaries (as defined in paragraph 24 below); or (iv) knowingly and
willfully breaches any of Executive's representations, warranties or covenants
contained in this Agreement in any material respect, each as reasonably
determined by the Audit Committee of the Board of Directors of PMA Capital after
the recommendation of the Chief Executive Officer of PMA Capital. In the event
that "Cause" is based on gross negligence, PMA Capital shall give Executive
written notice specifying in reasonable detail the conduct that it believes
amounts to gross negligence, and shall provide Executive with the three week
notice period specified above to cease or correct such conduct;

                  (b) Automatically on the date of Executive's death;




                                       4


                  (c) Automatically if Executive becomes disabled or otherwise
incapacitated so that Executive cannot perform the essential functions of his
job with or without reasonable accommodation for a continuous period of more
than one hundred eighty (180) days or for more than one hundred eighty (180)
cumulative days in any one (1) year period ("Permanent Disability"). Any
question as to the existence of Permanent Disability upon which Executive and
PMA Capital cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if Executive is unable to make such
selection, such selection shall be made by any adult member of Executive's
immediate family or Executive's legal representative) and approved by PMA
Capital, said approval not to be unreasonably withheld. The determination of
such physician shall be communicated in writing to PMA Capital and to Executive
and shall be final and conclusive for all purposes of this Agreement. Until the
date of termination as defined herein by reason of Permanent Disability,
Executive shall continue to receive the compensation and benefits as set forth
in paragraph 2 of this Agreement. No termination of this Agreement for Permanent
Disability shall impair any rights of Executive to collect benefits according to
the terms of any disability policy maintained by PMA Capital for that Permanent
Disability;

                  (d) By PMA Capital, at any time, for other than Cause upon
thirty (30) days written notice to Executive; or

                  (e) By Executive's voluntary resignation (before the end of
the term) for other than Good Reason upon not less than thirty (30) days prior
written notice to PMA Capital; or

                  (f) By Executive's voluntary resignation for Good Reason,
which shall mean Executive has given thirty (30) days prior written notice that
he intends to resign due to: (i) a change in his duties, authority or




                                       5


responsibilities that is inconsistent with his role as Senior Vice President and
General Counsel without his agreement; (ii) his being required to relocate his
office outside of an area within a fifty (50) mile radius of PMA Capital's
existing executive offices in Philadelphia, Pennsylvania; (iii) there being a
Change in Control of PMA Capital; (iv) there being a material reduction in the
overall value of the employee benefits being provided to him pursuant to
paragraph 2(b); or (v) a material breach by PMA Capital of any of its
obligations to Executive under this Agreement, so long as Executive gives such
notice within sixty (60) days of the circumstances believed by Executive to
constitute Good Reason and PMA Capital fails to remedy those circumstances in
subparagraphs 5(f)(i), (ii), (iv) or (v) within three (3) weeks.

                  For purposes of this Agreement, "Change in Control" has the
same definition as is set forth in paragraph 9(b) of the PMA Capital Corporation
2002 Equity Incentive Plan.

                  6. Incidents of Termination.

                  (a) If Executive's employment is terminated under subparagraph
5(a), (b), (c) or (e) above, PMA Capital shall have no further obligation under
this Agreement, except as provided under paragraph 17 and except the obligation
to: (i) pay Executive an amount equal to the portion of his compensation and
out-of-pocket business expenses, as defined in paragraph 3, as may be accrued
and unpaid on the date of termination; (ii) pay Executive such portion of
Executive's annual incentive compensation for the year in which termination
occurs as the Compensation Committee of the Board of Directors of PMA Capital
shall determine was earned by Executive; and (iii) provide all benefits set
forth pursuant to the benefit, medical, pension or other plans and programs
provided by PMA Capital for which Executive qualifies (collectively "Benefits")
as are due under the terms of the Benefits plans and programs, recognizing that




                                       6


Executive's employment has terminated. In the event of Executive's death, any
sums and benefits due to Executive under any provision of this Agreement shall
be paid to his estate or heirs, as applicable.

                  (b) If Executive's employment is terminated under subparagraph
5(d) or 5(f) above or if Executive's employment ends at the end of the term
(including by reason of Executive's decision not to renew or extend his
employment for any reason), then PMA Capital shall pay Executive as described in
paragraph 6(a) above, plus it will pay any cash portion of the annual incentive
compensation for the year in which termination occurs that is earned because
Executive accomplished certain identifiable tasks as of the date of termination.
It is specifically understood that objectives related to profitability, revenue
growth, stock price and similar performance measures are not intended to be
measured other than at year end and accordingly will not qualify as identifiable
tasks on an interim basis and these are not eligible for payment of incentive
compensation unless deemed appropriate by the Compensation Committee of the
Board of Directors of PMA Capital in connection with their consideration of
payments as discussed above. In addition, PMA Capital shall pay Executive the
greater of: (i) one (1) year of severance pay at one hundred twenty percent
(120%) of Executive's then current base salary, minus any appropriate
withholdings and deductions; or (ii) severance pay at one hundred percent (100%)
of the amount of Executive's then current base salary that otherwise would be
due for the remainder of the term of this Agreement; each without regard to
whether Executive obtains another position with a new employer. These severance
payments will be made on or about the regular pay dates recognized by PMA
Capital, beginning on the next regular pay date following Executive's last
regular pay date on which he is paid his base salary. Further, if Executive
elects to continue his health insurance benefits under COBRA, PMA Capital will
continue to pay the same monthly subsidy of the premiums for such insurance
continuation as was being paid by PMA Capital before Executive's employment





                                       7


terminated, with the remainder of the premium being deducted from Executive's
severance payments, through the earlier of the end of the severance period and
the date Executive becomes eligible to receive and/or obtain alternative health
insurance coverage through new employment. PMA Capital's obligation to provide
the severance pay and benefits provided in this paragraph is conditioned upon
Executive signing and not revoking a valid general release agreement in the form
attached hereto as Exhibit C. The severance payments and benefits provided for
in this Agreement shall be offset by any severance pay or benefits that are
actually paid to Executive upon termination of employment under the PMA Capital
Corporation and PMA Capital Insurance Company Severance Pay Plan or any other
applicable severance plan or severance policy of PMA Capital.

                  (c) If Executive's employment is terminated under
subparagraphs 5(b), (c), (d) or (f) above or if Executive's employment ends at
the end of the term: (i) Executive shall have a fully (100%) vested and
nonforfeitable interest in his "Past Service Retirement Benefit" under the PMA
Capital Corporation Executive Management Pension Plan ("Executive Management
Pension Plan") or any successor or replacement plan, notwithstanding anything in
the Executive Management Pension Plan to the contrary; and (ii) Executive's
benefit under the PMA Capital Corporation Supplemental Executive Retirement Plan
(the "SERP") shall be increased to the extent necessary so that his aggregate
retirement benefit payable under the PMA Capital Corporation Pension Plan, the
Executive Management Pension Plan and the SERP is not less than the aggregate
benefit that would have been payable under such plans if Executive's employment
had continued to the end of the term, assuming that Executive is paid at the
same salary rate during such period as in effect as of his termination of
employment.



                                       8


                  7. Excise Taxes. If the value of any compensation (in whatever
form) provided pursuant to this Agreement is counted as a "parachute payment"
within the meaning of section 280G of the Internal Revenue Code of 1986, as
amended, (the "Code") and the value of all such parachute payments would exceed
two hundred ninety-nine percent (299%) of the "base amount" applicable to
Executive under section 280G, then the amount of such parachute payments shall
be reduced to the extent necessary so that the sum of such parachute payments
equals exactly two hundred ninety-nine percent (299%) of Executive's "base
amount," provided, however, that this section shall not apply if the value of
all such parachute payments, after application of the excise tax under section
4999 of the Code, is greater than two hundred ninety-nine percent (299%) of
Executive's "base amount."

