ex99-1.htm

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except per share data)	2009			2008			2009			2008
Operating income before gain on sale of real estate	$	4,074		$	3,205		$	11,890		$	10,188
Gain on sale of real estate after tax		-			1,378			-			1,378
Operating income		4,074			4,583			11,890			11,566
Realized gains (losses) after tax		(307	)		(372	)		180			1,915
Income from continuing operations		3,767			4,211			12,070			13,481
Loss from discontinued operations after tax		(1,165	)		(188	)		(1,251	)		(2,627	)
Net income	$	2,602		$	4,023		$	10,819		$	10,854

Diluted per share amounts:
Operating income	$	0.13		$	0.14		$	0.37		$	0.36
Realized gains (losses) after tax		(0.01	)		(0.01	)		0.01			0.06
Income from continuing operations		0.12			0.13			0.38			0.42
Loss from discontinued operations after tax		(0.04	)		-			(0.04	)		(0.08	)
Net income	$	0.08		$	0.13		$	0.34		$	0.34

Vincent T. Donnelly, President and Chief Executive Officer commented, “PMA Capital produced solid operating results for the quarter. We had significant growth in the revenues and results of our Fee-based Business. We modestly grew our core insurance business while achieving a combined ratio below 100%, and are seeing improvement in our workers’ compensation pricing trends. The Company’s book value grew by 5% in the quarter reflecting improved values in our investment portfolio combined with our earnings.”

Mr. Donnelly continued, “We are continuing to grow our Fee-based Business, and saw revenues increase $6.5 million to $39.2 million, which represented 15% of our total revenues for the first half of 2009, compared to 13% during the same period in 2008. Organic growth of claims service revenues was 15% during the first six months of 2009, and PMA Management Corp. of New England, which we acquired in June 2008, added $4.1 million of claims service revenues for the first half of 2009. As a result of organic growth and the acquisition, our Fee-based Business revenues increased 20%, compared to the first six months of last year.”

The Company previously announced the execution of a definitive stock purchase agreement to sell its Run-off Operations and the filing of the Form A with the Pennsylvania Insurance Department. The closing of the sale and transfer of ownership are pending approval by the Department. Under its amended terms, the Agreement may be terminated by either the Company or the buyer if the closing of the sale does not occur by October 31, 2009, or such later date as the parties may mutually agree. The Company continues to work with the Department to resolve the remaining items associated with the regulatory review.

Total assets were $2.5 billion as of June 30, 2009 and December 31, 2008. Assets of discontinued operations represented 8% of total assets at June 30, 2009, compared to 10% at December 31, 2008. At June 30, 2009, we had $29.0 million in cash and short-term investments at our holding company and non-regulated subsidiaries.

	Three months ended					Six months ended
	June 30, 2009					June 30, 2009
(in thousands, except per share data)	Shareholders' equity		Book value per share			Shareholders' equity		Book value per share
Balance, beginning of period	$	351,270	$	10.91		$	344,656	$	10.78
Net income		2,602		0.08			10,819		0.34
Unrealized gain on securities, net of tax		14,230		0.44			12,384		0.38
Other		896		0.03			1,139		0.04
Impact of change in shares outstanding		-		(0.01	)		-		(0.09	)
Balance, end of period	$	368,998	$	11.45		$	368,998	$	11.45

The insurance companies within The PMA Insurance Group had statutory capital and surplus of $373.7 million as of June 30, 2009, compared to $332.9 million as of December 31, 2008. The increase in capital and surplus during 2009 related primarily to statutory net income, which included a benefit from the commutation of a reinsurance agreement with an affiliated entity. The PMA Insurance Group has the ability to pay $31.8 million in dividends during 2009 without the prior approval of the Pennsylvania Insurance Department.

Operating income, which we define as net income under accounting principles generally accepted in the United States (GAAP) excluding net realized investment gains and losses and results from discontinued operations, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our businesses. Net realized investment activity is excluded 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 does not replace net income as the GAAP measure of our consolidated results of operations.

	Three months ended						Six months ended
	June 30,						June 30,
(dollar amounts in thousands)	2009			2008			2009			2008
Pre-tax operating income (loss):
The PMA Insurance Group	$	9,965		$	11,341		$	25,152		$	24,960
Fee-based Business		1,525			1,201			3,538			3,387
Corporate & Other		(5,167	)		(5,424	)		(10,167	)		(10,435	)
Pre-tax operating income		6,323			7,118			18,523			17,912
Income tax expense		2,249			2,535			6,633			6,346
Operating income		4,074			4,583			11,890			11,566
Realized gains (losses) after tax		(307	)		(372	)		180			1,915
Income from continuing operations		3,767			4,211			12,070			13,481
Loss from discontinued operations after tax		(1,165	)		(188	)		(1,251	)		(2,627	)
Net income	$	2,602		$	4,023		$	10,819		$	10,854

