content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      FORM 10-Q
  (MARK ONE)
  /X/         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
  
                                         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 / /
  
  There were 12,918,466  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 10,005,482 shares outstanding of the registrant's Class
  A Common Stock,  $5 par value per share, as of the close of business on July 31,
  1999.
  
  <PAGE>
                                        INDEX
  
  --------------------------------------------------------------------------------
  
                                                                              Page
  
  Part I.    Financial Information
  
  Item 1.    Financial Statements
  
             Consolidated statements of operations for the three and six
             months ended June 30, 1999 and 1998 (unaudited)                   1
  
             Consolidated balance sheets as of June 30, 1999 (unaudited)
             and December 31, 1998                                             2
  
             Consolidated statements of cash flows for the six months
             ended June 30, 1999 and 1998 (unaudited)                          3
  
             Consolidated statements of comprehensive income for the
             three and six months ended June 30, 1999 and 1998
             (unaudited)                                                       4
  
             Notes to the consolidated financial statements                    5
  
  Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        10
  
  Part II.   Other Information
  
  Item 4.    Submission of Matters to a Vote of Security Holders              24
  
  Item 6.    Exhibits and reports on Form 8-K                                 24
  
  <PAGE>
  
  Part1.  Item 1.
                               PMA Capital Corporation
                        Consolidated Statements of Operations
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                           Three Months Ended           Six Months Ended
                                                               June 30,                     June 30,
  (dollar amounts in thousands, except per share data)   1999           1998           1999           1998
  ----------------------------------------------------------------------------------------------------------
  <S>                                                 <C>            <C>            <C>            <C>
  Revenues:
        Net premiums written                          $ 101,931      $  94,908      $ 270,448      $ 248,481
        Change in net unearned premiums                  27,210         19,746        (31,985)       (26,905)
                                                      ---------      ---------      ---------      ---------
           Net premiums earned                          129,141        114,654        238,463        221,576
        Net investment income                            26,961         31,920         54,070         63,850
        Net realized investment gains (losses)           (1,755)         3,749           (878)        11,263
        Other revenues                                    2,821          3,420          5,959          6,440
                                                      ---------      ---------      ---------      ---------
           Total revenues                               157,168        153,743        297,614        303,129
                                                      ---------      ---------      ---------      ---------
  
  Losses and expenses:
        Losses and loss adjustment expenses              94,909         87,900        176,645        172,757
        Acquisition expenses                             32,103         29,060         52,501         51,763
        Operating expenses                               16,448         18,033         33,532         37,500
        Dividends to policyholders                        4,258          4,213          9,326          8,130
        Interest expense                                  3,069          3,762          6,082          7,463
                                                      ---------      ---------      ---------      ---------
           Total losses and expenses                    150,787        142,968        278,086        277,613
                                                      ---------      ---------      ---------      ---------
  
        Income before income taxes and cumulative
           effect of accounting change                    6,381         10,775         19,528         25,516
  
  Income tax expense (benefit):
        Current                                           4,840            481          5,785            691
        Deferred                                         (5,205)           937         (1,471)         3,380
                                                      ---------      ---------      ---------      ---------
           Total                                           (365)         1,418          4,314          4,071
                                                      ---------      ---------      ---------      ---------
  
  Income before cumulative effect of accounting
           change                                         6,746          9,357         15,214         21,445
  
  Cumulative effect of accounting change (net of
           income tax benefit of $1,458)
                                                             --             --         (2,759)            --
                                                      ---------      ---------      ---------      ---------
  Net income                                          $   6,746      $   9,357      $  12,455      $  21,445
                                                      =========      =========      =========      =========
  
  Earnings per share:
        Basic:
           Income before cumulative effect of
                     accounting change                $    0.29      $    0.39      $    0.65      $    0.90
           Cumulative effect of accounting change            --             --          (0.12)            --
                                                      ---------      ---------      ---------      ---------
  
              Net income                              $    0.29      $    0.39      $    0.53      $    0.90
                                                      =========      =========      =========      =========
  
        Diluted:
           Income before cumulative effect of
                     accounting change                $    0.28      $    0.38      $    0.63      $    0.87
           Cumulative effect of accounting change            --             --          (0.11)            --
                                                      ---------      ---------      ---------      ---------
              Net income                              $    0.28      $    0.38      $    0.52      $    0.87
                                                      =========      =========      =========      =========
  </TABLE>
  
          See accompanying notes to the consolidated financial statements.
  