                  8. Trade Secrets and Confidential Information. Executive shall
not disclose or use at any time either during or after employment by PMA
Capital, any Confidential Information (as defined below) of which he becomes
aware, whether or not any such information is developed by him, except to the
extent that such disclosure or use is required or appropriate in the performance
of the duties assigned to him by PMA Capital or if Executive is required to
testify under subpoena or court order after Executive gives sufficient advance
written notice of such requirement to PMA Capital so that it may seek to limit
or otherwise protect such testimony from public disclosure. Executive shall
follow all procedures established by PMA Capital to safeguard Confidential
Information and to protect it against disclosure, misuse, espionage, loss or
theft. "Confidential Information" shall mean information that is not generally
known or available to the public, which is used, developed or obtained by PMA
Capital, relating to its business and the businesses of its clients, vendors,
agents, brokers or customers including, but not limited to: business and
marketing strategies; distribution channels; products or services; fees, costs





                                       9


and pricing structures; marketing information; advertising and pricing
strategies; analyses; reports; computer software, including operating systems,
applications and program listings; flow charts; manuals and documentation; data
bases; accounting and business methods; inventions and new developments and
methods, whether patentable or unpatentable and whether or not reduced to
practice; all copyrightable works; PMA Capital's existing and prospective
clients, vendors, agents, brokers or customers and their confidential
information; existing and prospective client, vendor, agent, broker or customer
lists and other data related thereto; all trade secret information protected by
the federal Economic Espionage Act of 1996, 18 U.S.C. ss.1831 et seq., the
Pennsylvania Uniform Trade Secrets Act and all similar and related information
in whatever form. Confidential Information shall not include any information
that has been published in a form generally available to the public prior to the
date upon which Executive proposes to disclose such information.

                  9. Creative Works and Other Property.

                  (a) Executive will promptly disclose to PMA Capital all
inventions, concepts, processes, improvements, methodologies and other creative
works, including, without limitation, insurance products, whether or not they
can be patented or copyrighted, that during his employment were or were caused
to be conceived or developed by him, either solely or jointly with others,
relating to PMA Capital's business (collectively "Creative Works") and Executive
agrees that all such Creative Works shall be the sole property of PMA Capital.
Upon the request and at the expense of PMA Capital, Executive will at any time
(whether during his employment or after its termination for any reason) assist
PMA Capital and fully cooperate with it to protect PMA Capital's interest in
such Creative Works and to obtain, for PMA Capital's benefit, patents or
copyrights for any and all Creative Works in the United States and in any and




                                       10


all foreign countries. This paragraph does not apply to any Creative Work that
Executive develops entirely on his own time and for which no equipment,
supplies, facility or Confidential Information of PMA Capital was used, unless:
(a) the Creative Work relates to PMA Capital's business or to the actual or
anticipated research or development activities of PMA Capital; or (b) the
Creative Work results from any work Executive performs for PMA Capital.

                  (b) Upon the termination of Executive's employment for PMA
Capital, Executive shall immediately, and without request, deliver to PMA
Capital all copies and embodiments, in whatever form, of all Confidential
Information and all other documents, materials or property belonging to PMA
Capital even if they do not contain Confidential Information, including but not
limited to: written records, notes, photographs, manuals, computers, cell
phones, notebooks, reports, keys, credit cards, documentation, flow charts and
all magnetic media such as tapes, disks or diskettes, wherever located, and, if
requested by PMA Capital, shall provide PMA Capital with written confirmation
that all such materials have been returned. Executive has no claim or right to
the continued use, possession or custody of such information, documents,
materials or property following the termination of his employment with PMA
Capital.

                  10. Restrictive Covenants. While employed by PMA Capital and
through the period ending one (1) year after termination of employment (whether
voluntary or involuntary and regardless of the reason for termination),
Executive agrees that, unless he obtains written approval in advance from the
Chief Executive Officer of PMA Capital, he shall not, except on behalf of PMA
Capital, in any way, directly or indirectly:

                  (a) contact, employ, hire, solicit or attempt to persuade any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been an employee, agent, broker or




                                       11


independent contractor of PMA Capital to terminate his, her or its relationship
with PMA Capital or do any act that may result in the impairment of the
relationship between PMA Capital on the one hand and the employees, agents,
brokers or independent contractors of PMA Capital on the other hand;

                  (b) contact, solicit, serve or sell to, in furtherance of or
in the context of any business that directly competes with PMA Capital, any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been a client, customer, agent, or broker
or a prospective client, customer, agent or broker of PMA Capital or attempt to
persuade any such person or entity to purchase or otherwise acquire or use any
product(s) or service(s) offered by any business of the same or similar nature
as products or services offered by PMA Capital. (For purposes of this
sub-paragraph, a "prospective client, customer, agent or broker" means a person
or entity with whom or which PMA Capital has had direct contact and made a
proposal to provide products or services.). Nothing contained in this Agreement
shall restrict Executive in his ability to practice law as an attorney in
private practice, subject to all applicable Rules of Professional Conduct,
following termination of employment for any reason; or

                  (c) engage in any activities or make any statements that may
disparage or reflect negatively on PMA Capital, its Directors, Officers or
employees, except as required to enforce the provisions of this Agreement or any
of the Benefits plans.

                  11. Reasonableness of Restrictions. Executive agrees and
acknowledges that the type and scope of restrictions described in paragraphs 8,
9 and 10 are fair and reasonable and that the restrictions are intended to
protect the legitimate interests of PMA Capital and not to prevent him from
earning a living. Executive recognizes that his key position as Senior Vice




                                       12


President and General Counsel and his access to Confidential Information make it
necessary for PMA Capital to restrict his post-employment activities, as set
forth in this Agreement. Executive represents and warrants that the knowledge,
ability and skill he currently possesses are sufficient to enable him to earn a
livelihood satisfactory to him for a period of one (1) year in the event his
employment with PMA Capital terminates, without violating any restriction in
this Agreement. If, however, any of the restrictions set forth in paragraphs 8,
9 or 10 are held invalid by a court by reason of length of time, area covered,
activity covered or any or all of them, then such restriction or restrictions
shall be reduced only to the minimum extent necessary to cure such invalidity.

                  12. Remedies. Executive agrees that if he should breach any of
the covenants contained in paragraphs 8, 9 or 10, irreparable damage would
result to PMA Capital and that damages arising out of such breach may be
difficult to determine. Executive therefore further agrees that, in addition to
all other remedies provided at law or at equity, PMA Capital shall be entitled
as a matter of course to specific performance and temporary and permanent
injunctive relief from any court of competent jurisdiction to prevent any
further breach of any such covenant by Executive, without the necessity of
proving actual damage to PMA Capital by reason of any such breach, and Executive
acknowledges that his employers, employees, partners, agents or other
associates, or any of them, may similarly be enjoined. If either party prevails
in any lawsuit claiming breach of paragraphs 8, 9 or 10 of this Agreement, the
other party shall reimburse the prevailing party for its or his expenses
incurred in connection with such a lawsuit, including without limitation,
attorney's fees and costs. (For purposes of this paragraph, PMA Capital will be
considered to have prevailed in a lawsuit if it is established by written
adjudication that Executive has breached in any material respect any provision





                                       13


of paragraphs 8, 9 or 10 as written or as modified under paragraph 11. Executive
will be considered to have prevailed in a lawsuit if it is established by
written adjudication that he did not breach in any material respect any
provision of paragraphs 8, 9 or 10 as written or as modified under paragraph
11).

                  13. Previous Employment. Executive represents and warrants
that he is not under any legal restraint or restriction that would prevent or
make unlawful his execution of this Agreement or his performing the obligations
under this Agreement and that Executive has disclosed to PMA Capital any and all
restraints, confidentiality commitments or employment restrictions that
Executive has with any other employer or organization.

                  14. Cooperation. At all times during the term of this
Agreement and for a period of three (3) years thereafter, Executive will
reasonably cooperate with PMA Capital in any litigation or administrative
proceedings involving any matters with which Executive was involved during his
employment by PMA Capital; provided that, following the term of this Agreement,
such activities will be scheduled at such times and locations as PMA Capital and
Executive may mutually agree. PMA Capital will reimburse Executive for his
reasonable out-of-pocket expenses, if any, incurred in providing such
assistance. In addition, if such assistance is provided by Executive after his
employment has terminated and at a time when he is not receiving severance
payments under paragraph 6(b), then Executive shall be paid by PMA Capital for
all such services or activities the sum of $400 per hour. Nothing contained in
this section or in this Agreement shall require Executive to provide legal
services to PMA Capital after the termination of his employment.





                                       14


                  15. Reimbursement of Attorney's Fees. PMA Capital will
reimburse Executive for the reasonable attorney's fees and costs, if any,
incurred by Executive in connection with the negotiation and preparation of this
Agreement, up to a maximum of $15,000.

                  16. Assignment. Neither PMA Capital nor Executive shall have
the right to assign this Agreement or any obligation hereunder without the
written consent of the other, except that, subject to Executive's rights under
paragraph 5(f) above if there is a Change of Control, PMA Capital may assign
this Agreement to a successor or assignee in connection with a merger,
consolidation, sale or transfer of assets of PMA Capital, provided that such
successor or assignee expressly assumes all obligations of PMA Capital under
this Agreement.