	Three months ended						Six months ended
	June 30,						June 30,
(dollar amounts in thousands)	2009			2008			2009			2008
Net realized gains (losses) after tax:
Sales of investments	$	362		$	(372	)	$	3,390		$	1,933
Other than temporary impairments		(669	)		-			(3,210	)		-
Other		-			-			-			(18	)
Net realized gains (losses) after tax	$	(307	)	$	(372	)	$	180		$	1,915

We recorded other than temporary impairments of $669,000 and $3.2 million after-tax during the three and six months ended June 30, 2009. The impairments in the first half of 2009 related primarily to a $2.9 million loss for write-downs on $45.9 million par of CMBS that were sold during the second quarter in order to reduce our exposure to this asset sector. These write-downs were measured based on public market prices. At June 30, 2009, our CMBS had an average credit rating of AAA and fair

The PMA Insurance Group reported pre-tax operating income of $10.0 million for the second quarter of 2009, compared to $11.3 million for the same period last year. Year-to-date pre-tax operating income increased modestly to $25.2 million, compared to $25.0 million for the first half of 2008. The results for the second quarter and first six months of 2008 included a gain of $2.1 million from the sale of a property that housed one of our branch offices in order to move into a more modern, leased facility.

Direct premium production increased during the second quarter and first six months of 2009, compared to the same periods last year. We define direct premium production as direct premiums written, excluding fronting premiums and premium adjustments. The following is a reconciliation of our direct premium production to consolidated gross premiums written:

	Three months ended					Six months ended
	June 30,					June 30,
(dollar amounts in thousands)	2009			2008		2009			2008

Direct premium production	$	102,212		$	96,736	$	249,579		$	243,344
Fronting premiums		9,677			2,113		29,299			10,256
Premium adjustments		(2,753	)		370		(7,629	)		(13,828	)
Direct premiums written		109,136			99,219		271,249			239,772
Assumed premiums and other		4,288			2,440		6,245			5,428
Gross premiums written	$	113,424		$	101,659	$	277,494		$	245,200

Fronting premiums increased in the second quarter and first half of 2009 primarily as a result of the two fronting arrangements we entered into during August 2008. The decrease in premium adjustments in the first six months of 2009, compared to the same period last year, primarily reflected a lower amount of return premium adjustments on loss-sensitive products where the insured shares in the underwriting result of the policy. We write these retrospective products because we believe they provide us with greater certainty in achieving our targeted underwriting results as the customer shares in the underwriting result of the policy with us.

Excluding fronting business, we wrote $33.4 million of new business in the second quarter of 2009, up from $25.7 million in the second quarter of 2008, and $71.4 million for the first half of 2009, up from $60.4 million during the same period last year. Pricing on our workers’ compensation rate-sensitive business declined 3% during the first six months of 2009, compared to a 7% decrease during the first six months of 2008. Our renewal retention rates on existing workers’ compensation accounts were 78% for the second quarter and 79% for the first six months of 2009, compared to 84% and 85% for the same periods last year. The decline in the retention rates in 2009 primarily reflected lower retentions on rate-sensitive middle-market business as we continue to maintain disciplined underwriting standards in a price competitive environment. While retention rates were also down on loss-sensitive workers’ compensation business, the decrease was lower than that on rate-sensitive business and retention rates remained higher for business written on a loss-sensitive basis than for business written on a rate-sensitive basis, reflecting our strategy to emphasize loss-sensitive business.

Net premiums written increased to $80.4 million in the second quarter of 2009, from $79.3 million in the second quarter of 2008. For the six months ended June 30, 2009, net premiums written increased to $198.6 million, compared to $193.2 million during the same period last year. The year-to-date increase in net premiums written was primarily due to the lower impact of premium adjustments.

Net premiums earned were $107.1 million in the second quarter of 2009, compared to $103.0 million in the second quarter of 2008. For the first six months of 2009, net premiums earned increased to $212.2 million, from $188.8 million for the first half of 2008. The increases in both periods reflect the increase in direct premium production over the past year. The year-to-date increase also reflects the impact of lower return premium adjustments in 2009, which reduce earned premiums in the period the adjustment is made.

The combined ratio on a GAAP basis was 99.4% for the second quarter of 2009, compared to 99.5% in the second quarter last year. In the second quarter of 2009, the loss and LAE ratio decreased primarily due to favorable development on captive business. This improvement in loss experience was offset by an increase in policyholders’ dividends.

On a year-to-date basis, the combined ratio was 96.5% in 2009, compared to 97.2% for the same period in 2008. The improvement in the combined ratio for the first six months of 2009, compared to the first six months of last year, was primarily the result of a lower expense ratio, which was partially offset by an increased loss and LAE ratio.