                                          1
  <PAGE>
                               PMA Capital Corporation
                             Consolidated Balance Sheets
  
  <TABLE>
  <CAPTION>
                                                                                          (Unaudited)
                                                                                             As of             As of
                                                                                            June 30,        December 31,
     (dollar amounts in thousands, except share data)                                        1999              1998
  --------------------------------------------------------------------------------------------------------------------
  <S>                                                                                     <C>              <C>
  Assets
      Investments:
      Fixed maturities available for sale, at fair value
               (amortized cost:1999 - $1,773,493; 1998 - $1,781,188)                      $ 1,741,420      $ 1,827,354
      Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                                14               17
      Short-term investments, at amortized cost which approximates fair value                 424,750          498,038
                                                                                          -----------      -----------
           Total investments                                                                2,166,184        2,325,409
  
      Cash                                                                                     10,534            2,562
      Accrued investment income                                                                18,317           19,900
      Premiums receivable (net of valuation allowance:1999 - $20,563; 1998 - $19,874)         294,702          279,633
      Reinsurance receivables (net of valuation allowance:1999 - $2,178; 1998 - $2,178)       625,440          610,291
      Deferred income taxes, net                                                               94,271           63,929
      Deferred acquisition costs                                                               54,070           51,115
      Other assets                                                                            135,254          107,879
                                                                                          -----------      -----------
           Total assets                                                                   $ 3,398,772      $ 3,460,718
                                                                                          ===========      ===========
  
  Liabilities:
       Unpaid losses and loss adjustment expenses                                         $ 1,915,067      $ 1,940,895
       Unearned premiums                                                                      275,751          227,945
       Long-term debt                                                                         163,000          163,000
       Accounts payable and accrued expenses                                                  115,617          107,952
       Funds held under reinsurance treaties                                                   93,384           77,674
       Dividends to policyholders                                                              12,621           10,700
       Payable under securities loan agreements                                               361,540          421,072
                                                                                          -----------      -----------
           Total liabilities                                                                2,936,980        2,949,238
                                                                                          -----------      -----------
  
        Commitments and contingencies (Note 4)
  
  Shareholders' Equity:
       Common stock, $5 par value (40,000,000 shares authorized;
           1999 - 13,354,473 shares issued and 12,918,466 outstanding;
           1998 - 13,956,268 shares issued and 13,520,261 outstanding)                         66,959           69,781
       Class A common stock, $5 par value (40,000,000 shares authorized;
           1999 - 11,088,472 shares issued and 10,200,982 outstanding;
           1998 - 10,486,677 shares issued and 9,837,963 outstanding)                          55,255           52,433
      Additional paid-in capital - Class A common stock                                           339              339
      Retained earnings                                                                       383,193          377,601
      Accumulated other comprehensive income (loss)                                           (20,841)          30,016
       Notes receivable from officers                                                            (224)            (498)
       Treasury stock, at cost:
         Common stock (1999 - 436,007 shares; 1998 - 436,007 shares)                           (5,582)          (5,582)
         Class A common stock (1999 - 887,490 shares; 1998 - 648,714 shares)                  (17,307)         (12,610)
                                                                                          -----------      -----------
           Total shareholders' equity                                                         461,792          511,480
                                                                                          -----------      -----------
           Total liabilities and shareholders' equity                                     $ 3,398,772      $ 3,460,718
                                                                                          ===========      ===========
  </TABLE>
          See accompanying notes to the consolidated financial statements.
  