                  17. Indemnification. PMA Capital shall indemnify Executive or
his estate to the full extent provided in its articles of incorporation and/or
its bylaws as of the date of this Agreement.

                  18. No Mitigation. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in this Agreement or the
Benefits plans by seeking other employment or otherwise, nor shall the amount of
any payment or benefit provided for in this Agreement or the Benefits plans be
reduced by any compensation or benefits earned by Executive either as a result
of his engaging in business or his employment by another employer, or by
retirement benefits payable after the termination of this Agreement.

                  19. Indulgences. The failure of PMA Capital or Executive at
any time or times to enforce its or his rights under this Agreement strictly in
accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific provisions of this Agreement or as
having in any way or manner modified or waived the same.




                                       15


                  20. Notices. Any notice required or permitted to be given by
this Agreement shall be in writing and shall be sufficiently given to the
parties if delivered in person or sent by United States registered or certified
mail or nationally recognized overnight courier (return receipt requested) or by
telefax (with evidence of successful transmission) addressed to the respective
parties at the following addresses or at such other addresses as may from time
to time be designated in writing by the parties:

        If to Executive:                    If to PMA Capital:

        Robert L. Pratter                   PMA Capital Corporation
        821 Harriton Road                   c/o Chief Executive Officer
        Bryn Mawr, PA 19010                 Mellon Bank Center,
        Telefax Number:  (610) 527-5095     Suite 2800
                                            1735 Market Street
                                            Philadelphia, PA 19103-7590
                                            Telefax Number:  (215) 665-5038

                  21. Entire Agreement. This Agreement, together with the
attachments hereto and PMA Capital's Benefits plans, sets forth the entire
agreement between the parties with respect to the matters covered herein, and
supersedes all other agreements and understandings. No waiver or amendment to
this Agreement shall be effective unless reduced to writing and executed by the
parties hereto.

                  22. Arbitration. In order to obtain the many benefits of
arbitration over court proceedings, including speed of resolution, lower costs
and fees and more flexible rules of evidence, all disputes between Executive and
PMA Capital (except those relating to unemployment compensation and workers'
compensation and except as provided in paragraph 12 of this Agreement) arising
out of Executive's employment or concerning the interpretation or application of
this Agreement or its subject matter (including, without limitation, those





                                       16


relating to any claimed violation of any federal, state or local law, regulation
or ordinance, such as Title VII of the Civil Rights Act, the Age Discrimination
in Employment Act, the Americans with Disabilities Act and their state and local
counterparts, if any) shall be resolved exclusively by binding arbitration in
Philadelphia, Pennsylvania pursuant to the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, with the prevailing
party being awarded its or his reasonable attorney's fees and costs. The parties
expressly waive their rights to have any such claims resolved by jury trial.
Arbitration must be demanded within three hundred (300) days of the time when
the demanding party knows or should have known of the events giving rise to the
claim. The arbitration opinion and award shall be final, binding and enforceable
by any court under the Federal Arbitration Act.

                  23. Controlling Law and Dispute Resolution. This Agreement
shall be construed and applied in accordance with the laws of the Commonwealth
of Pennsylvania without giving effect to the principles of conflicts of law
under Pennsylvania law. The parties agree to submit to the jurisdiction and
venue of the state and federal courts located in Pennsylvania in the event that
there is any claim that this Agreement has been breached and that any such claim
is not subject to arbitration as provided in paragraph 22 of this Agreement.

                  24. Affiliates and/or Subsidiaries. The affiliates and/or
subsidiaries of PMA Capital Corporation referred to in the first paragraph of
this Agreement are: PMA Capital Insurance Company; Pennsylvania Manufacturers
Association Insurance Company; Manufacturers Alliance Insurance Company;
Pennsylvania Manufacturers Indemnity Company; and such other entity that comes
into existence after the date of this Agreement that is controlled by or under
common control with PMA Capital Corporation at the time of reference. PMA
Capital and each such affiliate and/or subsidiary of PMA Capital Corporation
shall be jointly and severally liable for the obligations to Executive under
this Agreement.





                                       17


                  IN WITNESS WHEREOF, this Agreement has been duly executed by
and on behalf of the parties hereto as of the day and year first above written.



                                   PMA CAPITAL CORPORATION; PMA CAPITAL
                                   INSURANCE COMPANY; PENNSYLVANIA MANUFACTURERS
                                   ASSOCIATION INSURANCE COMPANY; MANUFACTURERS
                                   ALLIANCE INSURANCE COMPANY; AND PENNSYLVANIA
                                   MANUFACTURERS INDEMNITY COMPANY



                                   By:   /s/ Vincent T. Donnelly
                                         ----------------------------------
                                         Name:  Vincent T. Donnelly
                                         Title: Chief Executive Officer
                                         Date:  May 7, 2004


                                         /s/ ROBERT L. PRATTER
                                         ----------------------------------
                                   Name: ROBERT L. PRATTER
                                   Date: May 7, 2004





                                       18




                                    EXHIBIT A

                  Executive will be eligible for a cash incentive award with
respect to 2004 under the 2002 PMA Capital Corporation Equity Incentive Plan
targeted at $62,560, to be paid no later than March 14, 2005, for successful
achievement of goals and performance criteria as determined by the Chief
Executive Officer and approved by the Compensation Committee of the Board of
Directors of PMA Capital.

                  Executive will be eligible for an incentive award with regard
to 2005 under the 2002 PMA Capital Corporation Equity Incentive Plan that will
be targeted at a minimum of 80% and a maximum of 100% of his annual base salary,
with any cash portion to be paid no later than March 14, 2006, for successful
achievement of goals and performance criteria as determined by the Chief
Executive Officer and approved by the Compensation Committee of the Board of
Directors of PMA Capital. Payment of the 2005 annual incentive compensation
award will be in the amount and in the form(s) (e.g., stock options, restricted
stock, cash) as determined by the Chief Executive Officer and approved by the
Compensation Committee of the Board of Directors of PMA Capital.




                                      A-1




                                    EXHIBIT B

May 6, 2004

Name:
SS#:

      PMA Capital Corporation 2004 Stock Option And Restricted Stock Grant

              PMA Capital Corporation (the "Company") has awarded you a Stock
     Option and Restricted Stock under the Company's 2002 Equity Incentive Plan
     (the "Plan") as follows:

                                     Number of Shares of Class A
 Date of                                   Common Stock             Per Share
  Grant           Type of Award         Related to the Award      Exercise Price
 5/6/04        Nonqualified Stock              75,750                $7.02
                     Option
 5/6/04         Restricted Stock               10,400                N/A

              The Options and Restricted Stock are subject to the provisions of
     the Plan, a copy of which can be found in this package, this letter and to
     the terms and conditions listed in the Attachments to this letter. Also
     enclosed is a Plan Prospectus. You have already received a copy of the
     Company's most recent Annual Report and Proxy Statement. Please be aware
     that transactions in the Company's stock are subject to the Company's
     Insider Trading Policy.

              If you wish to accept your grant of Options and Restricted Stock,
     please sign below where indicated and return only the signed copy of this
     letter to me at the above address. You should retain a copy of this letter
     for your records. If you have any questions about your Options or
     Restricted Stock, please call me at the above telephone number.

     Very truly yours,


     Vincent T. Donnelly
     Chief Executive Officer


     By signing below, I hereby agree to the provisions of the Plan, this letter
     and the terms and conditions set forth in the Attachments to this letter.


     /s/ Vincent T. Donnelly
     Name                                   Date:  May 7, 2004


                                      B-1


                                    EXHIBIT C
                            General Release Agreement

                  THIS GENERAL RELEASE AGREEMENT (hereinafter "Release") is made
and entered into as of this ____ day of _______________, 20__, by and among PMA
Capital Corporation, PMA Capital Insurance Company, Pennsylvania Manufacturers
Association Insurance Company, Manufacturers Alliance Insurance Company, and
Pennsylvania Manufacturers Indemnity Company (collectively "PMA Capital") on the
one hand and Robert L. Pratter (hereinafter "Executive") on the other hand.

                  WHEREAS, PMA Capital and Executive entered into the Executive
Employment Agreement (the "Employment Agreement") effective as of March 15,
2004;

                  WHEREAS, under the terms of the Employment Agreement,
Executive is entitled to severance payments as provided therein;

                  WHEREAS, the Employment Agreement conditions receipt of the
severance payments upon Executive's signing and not revoking a valid General
Release Agreement.