The increase in the loss and LAE ratio in the first six months of 2009 was due primarily to the first quarter reduction in audit premiums. While payrolls, which declined by 2% through June, on our renewal book have been stable overall, this was lower than the rate of growth we experienced in 2008, and as a result, we reduced our accrual for additional audit premiums by $3.3 million. Key loss indicators are in line with our expectations for this business, and we will continue to evaluate loss activity on these accounts as they mature, but we did not reduce our expectation of losses on these policies, which were primarily written in 2007 and 2008. Although pricing changes coupled with payroll inflation for rate-sensitive workers’ compensation business were below overall estimated loss trends, our current accident year loss and LAE ratio remained consistent between periods as we continued to benefit in the first half of 2009 from changes in the type of workers’ compensation products selected by our insureds. We estimate our medical cost inflation to be 6.0% in the first six months of 2009, compared to our estimate of 6.5% in the first six months of 2008.

The expense ratio for the first six months of 2009, compared to the same period last year, benefited as the increase in net premiums earned outpaced the 3% increase in our controllable expenses, which include salary, benefits and other employee-related costs. Commissions earned under our fronting arrangements reduced the acquisition expense ratio by 0.6 points for both the second quarter and first six months of 2009, compared to 0.7 points and 0.9 points for the same periods in 2008, as the ceding commissions earned on this business reduce our commission expense.

The policyholders’ dividend ratio was higher in the second quarter of 2009, compared to the same period last year. The current year period reflected slightly lower than expected loss experience, which resulted in higher dividends on captive accounts business where the policyholders may receive a dividend based, to a large extent, on their loss experience.

For the second quarter of 2009, total revenues at our Fee-based Business increased to $19.5 million, up from $16.1 million for the same period last year. For the six months ended June 30, 2009, total revenues increased to $39.2 million, compared to $32.7 million for the first half of 2008. The increases in revenues primarily reflected increases in claims service revenues of $3.9 million and $7.8 million for the second quarter and first six months of 2009, partially offset by decreases in commission income of $512,000 and $1.3 million, respectively. Organic claims service revenue growth was 13% in the quarter and 15% in the first six months of 2009, compared to the prior year periods. Claims service revenues also increased by $2.2 million and $4.1 million in the second quarter and first six months of 2009 as a result of our June 2008 acquisition of PMA Management Corp. of New England, Inc.

Our Fee-based Business reported pre-tax operating income of $1.5 million for the second quarter of 2009, compared to $1.2 million for the same quarter last year. Year-to-date pre-tax operating income was $3.5 million, compared to $3.4 million for the first half of 2008. The increase in pre-tax operating income in 2009 was less than the growth in total revenues due primarily to the decline in the net commissions earned by our agency business.

The Corporate and Other segment, which includes primarily corporate expenses and debt service, recorded net expenses of $5.2 million during the second quarter of 2009, compared to $5.4 million in the second quarter of 2008. Net expenses were $10.2 million during the first six months of 2009, compared to $10.4 million for the same period in 2008.

Discontinued operations, which consists of our former reinsurance and excess and surplus lines businesses, recorded after-tax losses of $1.2 million and $1.3 million for the three and six months ended June 30, 2009, compared to after-tax losses of $188,000 and $2.6 million for the same periods in 2008. The loss in 2009 reflects the write-down of our carrying value of the discontinued operations to zero. The loss for the first six months of 2008 was due to a charge in the first quarter for adverse loss development.

As a reminder, we will hold a conference call with investors beginning at 8:30 a.m. Eastern Time on Tuesday, August 4th to review our second quarter 2009 results. The conference call will be available via a live webcast over the Internet at www.pmacapital.com. To access the webcast, enter the Investor Information section, click on News Releases and then click on the microphone icon. Please note that by accessing the conference call via the Internet, you will be in a listen-only mode.

Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the conference. Pre-registration only takes a few moments and you may pre-register at anytime, including up to and after the call start time. Alternatively, if you would rather be placed into the call by an operator, please use the dial-in information above at least five minutes prior to the call start time.

Alternatively, you may make a request by telephone (610-397-5298) or by e-mail to InvestorRelations@pmacapital.com. We will also furnish a copy of this news release and the Statistical Supplement to the Securities and Exchange Commission on a Form 8-K. A copy of the Form 8-K will be available on the SEC’s website at www.sec.gov.