                                          2
  <PAGE>
                               PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                                                      Six Months Ended
                                                                                          June 30,
  (dollar amounts in thousands)                                                      1999           1998
  --------------------------------------------------------------------------------------------------------
  <S>                                                                             <C>            <C>
  Cash flows from operating activities:
  Net income                                                                      $  12,455      $  21,445
  Adjustments to reconcile net income to net cash flows provided by (used in)
        operating activities:
      Depreciation and amortization                                                   3,763          1,466
      Provision (benefit) for deferred income taxes                                  (1,471)         3,380
      Net realized investment losses (gains)                                            878        (11,263)
      Cumulative effect of accounting change                                          2,759             --
      Change in:
            Premiums receivable and unearned premiums, net                           32,737         (9,321)
            Dividends to policyholders                                                1,921            579
            Reinsurance receivables                                                 (15,149)       (56,740)
            Unpaid losses and loss adjustment expenses                              (25,828)       (27,346)
            Accrued investment income                                                 1,583          3,010
            Deferred acquisition costs                                               (2,955)        (8,075)
       Other, net                                                                    (8,474)         9,326
                                                                                  ---------      ---------
  Net cash flows provided by (used in) operating activities                           2,219        (73,539)
                                                                                  ---------      ---------
  
  Cash flows from investing activities:
     Fixed maturity investments available for sale:
       Purchases                                                                   (739,603)      (927,342)
       Maturities or calls                                                           65,019         84,915
       Sales                                                                        680,051        802,825
     Net sales of short-term investments                                             13,811        101,572
     Other, net                                                                      (2,239)        (2,053)
                                                                                  ---------      ---------
  Net cash flows provided by investing activities                                    17,039         59,917
                                                                                  ---------      ---------
  
  Cash flows from financing activities:
     Dividends paid to shareholders                                                  (3,852)        (4,059)
     Proceeds from exercise of stock options                                          4,546          2,316
     Purchase of treasury stock                                                     (12,254)        (9,198)
     Net repayments of notes receivable from officers                                   274             --
                                                                                  ---------      ---------
  Net cash flows used in financing activities                                       (11,286)       (10,941)
                                                                                  ---------      ---------
  
  Net increase (decrease) in cash                                                     7,972        (24,563)
  Cash - beginning of period                                                          2,562         32,148
                                                                                  ---------      ---------
  Cash - end of period                                                            $  10,534      $   7,585
                                                                                  =========      =========
  
  
   Supplementary cash flow information:
       Income taxes paid                                                          $   5,437      $      --
       Interest paid                                                              $   5,994      $   7,467
  </TABLE>
          See accompanying notes to the consolidated financial statements.
  
                                          3
  <PAGE>
                               PMA Capital Corporation
          Consolidated Statements of Comprehensive Income (Loss)
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                               Three Months Ended           Six Months Ended
                                                                     June 30,                   June 30,
  (dollar amounts in thousands)                                1999          1998          1999          1998
  -------------------------------------------------------------------------------------------------------------
  <S>                                                        <C>           <C>           <C>           <C>
  Net income                                                 $  6,746      $  9,357      $ 12,455      $ 21,445
                                                             --------      --------      --------      --------
  
  
  Other comprehensive income (loss), net of tax:
      Unrealized gains (losses) on securities:
        Holding gains (losses) arising during the period      (27,129)       15,433       (51,428)       16,399
        Less:  reclassification adjustment for (gains)
        losses included in net income (net of tax
        expense (benefit): $(614) and $1,312 for
        three months ended June 30, 1999 and 1998;
        $(307) and $3,942 for six months ended June 30,
        1999 and 1998)                                          1,141        (4,024)          571        (8,908)
                                                             --------      --------      --------      --------
  
  Other comprehensive income (loss)                           (25,988)       11,409       (50,857)        7,491
                                                             --------      --------      --------      --------
  
  Comprehensive income (loss)                                $(19,242)     $ 20,766      $(38,402)     $ 28,936
                                                             ========      ========      ========      ========
  </TABLE>
  
          See accompanying notes to the consolidated financial statements.
  