                  NOW THEREFORE, intending to be legally bound hereby and in
consideration of receipt of the severance payments provided for in the
Employment Agreement and for other good and valuable consideration, Executive,
for himself, and his executors, administrators, heirs and assigns, agrees as
follows:

                  1. Executive hereby fully waives, releases, and forever
discharges PMA Capital and each and all of its past and present subsidiaries,
parent and related corporations, companies and divisions, and their past and
present respective officers, directors, shareholders, trustees, employees,
attorneys, agents and affiliates, and their predecessors, successors and assigns
(hereinafter collectively referred to as "Releasees") of and from any and all
rights, debts, claims, actions, liabilities, agreements, damages, or causes of
action (hereinafter collectively referred to as "claims"), of whatsoever kind or
nature, whether in law or equity, whether known or unknown, that Executive ever


                                      C-1



had or now has in any capacity, either individually, or as a director, officer,
representative, agent or employee of Releasees against any or all of the
Releasees, for, upon, or by reason of any cause, matter, thing or event
whatsoever occurring at any time up to and including the date Executive signs
this Release. Executive acknowledges and understands that the claims and rights
being released in this paragraph include, but are not limited to, all claims and
rights arising from or in connection with any agreement of any kind Executive
may have had with any of the Releasees, or in connection with Executive's
employment or termination of employment, all claims and rights for wrongful
discharge, breach of contract, either express or implied, interference with
contract, emotional distress, back pay, front pay, benefits, fraud,
misrepresentation, defamation, claims and rights arising under the Civil Rights
Acts of 1964 and 1991, as amended, (which prohibits the discrimination in
employment based on race, color, national origin, religion or sex), the
Americans with Disabilities Act (ADA), as amended (which prohibits
discrimination in employment based on disability), the Age Discrimination in
Employment Act (ADEA), as amended (which prohibits age discrimination in
employment), Worker Adjustment and Retraining Notification Act (WARN), the
National Labor Relations Act, the Fair Labor Standards Act, the Employee
Retirement Income Act of 1974 (ERISA), as amended, the Family and Medical Leave
Act (FMLA), as amended, the Pennsylvania Wage and Hour Laws, the Pennsylvania
Wage Payment and Collection Law, the Pennsylvania Human Relations Act, the
Health Insurance Portability and Accountability Act (HIPPA), and any and all
other claims or rights whether arising under federal, state, or local law, rule,
regulation, constitution, ordinance or public policy. Executive agrees that he
will not initiate any civil complaint or institute any civil lawsuit, or file
any arbitration against Releasees, or any one of them, based on the fact or
circumstance occurring up to and including the date of the execution by


                                      C-2




Executive of this Release. This Release does not cover claims relating to: (i)
Executive's right to indemnification under paragraph 17 of the Employment
Agreement, or pursuant to PMA Capital's articles of incorporation or bylaws as
they may exist from time to time, or pursuant to applicable law; (ii)
Executive's right to benefits under the Benefits plans; (iii) Executive's right
to payments under the Employment Agreement; or (iv) the validity or enforcement
of this Release.

                  2. Executive hereby agrees to waive any provisions of state or
federal law that explicitly or implicitly would prevent the application of this
Release to claims of which Executive does not know or expect to exist in
Executive's favor at the time of executing this Release which, if known by
Executive, would have materially affected his decision to execute this
Agreement. In addition, Executive hereby agrees to waive any provisions of state
or federal law which might require a more detailed specification of the claims
being released pursuant to the provisions of this Release.

                  3. Executive acknowledges that he has carefully read and
understands the provisions of this Release, that he has had twenty-one (21) days
from the date he received copy of this Release to consider entering into this
Release and accepting the severance payments, that if he signs and returns this
Release before the end of the 21-day period, he will have voluntarily waived his
right to consider this Release for the full twenty-one (21) days and that he has
executed this Release voluntarily and with full knowledge of its significance,
meaning and binding effect. Executive also acknowledges that PMA Capital has
advised him in writing to consult with an attorney of his own choosing with
regard to entering into this Release and accepting the severance payments.
Finally, Executive acknowledges that his decision to sign this Release has not
been influenced in any way by fraud, duress, coercion, mistake or misleading
information and that he has not relied on any information except what is set
forth in this Release and the Employment Agreement.



                                      C-3



                  4. Executive acknowledges that he may revoke this Release
within seven (7) days of his execution of this document by submitting written
notice of his revocation to ___________________________________________.
Executive also understands that this Release shall not become effective or
enforceable until the expiration of that 7-day period.

                  5. Executive agrees that if any provision of this Release is
or shall be declared invalid or unenforceable by a court of competent
jurisdiction, then such provision will be modified only to the extent necessary
to cure such invalidity and with a view to enforcing the parties' intention as
set forth in this Release to the extent permissible and the remaining provisions
of this Release shall not be affected thereby and shall remain in full force and
effect.


Date: May 7, 2004                       /s/ ROBERT L. PRATTER
                                        ____________________________________
                                             ROBERT L. PRATTER





                                      C-4

EX-10

                                                                    Exhibit 10.3

                         EXECUTIVE EMPLOYMENT AGREEMENT


                  THIS EXECUTIVE EMPLOYMENT AGREEMENT, made and entered into as
of the 15th day of March, 2004, by and between PMA Capital Corporation, a
Pennsylvania corporation, with its principal place of business at Mellon Bank
Center, Suite 2800, 1735 Market Street, Philadelphia, Pennsylvania 19103-7590
and/or such of its affiliates and/or subsidiaries it designates (hereinafter
collectively referred to as "PMA Capital") and VINCENT T. DONNELLY, residing at
58 Peter Rafferty Drive, Hamilton Square, New Jersey 08690 ("Executive").

                  WHEREAS, Executive has significant experience in the insurance
industry and currently serves as the President and Chief Executive Officer and
as a member of the Board of Directors of PMA Capital;

                  WHEREAS, PMA Capital desires to continue to avail itself of
the expertise possessed by Executive and to employ Executive as President and
Chief Executive Officer, in which position he will have access to confidential
information of PMA Capital;

                  WHEREAS, Executive desires to be so employed by PMA Capital.

                  NOW, THEREFORE, in consideration of the promises and mutual
covenants contained herein, and each intending to be legally bound hereby, the
parties agree as follows:

                  1. Employment. Subject to the terms of this Agreement, PMA
Capital hereby continues to employ Executive as President and Chief Executive
Officer. In that capacity, Executive will perform such duties as are appropriate
to the management of all aspects of PMA Capital's business and such other
duties, consistent with the foregoing duties and his position, as directed by







the Chairman of the Board of Directors of PMA Capital. Executive shall report
directly to the Chairman of the Board of Directors of PMA Capital. Executive
hereby accepts such employment and agrees to serve PMA Capital on a full-time
basis and to perform such duties faithfully, diligently and to the best of his
ability and in conformity with all federal, state and local statutes,
regulations and rules applicable to PMA Capital. Executive further agrees not to
engage in any outside for-profit business, employment or commercial activity,
without first obtaining approval in writing from the Chairman of the Board of
Directors of PMA Capital.

                  2. Compensation. PMA Capital agrees to pay Executive, and
Executive agrees to accept from PMA Capital, in full payment for Executive's
services, compensation consisting of the following:

                  (a) A minimum base salary at an annual rate of $670,000,
payable on a semi-monthly basis or on such other basis that PMA Capital may
adopt as its regular payroll practice. The Compensation Committee of the Board
of Directors of PMA Capital will review the base salary on at least an annual
basis at the same time that it reviews the annual incentive compensation;

                  (b) The standard benefits PMA Capital makes available from
time to time to its senior executive employees and, in addition, Executive may
participate in the following employee benefit plans according to their terms:
the 401(k) Excess Plan dated March 2001; the Executive Deferred Compensation
Plan dated March 2001; the Executive Management Pension Plan dated March 2001
and the Supplemental Executive Retirement Plan dated March 2001;





                                       2


                  (c) Annual incentive compensation based on performance
objectives established for 2004 and 2005 to be provided as described in Exhibit
A;

                  (d) The nonqualified stock option award that was granted to
Executive under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004 to
purchase 405,350 shares of Class A common stock, exercisable at a price and for
a period of time and on such other terms as are set forth in the 2004 Stock
Option and Restricted Stock Grant, which is attached as Exhibit B; and

                  (e) The 55,800 shares of Restricted Stock that Executive was
granted under PMA Capital's 2002 Equity Incentive Plan as of May 6, 2004,
subject to such restrictions and other terms as set forth in the 2004 Stock
Option and Restricted Stock Grant, which is attached as Exhibit B.