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition and results of operations and the plans and objectives of its management. Forward-looking statements can generally be identified by use of forward-looking terminology such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” “should” and “believe.” These forward-looking statements may include estimates, assumptions or projections and are based on currently available financial, competitive and economic data and the Company’s current operating plans. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:

regulatory changes in risk-based capital or other 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;

You should not place undue reliance on any forward-looking statements in this press release. Forward-looking statements are not generally required to be publicly revised as circumstances change and we do not intend to update the forward-looking statements in this press release to reflect circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

	Three months ended June 30,
(dollar amounts in thousands, except per share data)	2009			2008

Gross premiums written	$	113,424		$	101,659

Net premiums written	$	80,302		$	79,146

Revenues:
Net premiums earned	$	106,949		$	102,920
Claims service revenues		16,835			12,937
Commission income		2,117			2,631
Net investment income		9,561			9,040
Net realized investment losses		(472	)		(572	)
Other revenues		190			2,214
Total revenues		135,180			129,170

Expenses:
Losses and loss adjustment expenses		73,494			71,572
Acquisition expenses		19,508			19,524
Operating expenses		31,540			27,347
Dividends to policyholders		2,311			1,493
Interest expense		2,476			2,688
Total losses and expenses		129,329			122,624

Pre-tax income		5,851			6,546

Income tax expense:
Current		265			151
Deferred		1,819			2,184
Total income tax expense		2,084			2,335

Income from continuing operations		3,767			4,211

Loss from discontinued operations after tax		(1,165	)		(188	)

Net income	$	2,602		$	4,023

Income (loss) per share:

Basic:
Continuing Operations	$	0.12		$	0.13
Discontinued Operations		(0.04	)		-
	$	0.08		$	0.13

Diluted:
Continuing Operations	$	0.12		$	0.13
Discontinued Operations		(0.04	)		-
	$	0.08		$	0.13

	Six months ended June 30,
(dollar amounts in thousands, except per share data)	2009			2008

Gross premiums written	$	277,494		$	245,200

Net premiums written	$	198,280		$	192,929

Revenues:
Net premiums earned	$	211,879		$	188,516
Claims service revenues		32,519			24,889
Commission income		5,580			6,912
Net investment income		18,018			18,475
Net realized investment gains		277			2,946
Other revenues		366			2,360
Total revenues		268,639			244,098

Expenses:
Losses and loss adjustment expenses		149,269			131,494
Acquisition expenses		36,706			34,216
Operating expenses		55,925			49,680
Dividends to policyholders		2,957			2,375
Interest expense		4,982			5,475
Total losses and expenses		249,839			223,240

Pre-tax income		18,800			20,858

Income tax expense:
Current		509			151
Deferred		6,221			7,226
Total income tax expense		6,730			7,377

Income from continuing operations		12,070			13,481

Loss from discontinued operations after tax		(1,251	)		(2,627	)

Net income	$	10,819		$	10,854

Income (loss) per share:

Basic:
Continuing Operations	$	0.38		$	0.42
Discontinued Operations		(0.04	)		(0.08	)
	$	0.34		$	0.34

Diluted:
Continuing Operations	$	0.38		$	0.42
Discontinued Operations		(0.04	)		(0.08	)
	$	0.34		$	0.34

	June 30,			December 31,
(dollar amounts in thousands, except per share data)	2009			2008
Assets:
Investments:
Fixed maturities available for sale	$	737,606		$	719,048
Short-term investments		38,103			45,066
Other investments		21,073			8,127
Total investments		796,782			772,241

Cash		10,163			10,501
Accrued investment income		7,221			6,513
Premiums receivable		236,663			235,893
Reinsurance receivables		855,161			826,126
Prepaid reinsurance premiums		37,271			29,579
Deferred income taxes, net		126,397			138,514
Deferred acquisition costs		39,364			40,938
Funds held by reinsureds		54,312			51,754
Intangible assets		30,165			30,348
Other assets		123,460			116,646
Assets of discontinued operations		208,272			243,663
Total assets	$	2,525,231		$	2,502,716

Liabilities:
Unpaid losses and loss adjustment expenses	$	1,271,089		$	1,242,258
Unearned premiums		241,508			247,415
Debt		129,380			129,380
Accounts payable, accrued expenses
and other liabilities		222,359			216,266
Reinsurance funds held and balances payable		53,327			44,177
Dividends to policyholders		6,022			6,862
Liabilities of discontinued operations		232,548			271,702
Total liabilities		2,156,233			2,158,060

Shareholders' Equity:
Class A Common Stock		171,090			171,090
Additional paid-in capital		112,264			112,921
Retained earnings		145,500			140,184
Accumulated other comprehensive loss		(36,814	)		(49,876	)
Treasury stock, at cost		(23,042	)		(29,663	)
Total shareholders' equity		368,998			344,656
Total liabilities and shareholders' equity	$	2,525,231		$	2,502,716

Shareholders' equity per share	$	11.45		$	10.78

For Immediate Release	Contact:	William E. Hitselberger
		(610) 397-5298
		bhitselberger@pmacapital.com

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