                                          4
  <PAGE>
                               PMA Capital Corporation
  
                   Notes to the Consolidated Financial Statements
  
  
  1.   BUSINESS DESCRIPTION
  
  The accompanying  consolidated  financial statements include the accounts of PMA
  Capital   Corporation   and  its  wholly  and  majority  owned   subsidiaries  (
  collectively  referred to as "PMA Capital" or the "Company").  PMA Capital is an
  insurance   holding  company  that  operates  three  specialty  risk  management
  businesses, which are more fully described below.
  
  Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of
  PMA Reinsurance  Corporation,  a Pennsylvania domiciled insurance company, which
  emphasizes risk-exposed, excess of loss reinsurance and operates in the brokered
  market. PMA Re's business is predominantly in casualty lines of reinsurance.
  
  Workers'  Compensation and Primary Standard  Insurance -- PMA Capital's property
  and  casualty  insurance   subsidiaries  ("The  PMA  Insurance  Group")  include
  Pennsylvania   domiciled   insurance   companies  as  well  as  certain  foreign
  subsidiaries.  The PMA Insurance Group primarily  writes workers'  compensation,
  and to a lesser extent other standard lines of commercial  insurance,  primarily
  in the Mid-Atlantic and Southern regions of the U.S.
  
  Specialty  Property and Casualty -- In January  1998,  the  Company's  specialty
  insurance unit,  Caliber One,  commenced  writing  business.  Caliber One writes
  business  through  surplus lines brokers  throughout the United States.  Caliber
  One's  excess and surplus  lines  insurance  affiliate,  Caliber  One  Indemnity
  Company,  is authorized as a surplus lines carrier in 40 states, the District of
  Columbia and Puerto Rico, with applications pending in seven other states.
  
  
  2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  A. Basis of  Presentation  - The  consolidated  financial  statements  have been
  prepared in accordance with generally accepted  accounting  principles  ("GAAP")
  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 1999 presentation.
  
  The  preparation of  consolidated  financial  statements in conformity with GAAP
  requires  management to make certain  estimates and assumptions  that affect the
  reported amounts of assets and liabilities,  disclosure of contingent assets and
  liabilities at the date of the financial  statements and the reported amounts of
  revenues and expenses during the period.  Due to this and certain other factors,
  such as the  seasonal  nature of portions of the  insurance  business as well as
  competitive and other market conditions, operating results for the three and six
  months ended June 30, 1999 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 1998 Annual Report to Shareholders  and  incorporated by reference in its
  Form 10-K for the year ended December 31, 1998.
  
  B. Recent  Accounting  Pronouncements  - Effective  January 1, 1999, the Company
  adopted  Statement of Position ("SOP") 97-3,  "Accounting by Insurance and Other
  Enterprises for  Insurance-Related  Assessments." SOP 97-3 provides guidance for
  determining when an insurance  company should recognize a liability for guaranty
  fund and other insurance related  assessments and how to measure that liability.
  As a result of  adopting  SOP 97-3,  the Company  recorded a  liability  of $4.3
  million  pre-tax and a resulting  charge to  earnings  of $2.8  million,  net of
  income tax benefit of $1.5  million,  which has been  reported  as a  cumulative
  effect of accounting  change.  This accounting  change impacts The PMA Insurance
  Group segment.
  
                                         5
  <PAGE>
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  3.   REINSURANCE
  
  In the ordinary  course of business,  PMA  Capital's  reinsurance  and insurance
  subsidiaries  assume and cede  premiums with other  insurance  companies and are
  members of various  underwriting  pools and  associations.  The  reinsurance and
  insurance  subsidiaries cede business,  primarily on an excess of loss basis, in
  order to limit the maximum net loss from large risks and limit the  accumulation
  of many smaller losses from a catastrophic  event. The reinsurance and insurance
  subsidiaries  remain  primarily  liable  to their  clients  in the  event  their
  reinsurers are unable to meet their financial obligations.
  