                  3. Expenses. PMA Capital will reimburse Executive for such of
his out-of-pocket expenses as are reasonably necessary in connection with
services rendered by Executive pursuant to this Agreement, as provided in the
business expense policies adopted by PMA Capital from time to time.

                  4. Term. The term of this Agreement is from March 15, 2004
through March 14, 2006. During the first two weeks of January, 2006, Executive
shall inform the Chairman of PMA Capital in writing whether or not he is
interested in negotiating an extension of this Agreement for a new term and, if
so, propose the terms and conditions for such an extension. Within one week of
receiving such written notice from Executive, PMA Capital will inform Executive
if it is willing to negotiate an extension of this Agreement. If both parties
are interested in negotiating an extension of this Agreement, they then will
engage in good faith negotiations for an extension of this Agreement, with the





                                       3


negotiations to be concluded by no later than February 15, 2006; provided,
however, that Executive's failure to negotiate in good faith will not be deemed
to be "Cause" for termination of Executive's employment hereunder, and will not
be the basis for PMA Capital's denial of or failure to pay any severance
payments, compensation or benefits due to Executive pursuant to the provisions
of this Agreement.

                  5. Termination. Executive's employment may be terminated
before the end of the term of this Agreement as follows:

                  (a) By PMA Capital, at any time, for Cause, after providing
Executive with at least three (3) weeks written notice, specifying the
circumstances amounting to Cause and, if requested by Executive, the opportunity
for Executive and his counsel to appear before the Board of Directors of PMA
Capital to address these circumstances. "Cause" shall mean Executive: (i)
commits any act of fraud, embezzlement, theft or commission of a felony in the
course of his employment; (ii) engages in knowing and willful misconduct or
gross negligence in the performance of his duties; (iii) unlawfully appropriates
a corporate opportunity of PMA Capital or its affiliates and subsidiaries (as
defined in paragraph 24 below); or (iv) knowingly and willfully breaches any of
Executive's representations, warranties or covenants contained in this Agreement
in any material respect, each as reasonably determined by the Board of Directors
of PMA Capital. In the event that "Cause" is based on gross negligence, PMA
Capital shall give Executive written notice specifying in reasonable detail the
conduct that it believes amounts to gross negligence, and shall provide
Executive with the three (3) week notice period specified above to cease or
correct such conduct;

                  (b) Automatically on the date of Executive's death;

                  (c) Automatically if Executive becomes disabled or otherwise
incapacitated so that Executive cannot perform the essential functions of his






                                       4


job with or without reasonable accommodation for a continuous period of more
than one hundred eighty (180) days or for more than one hundred eighty (180)
cumulative days in any one (1) year period ("Permanent Disability"). Any
question as to the existence of Permanent Disability upon which Executive and
PMA Capital cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if Executive is unable to make such
selection, such selection shall be made by any adult member of Executive's
immediate family or Executive's legal representative) and approved by PMA
Capital, said approval not to be unreasonably withheld. The determination of
such physician shall be communicated in writing to PMA Capital and to Executive
and shall be final and conclusive for all purposes of this Agreement. Until the
date of termination as defined herein by reason of Permanent Disability,
Executive shall continue to receive the compensation and benefits as set forth
in paragraph 2 of this Agreement. No termination of this Agreement for Permanent
Disability shall impair any rights of Executive to collect benefits according to
the terms of any disability policy maintained by PMA Capital for that Permanent
Disability;

                  (d) By PMA Capital, at any time, for other than Cause upon
thirty (30) days written notice to Executive; or

                  (e) By Executive's voluntary resignation (before the end of
the term) for other than Good Reason upon not less than thirty (30) days prior
written notice to PMA Capital; or

                  (f) By Executive's voluntary resignation for Good Reason,
which shall mean Executive has given thirty (30) days prior written notice that
he intends to resign due to: (i) a change in his duties, authority or
responsibilities that is inconsistent with his role as President and Chief
Executive Officer without his agreement; (ii) his being required to relocate his





                                       5


office outside of an area within a fifty (50) mile radius of PMA Capital's
existing executive offices in Philadelphia, Pennsylvania; (iii) there being a
Change in Control of PMA Capital; (iv) there being a material reduction in the
overall value of the employee benefits being provided to him pursuant to
paragraph 2(b); or (v) a material breach by PMA Capital of any of its
obligations to Executive under this Agreement, so long as Executive gives such
notice within sixty (60) days of the circumstances believed by Executive to
constitute Good Reason and PMA Capital fails to remedy those circumstances in
subparagraphs 5(f)(i), (ii), (iv) or (v) within three (3) weeks.

                  For purposes of this Agreement, "Change in Control" has the
same definition as is set forth in paragraph 9(b) of the PMA Capital Corporation
2002 Equity Incentive Plan.

                  6. Incidents of Termination.

                  (a) If Executive's employment is terminated under subparagraph
5(a), (b), (c) or (e) above, PMA Capital shall have no further obligation under
this Agreement, except as provided under paragraph 17 and except the obligation
to: (i) pay Executive an amount equal to the portion of his compensation and
out-of-pocket business expenses, as defined in paragraph 3, as may be accrued
and unpaid on the date of termination; (ii) pay Executive such portion of
Executive's annual incentive compensation for the year in which termination
occurs as the Compensation Committee of the Board of Directors of PMA Capital
shall determine was earned by Executive; and (iii) provide all benefits set
forth pursuant to the benefit, medical, pension or other plans and programs
provided by PMA Capital for which Executive qualifies (collectively "Benefits")
as are due under the terms of the Benefits plans and programs, recognizing that
Executive's employment has terminated. In the event of Executive's death, any





                                       6


sums and benefits due to Executive under any provision of this Agreement shall
be paid to his estate or heirs, as applicable.

                  (b) If Executive's employment is terminated under subparagraph
5(d) or 5(f) above or if Executive's employment ends at the end of the term
(including by reason of Executive's decision not to renew or extend his
employment for any reason), then PMA Capital shall pay Executive as described in
paragraph 6(a) above, plus it will pay any cash portion of the annual incentive
compensation for the year in which termination occurs that is earned because
Executive accomplished certain identifiable tasks as of the date of termination.
It is specifically understood that objectives related to profitability, revenue
growth, stock price and similar performance measures are not intended to be
measured other than at year end and accordingly will not qualify as identifiable
tasks on an interim basis and these are not eligible for payment of incentive
compensation unless deemed appropriate by the Compensation Committee of the
Board of Directors of PMA Capital in connection with their consideration of
payments as discussed above. In addition, PMA Capital shall pay Executive the
greater of: (i) one (1) year of severance pay at one hundred twenty percent
(120%) of Executive's then current base salary, minus any appropriate
withholdings and deductions; or (ii) severance pay at one hundred percent (100%)
of the amount of Executive's then current base salary that otherwise would be
due for the remainder of the term of this Agreement; each without regard to
whether Executive obtains another position with a new employer. These severance
payments will be made on or about the regular pay dates recognized by PMA
Capital, beginning on the next regular pay date following Executive's last
regular pay date on which he is paid his base salary. Further, if Executive
elects to continue his health insurance benefits under COBRA, PMA Capital will




                                       7


continue to pay the same monthly subsidy of the premiums for such insurance
continuation as was being paid by PMA Capital before Executive's employment
terminated, with the remainder of the premium being deducted from Executive's
severance payments, through the earlier of the end of the severance period and
the date Executive becomes eligible to receive and/or obtain alternative health
insurance coverage through new employment. PMA Capital's obligation to provide
the severance pay and benefits provided in this paragraph is conditioned upon
Executive signing and not revoking a valid general release agreement in the form
attached hereto as Exhibit C. The severance payments and benefits provided for
in this Agreement shall be offset by any severance pay or benefits that are
actually paid to Executive upon termination of employment under the PMA Capital
Corporation and PMA Capital Insurance Company Severance Pay Plan or any other
applicable severance plan or severance policy of PMA Capital.

                  (c) If Executive's employment is terminated under
subparagraphs 5(b), (c), (d) or (f) above or if Executive's employment ends at
the end of the term, Executive: (i) shall have a fully (100%) vested and
nonforfeitable interest in his "Past Service Retirement Benefit" under the PMA
Capital Corporation Executive Management Pension Plan ("Executive Management
Pension Plan") or any successor or replacement plan, notwithstanding anything in
the Executive Management Pension Plan to the contrary; and (ii) shall be deemed
to have attained age 55 as of the termination of his employment for purposes of
determining his "Past Service Credit" under the Executive Management Pension
Plan.

                  (d) Upon any termination of employment, Executive shall be
deemed to have automatically resigned from the Board of Directors and as an
Officer of PMA Capital.

                  7. Excise Taxes. If the value of any compensation (in whatever
form) provided pursuant to this Agreement is counted as a "parachute payment"
within the meaning of section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and the value of all such parachute payments would exceed




                                       8


two hundred ninety-nine percent (299%) of the "base amount" applicable to
Executive under section 280G, then the amount of such parachute payments shall
be reduced to the extent necessary so that the sum of such parachute payments
equals exactly two hundred ninety-nine percent (299%) of Executive's "base
amount," provided, however, that this section shall not apply if the value of
all such parachute payments, after application of the excise tax under section
4999 of the Code, is greater than two hundred ninety-nine percent (299%) of
Executive's "base amount."

                  8. Trade Secrets and Confidential Information. Executive shall
not disclose or use at any time either during or after employment by PMA
Capital, any Confidential Information (as defined below) of which he becomes
aware, whether or not any such information is developed by him, except to the
extent that such disclosure or use is required or appropriate in the performance
of the duties assigned to him by PMA Capital or if Executive is required to
testify under subpoena or court order after Executive gives sufficient advance
written notice of such requirement to PMA Capital so that it may seek to limit
or otherwise protect such testimony from public disclosure. Executive shall
follow all procedures established by PMA Capital to safeguard Confidential
Information and to protect it against disclosure, misuse, espionage, loss or
theft. "Confidential Information" shall mean information that is not generally
known or available to the public, which is used, developed or obtained by PMA
Capital, relating to its business and the businesses of its clients, vendors,
agents, brokers or customers including, but not limited to: business and
marketing strategies; distribution channels; products or services; fees, costs
and pricing structures; marketing information; advertising and pricing
strategies; analyses; reports; computer software, including operating systems,
applications and program listings; flow charts; manuals and documentation; data
bases; accounting and business methods; inventions and new developments and





                                       9


methods, whether patentable or unpatentable and whether or not reduced to
practice; all copyrightable works; PMA Capital's existing and prospective
clients, vendors, agents, brokers or customers and their confidential
information; existing and prospective client, vendor, agent, broker or customer
lists and other data related thereto; all trade secret information protected by
the federal Economic Espionage Act of 1996, 18 U.S.C. ss.1831 et seq., the
Pennsylvania Uniform Trade Secrets Act and all similar and related information
in whatever form. Confidential Information shall not include any information
that has been published in a form generally available to the public prior to the
date upon which Executive proposes to disclose such information.

                  9. Creative Works and Other Property.

                  (a) Executive will promptly disclose to PMA Capital all
inventions, concepts, processes, improvements, methodologies and other creative
works, including, without limitation, insurance products, whether or not they
can be patented or copyrighted, that during his employment were or were caused
to be conceived or developed by him, either solely or jointly with others,
relating to PMA Capital's business (collectively "Creative Works") and Executive
agrees that all such Creative Works shall be the sole property of PMA Capital.
Upon the request and at the expense of PMA Capital, Executive will at any time
(whether during his employment or after its termination for any reason) assist
PMA Capital and fully cooperate with it to protect PMA Capital's interest in
such Creative Works and to obtain, for PMA Capital's benefit, patents or
copyrights for any and all Creative Works in the United States and in any and
all foreign countries. This paragraph does not apply to any Creative Work that
Executive develops entirely on his own time and for which no equipment,
supplies, facility or Confidential Information of PMA Capital was used, unless:
(a) the Creative Work relates to PMA Capital's business or to the actual or




                                       10


anticipated research or development activities of PMA Capital; or (b) the
Creative Work results from any work Executive performs for PMA Capital.

                  (b) Upon the termination of Executive's employment for PMA
Capital, Executive shall immediately, and without request, deliver to PMA
Capital all copies and embodiments, in whatever form, of all Confidential
Information and all other documents, materials or property belonging to PMA
Capital even if they do not contain Confidential Information, including but not
limited to: written records, notes, photographs, manuals, computers, cell
phones, notebooks, reports, keys, credit cards, documentation, flow charts and
all magnetic media such as tapes, disks or diskettes, wherever located, and, if
requested by PMA Capital, shall provide PMA Capital with written confirmation
that all such materials have been returned. Executive has no claim or right to
the continued use, possession or custody of such information, documents,
materials or property following the termination of his employment with PMA
Capital.

                  10. Restrictive Covenants. While employed by PMA Capital and
through the period ending one (1) year after termination of employment (whether
voluntary or involuntary and regardless of the reason for termination),
Executive agrees that, unless he obtains written approval in advance from the
Chairman of the Board of Directors of PMA Capital, he shall not, except on
behalf of PMA Capital, in any way, directly or indirectly:

                  (a) engage in any business that directly competes with PMA
Capital within any geographic territory in which PMA Capital operates or is
doing business, either individually or as an agent, employee, consultant,
partner, officer, director, stockholder, proprietor, owner or otherwise, of any
person, firm, corporation or organization; provided, however, that ownership of




                                       11


less than one (1%) percent of the outstanding stock of any publicly traded
corporation will not be deemed to be violation of this restrictive covenant;

                  (b) contact, employ, hire, solicit or attempt to persuade any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been an employee, agent, broker or
independent contractor of PMA Capital to terminate his, her or its relationship
with PMA Capital or do any act that may result in the impairment of the
relationship between PMA Capital on the one hand and the employees, agents,
brokers or independent contractors of PMA Capital on the other hand;

                  (c) contact, solicit, serve or sell to, in furtherance of or
in the context of any business that directly competes with PMA Capital, any
person or entity that has at any time within the one (1) year period before the
termination of Executive's employment been a client, customer, agent or broker
or a prospective client, customer, agent or broker of PMA Capital or attempt to
persuade any such person or entity to purchase or otherwise acquire or use any
product(s) or service(s) offered by any business of the same or similar nature
as products or services offered by PMA Capital. (For purposes of this
sub-paragraph, a "prospective client, customer, agent or broker" means a person
or entity with whom or which PMA Capital has had direct contact with and made a
proposal to provide products or services.); or

                  (d) engage in any activities or make any statements that may
disparage or reflect negatively on PMA Capital, its Directors, Officers or
employees, except as required to enforce the provisions of this Agreement or any
of the Benefits plans.

                  11. Reasonableness of Restrictions. Executive agrees and
acknowledges that the type and scope of restrictions described in paragraphs 8,
9 and 10 are fair and reasonable and that the restrictions are intended to
protect the legitimate interests of PMA Capital and not to prevent him from




                                       12


earning a living. Executive recognizes that his key position as President and
Chief Executive Officer and his access to Confidential Information make it
necessary for PMA Capital to restrict his post-employment activities, as set
forth in this Agreement. Executive represents and warrants that the knowledge,
ability and skill he currently possesses are sufficient to enable him to earn a
livelihood satisfactory to him for a period of one (1) year in the event his
employment with PMA Capital terminates, without violating any restriction in
this Agreement. If, however, any of the restrictions set forth in paragraphs 8,
9 or 10 are held invalid by a court by reason of length of time, area covered,
activity covered or any or all of them, then such restriction or restrictions
shall be reduced only to the minimum extent necessary to cure such invalidity.

                  12. Remedies. Executive agrees that if he should breach any of
the covenants contained in paragraphs 8, 9 or 10, irreparable damage would
result to PMA Capital and that damages arising out of such breach may be
difficult to determine. Executive therefore further agrees that, in addition to
all other remedies provided at law or at equity, PMA Capital shall be entitled
as a matter of course to specific performance and temporary and permanent
injunctive relief from any court of competent jurisdiction to prevent any
further breach of any such covenant by Executive, without the necessity of
proving actual damage to PMA Capital by reason of any such breach, and Executive
acknowledges that his employers, employees, partners, agents or other
associates, or any of them, may similarly be enjoined. If either party prevails
in any lawsuit claiming breach of paragraphs 8, 9 or 10 of this Agreement, the
other party shall reimburse the prevailing party for its or his expenses
incurred in connection with such a lawsuit, including without limitation,
attorney's fees and costs. (For purposes of this paragraph, PMA Capital will be
considered to have prevailed in a lawsuit if it is established by written





                                       13


adjudication that Executive has breached in any material respect any provision
of paragraphs 8, 9 or 10 as written or as modified under paragraph 11. Executive
will be considered to have prevailed in a lawsuit if it is established by
written adjudication that he did not breach in any material respect any
provision of paragraphs 8, 9 or 10 as written or as modified under paragraph
11).

                  13. Previous Employment. Executive represents and warrants
that he is not under any legal restraint or restriction that would prevent or
make unlawful his execution of this Agreement or his performing the obligations
under this Agreement and that Executive has disclosed to PMA Capital any and all
restraints, confidentiality commitments or employment restrictions that
Executive has with any other employer or organization.

                  14. Cooperation. At all times during the term of this
Agreement and for a period of three (3) years thereafter, Executive will
reasonably cooperate with PMA Capital in any litigation or administrative
proceedings involving any matters with which Executive was involved during his
employment by PMA Capital; provided that, following the term of this Agreement,
such activities will be scheduled at such times and locations as PMA Capital and
Executive may mutually agree. PMA Capital will reimburse Executive for his
reasonable out-of-pocket expenses, if any, incurred in providing such
assistance. In addition, if such assistance is provided by Executive after his
employment has terminated and at a time when he is not receiving severance
payments under paragraph 6(b), then he also shall be paid $325 per hour.

                  15. Reimbursement of Attorney's Fees. PMA Capital will
reimburse Executive for the reasonable attorney's fees and costs, if any,
incurred by Executive in connection with the negotiation and preparation of this
Agreement, up to a maximum of $15,000.





                                       14


                  16. Assignment. Neither PMA Capital nor Executive shall have
the right to assign this Agreement or any obligation hereunder without the
written consent of the other, except that, subject to Executive's rights under
paragraph 5(f) above if there is a Change of Control, PMA Capital may assign
this Agreement to a successor or assignee in connection with a merger,
consolidation, sale or transfer of assets of PMA Capital, provided that such
successor or assignee expressly assumes all obligations of PMA Capital under
this Agreement.

                  17. Indemnification. PMA Capital shall indemnify Executive or
his estate to the full extent provided in its articles of incorporation and/or
its bylaws as of the date of this Agreement.

                  18. No Mitigation. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in this Agreement or the
Benefits plans by seeking other employment or otherwise, nor shall the amount of
any payment or benefit provided for in this Agreement or the Benefits plans be
reduced by any compensation or benefits earned by Executive either as a result
of his engaging in business or his employment by another employer, or by
retirement benefits payable after the termination of this Agreement.

                  19. Indulgences. The failure of PMA Capital or Executive at
any time or times to enforce its or his rights under this Agreement strictly in
accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific provisions of this Agreement or as
having in any way or manner modified or waived the same.

                  20. Notices. Any notice required or permitted to be given by
this Agreement shall be in writing and shall be sufficiently given to the
parties if delivered in person or sent by United States registered or certified
mail or nationally recognized overnight courier (return receipt requested) or by





                                       15


telefax (with evidence of successful transmission) addressed to the respective
parties at the following addresses or at such other addresses as may from time
to time be designated in writing by the parties:

        If to Executive:                    If to PMA Capital:

        Vincent T. Donnelly                 PMA Capital Corporation
        58 Peter Rafferty Drive             c/o Chairman of the Board
        Hamilton Square, NJ 08690           Mellon Bank Center,
        Telefax Number:  (610) 397-5334     Suite 2800
                                            1735 Market Street
                                            Philadelphia, PA 19103-7590
                                            Telefax Number:  (215) 665-5038

                  21. Entire Agreement. This Agreement, together with the
attachments hereto and PMA Capital's Benefits plans, sets forth the entire
agreement between the parties with respect to the matters covered herein, and
supersedes all other agreements and understandings. No waiver or amendment to
this Agreement shall be effective unless reduced to writing and executed by the
parties hereto.

                  22. Arbitration. In order to obtain the many benefits of
arbitration over court proceedings, including speed of resolution, lower costs
and fees and more flexible rules of evidence, all disputes between Executive and
PMA Capital (except those relating to unemployment compensation and workers'
compensation and except as provided in paragraph 12 of this Agreement) arising
out of Executive's employment or concerning the interpretation or application of
this Agreement or its subject matter (including without limitation those
relating to any claimed violation of any federal, state or local law, regulation
or ordinance, such as Title VII of the Civil Rights Act, the Age Discrimination
in Employment Act, the Americans with Disabilities Act and their state and local
counterparts, if any) shall be resolved exclusively by binding arbitration in
Philadelphia, Pennsylvania pursuant to the National Rules for the Resolution of




                                       16


Employment Disputes of the American Arbitration Association, with the prevailing
party being awarded its or his reasonable attorney's fees and costs. The parties
expressly waive their rights to have any such claims resolved by jury trial.
Arbitration must be demanded within three hundred (300) days of the time when
the demanding party knows or should have known of the events giving rise to the
claim. The arbitration opinion and award shall be final, binding and enforceable
by any court under the Federal Arbitration Act.

                  23. Controlling Law and Dispute Resolution. This Agreement
shall be construed and applied in accordance with the laws of the Commonwealth
of Pennsylvania without giving effect to the principles of conflicts of law
under Pennsylvania law. The parties agree to submit to the jurisdiction and
venue of the state and federal courts located in Pennsylvania in the event that
there is any claim that this Agreement has been breached and that any such claim
is not subject to arbitration as provided in paragraph 22 of this Agreement.

                  24. Affiliates and/or Subsidiaries. The affiliates and/or
subsidiaries of PMA Capital Corporation referred to in the first paragraph of
this Agreement are: PMA Capital Insurance Company; Pennsylvania Manufacturers
Association Insurance Company; Manufacturers Alliance Insurance Company;
Pennsylvania Manufacturers Indemnity Company; and such other entity that comes
into existence after the date of this Agreement that is controlled by or under
common control with PMA Capital Corporation at the time of reference. PMA
Capital and each such affiliate and/or subsidiary of PMA Capital Corporation
shall be jointly and severally liable for the obligations to Executive under
this Agreement.




                                       17


                  IN WITNESS WHEREOF, this Agreement has been duly executed by
and on behalf of the parties hereto as of the day and year first above written.

                                   PMA CAPITAL CORPORATION



                                   By:  /s/ Neal C. Schneider
                                        ------------------------------
                                         Name:  Neal C. Schneider
                                         Title: Chairman
                                         Date:  May 7, 2004



                                   PMA CAPITAL INSURANCE COMPANY; PENNSYLVANIA
                                   MANUFACTURERS ASSOCIATION INSURANCE COMPANY;
                                   MANUFACTURERS ALLIANCE INSURANCE COMPANY; AND
                                   PENNSYLVANIA MANUFACTURERS INDEMNITY COMPANY



                                   By:  /s/ Robert L. Pratter
                                        ------------------------------
                                         Name:  Robert L. Pratter
                                         Title: General Counsel
                                         Date:  May 7, 2004

                                        /s/ VINCENT T. DONNELLY
                                        ------------------------------
                                   Name:     VINCENT T. DONNELLY
                                   Date:     May 7, 2004






                                       18


                                    EXHIBIT A

                  Executive will be eligible for a cash incentive award with
respect to 2004 under the 2002 PMA Capital Corporation Equity Incentive Plan
targeted at $335,000, to be paid no later than March 14, 2005, for successful
achievement of goals and performance criteria as determined by the Chairman and
the Compensation Committee of the Board of Directors of PMA Capital.

                  Executive will be eligible for an incentive award with regard
to 2005 under the 2002 PMA Capital Corporation Equity Incentive Plan that will
be targeted at a minimum of 140% and a maximum of 170% of his annual base
salary, with any cash portion to be paid no later than March 14, 2006, for
successful achievement of goals and performance criteria as determined by the
Chairman and the Compensation Committee of the Board of Directors of PMA
Capital. Payment of the 2005 annual incentive compensation award will be in the
amount and in the form(s) (e.g., stock options, restricted stock, cash) as
determined by the Chairman and the Compensation Committee of the Board of
Directors of PMA Capital.



                                      A-1


                                    EXHIBIT B

May 6, 2004

Name:
SS#:

      PMA Capital Corporation 2004 Stock Option And Restricted Stock Grant

              PMA Capital Corporation (the "Company") has awarded you a Stock
     Option and Restricted Stock under the Company's 2002 Equity Incentive Plan
     (the "Plan") as follows:

                                        Number of Shares of Class A
 Date of                                     Common Stock            Per Share
  Grant           Type of Award            Related to the Award   Exercise Price
 5/6/04        Nonqualified Stock                405,350               $7.02
                     Option
 5/6/04         Restricted Stock                  55,800                 N/A

              The Options and Restricted Stock are subject to the provisions of
     the Plan, a copy of which can be found in this package, this letter and to
     the terms and conditions listed in the Attachments to this letter. Also
     enclosed is a Plan Prospectus. You have already received a copy of the
     Company's most recent Annual Report and Proxy Statement. Please be aware
     that transactions in the Company's stock are subject to the Company's
     Insider Trading Policy.

              If you wish to accept your grant of Options and Restricted Stock,
     please sign below where indicated and return only the signed copy of this
     letter to me at the above address. You should retain a copy of this letter
     for your records. If you have any questions about your Options or
     Restricted Stock, please call me at the above telephone number.

     Very truly yours,


     Neal C. Schneider
     Chairman of the Board


     By signing below, I hereby agree to the provisions of the Plan, this letter
     and the terms and conditions set forth in the Attachments to this letter.


     /s/ Neal C. Schneider
     Name                                            Date: May 7, 2004




                                      B-1


                                    EXHIBIT C
                            General Release Agreement

                  THIS GENERAL RELEASE AGREEMENT (hereinafter "Release") is made
and entered into as of this ____ day of _______________, 20__, by and among PMA
Capital Corporation, PMA Capital Insurance Company, Pennsylvania Manufacturers
Association Insurance Company, Manufacturers Alliance Insurance Company, and
Pennsylvania Manufacturers Indemnity Company (collectively "PMA Capital") on the
one hand and Vincent T. Donnelly (hereinafter "Executive") on the other hand.

                  WHEREAS, PMA Capital and Executive entered into the Executive
Employment Agreement (the "Employment Agreement") effective as of March 15,
2004;

                  WHEREAS, under the terms of the Employment Agreement,
Executive is entitled to severance payments as provided therein;

                  WHEREAS, the Employment Agreement conditions receipt of the
severance payments upon Executive's signing and not revoking a valid General
Release Agreement.

                  NOW THEREFORE, intending to be legally bound hereby and in
consideration of receipt of the severance payments provided for in the
Employment Agreement and for other good and valuable consideration, Executive,
for himself, and his executors, administrators, heirs and assigns, agrees as
follows:

                  1. Executive hereby fully waives, releases, and forever
discharges PMA Capital and each and all of its past and present subsidiaries,
parent and related corporations, companies and divisions, and their past and
present respective officers, directors, shareholders, trustees, employees,
attorneys, agents and affiliates, and their predecessors, successors and assigns
(hereinafter collectively referred to as "Releasees") of and from any and all
rights, debts, claims, actions, liabilities, agreements, damages, or causes of
action (hereinafter collectively referred to as "claims"), of whatsoever kind or
nature, whether in law or equity, whether known or unknown, that Executive ever


                                      C-1



had or now has in any capacity, either individually, or as a director, officer,
representative, agent or employee of Releasees against any or all of the
Releasees, for, upon, or by reason of any cause, matter, thing or event
whatsoever occurring at any time up to and including the date Executive signs
this Release. Executive acknowledges and understands that the claims and rights
being released in this paragraph include, but are not limited to, all claims and
rights arising from or in connection with any agreement of any kind Executive
may have had with any of the Releasees, or in connection with Executive's
employment or termination of employment, all claims and rights for wrongful
discharge, breach of contract, either express or implied, interference with
contract, emotional distress, back pay, front pay, benefits, fraud,
misrepresentation, defamation, claims and rights arising under the Civil Rights
Acts of 1964 and 1991, as amended, (which prohibits the discrimination in
employment based on race, color, national origin, religion or sex), the
Americans with Disabilities Act (ADA), as amended (which prohibits
discrimination in employment based on disability), the Age Discrimination in
Employment Act (ADEA), as amended (which prohibits age discrimination in
employment), Worker Adjustment and Retraining Notification Act (WARN), the
National Labor Relations Act, the Fair Labor Standards Act, the Employee
Retirement Income Act of 1974 (ERISA), as amended, the Family and Medical Leave
Act (FMLA), as amended, the Pennsylvania Wage and Hour Laws, the Pennsylvania
Wage Payment and Collection Law, the Pennsylvania Human Relations Act, the
Health Insurance Portability and Accountability Act (HIPPA), and any and all
other claims or rights whether arising under federal, state, or local law, rule,
regulation, constitution, ordinance or public policy. Executive agrees that he
will not initiate any civil complaint or institute any civil lawsuit, or file
any arbitration against Releasees, or any one of them, based on the fact or
circumstance occurring up to and including the date of the execution by
Executive of this Release. This Release does not cover claims relating to: (i)


                                      C-2




Executive's right to indemnification under paragraph 17 of the Employment
Agreement, or pursuant to PMA Capital's articles of incorporation or bylaws as
they may exist from time to time, or pursuant to applicable law; (ii)
Executive's right to benefits under the Benefits plans; (iii) Executive's right
to payments under the Employment Agreement; or (iv) the validity or enforcement
of this Release.

                  2. Executive hereby agrees to waive any provisions of state or
federal law that explicitly or implicitly would prevent the application of this
Release to claims of which Executive does not know or expect to exist in
Executive's favor at the time of executing this Release which, if known by
Executive, would have materially affected his decision to execute this
Agreement. In addition, Executive hereby agrees to waive any provisions of state
or federal law which might require a more detailed specification of the claims
being released pursuant to the provisions of this Release.

                  3. Executive acknowledges that he has carefully read and
understands the provisions of this Release, that he has had twenty-one (21) days
from the date he received copy of this Release to consider entering into this
Release and accepting the severance payments, that if he signs and returns this
Release before the end of the 21-day period, he will have voluntarily waived his
right to consider this Release for the full twenty-one (21) days and that he has
executed this Release voluntarily and with full knowledge of its significance,
meaning and binding effect. Executive also acknowledges that PMA Capital has
advised him in writing to consult with an attorney of his own choosing with
regard to entering into this Release and accepting the severance payments.
Finally, Executive acknowledges that his decision to sign this Release has not
been influenced in any way by fraud, duress, coercion, mistake or misleading
information and that he has not relied on any information except what is set
forth in this Release and the Employment Agreement.




                                      C-3



                  4. Executive acknowledges that he may revoke this Release
within seven (7) days of his execution of this document by submitting written
notice of his revocation to ___________________________________________.
Executive also understands that this Release shall not become effective or
enforceable until the expiration of that 7-day period.

                  5. Executive agrees that if any provision of this Release is
or shall be declared invalid or unenforceable by a court of competent
jurisdiction, then such provision will be modified only to the extent necessary
to cure such invalidity and with a view to enforcing the parties' intention as
set forth in this Release to the extent permissible and the remaining provisions
of this Release shall not be affected thereby and shall remain in full force and
effect.


Dated:   May 7, 2004

                                      /s/ VINCENT T. DONNELLY
                                      -------------------------
                                        VINCENT T. DONNELLY




                                      C-4

EX-12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)

	For the three months ended March 31,
	2004		2003
EARNINGS
Pre-tax income	$	18,793	$	16,599
Fixed charges		3,266		2,070
Total	$	22,059	$	18,669
FIXED CHARGES
Interest expense and amortization of debt discount
and premium on all indebtedness	$	2,939	$	1,758
Interest portion of rental expenses		327		312
Total fixed charges	$	3,266	$	2,070
Ratio of earnings to fixed charges		6.8 x		9.0 x

EX-31

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Vincent T. Donnelly, President and Chief Executive Officer of PMA Capital Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2004 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 the 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: May 7, 2004	/s/ Vincent T. Donnelly
	Vincent T. Donnelly President and Chief Executive Officer

EX-31

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2004 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 the 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: May 7, 2004	/s/ William E. Hitselberger
	William E. Hitselberger Executive 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, Vincent T. Donnelly, 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 March 31, 2004, 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 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/ Vincent T. Donnelly

Vincent T. Donnelly
President and Chief Executive Officer

May 7, 2004

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, Executive 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 March 31, 2004, 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 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,
Executive Vice President,
Chief Financial Officer and Treasurer

May 7, 2004