  The components of net premiums  earned and losses and loss  adjustment  expenses
  ("LAE") are as follows:
  
  
  <TABLE>
  <CAPTION>
                                     Three Months Ended                  Six Months Ended
                                           June 30,                           June 30,
  (dollar amounts in thousands)    1999              1998              1999              1998
  ---------------------------------------------------------------------------------------------
  <S>                           <C>               <C>               <C>               <C>
  Earned Premiums:
      Direct ..............     $  78,801         $  69,629         $ 154,126         $ 143,020
      Assumed .............        83,078            66,172           152,524           128,064
      Ceded ...............       (32,738)          (21,147)          (68,187)          (49,508)
                                ---------         ---------         ---------         ---------
      Net .................     $ 129,141         $ 114,654         $ 238,463         $ 221,576
                                =========         =========         =========         =========
  Losses and LAE:
      Direct ..............     $  64,669         $  63,640         $ 125,029         $ 126,818
      Assumed .............        60,125            46,994            96,181            79,522
      Ceded ...............       (29,885)          (22,734)          (44,565)          (33,583)
                                ---------         ---------         ---------         ---------
      Net .................     $  94,909         $  87,900         $ 176,645         $ 172,757
                                =========         =========         =========         =========
  </TABLE>
  
                                         6
  <PAGE>
  4.   COMMITMENTS AND CONTINGENCIES
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written 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.  The Company is not aware of any material potential assessments at
  June 30, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of  approximately  $8.5 million,  primarily
  related to loans on properties in which the Company has an interest.
  
  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  results  of  operations,  liquidity  or  financial  condition.  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 results of operations, liquidity or financial condition.
  
  
  5.   EARNINGS PER SHARE
  
  A reconciliation  of the shares used as the denominator of the basic and diluted
  earnings per share  computations is presented below. For all periods  presented,
  there were no differences in the numerator  (income before  cumulative effect of
  accounting change) for the basic and diluted earnings per share calculation:
  
  <TABLE>
  <CAPTION>
                                                Three Months Ended                Six Months Ended
                                                    June 30,                          June 30,
                                             1999             1998              1999             1998
  --------------------------------------------------------------------------------------------------------
  <S>                                     <C>               <C>               <C>               <C>
  Denominator:
  Basic shares - weighted average
    common and Class A common
    shares outstanding ...............    23,083,506        23,692,071        23,199,921        23,770,912
  
  Effect of dilutive stock options....       853,211         1,002,385           823,293           887,999
                                          ----------        ----------        ----------        ----------
  Total diluted shares ...............    23,936,717        24,694,456        24,023,214        24,658,911
                                          ==========        ==========        ==========        ==========
  </TABLE>
  
                                         7
  <PAGE>
  
  6.   BUSINESS SEGMENTS
  
  The following table indicates the Company's revenues, all of which are generated
  within the U.S.,  and pre-tax  operating  income  (loss) by  principal  business
  segment:
  
  
  <TABLE>
  <CAPTION>
                                                        Three Months Ended                 Six Months Ended
                                                             June 30,                           June 30,
  (dollar amounts in thousands)                       1999             1998              1999              1998
  ----------------------------------------------------------------------------------------------------------------
  <S>                                              <C>               <C>               <C>               <C>
  Revenues:
  PMA Re                                           $  83,906         $  68,540         $ 149,967         $ 128,138
  The PMA Insurance Group:
     Excluding Run-off Operations                     69,140            75,103           137,975           151,046
     Run-off Operations                                1,097             5,464             2,223            11,303
                                                   ---------         ---------         ---------         ---------
     Total                                            70,237            80,567           140,198           162,349
  Caliber One                                          4,493               536             7,539               905
  Corporate and Other                                    287               351               788               474
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Total revenues                                   $ 157,168         $ 153,743         $ 297,614         $ 303,129
                                                   =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                           $  10,367         $  11,580         $  23,116         $  22,952
  The PMA Insurance Group:
     Excluding Run-off Operations                      4,755             2,353             9,674             4,954
     Run-off Operations                                 (560)              293              (494)              428
                                                   ---------         ---------         ---------         ---------
     Total                                             4,195             2,646             9,180             5,382
  Caliber One                                           (605)             (681)           (1,301)           (1,070)
  Corporate and Other                                 (5,821)           (6,519)          (10,589)          (13,011)
                                                   ---------         ---------         ---------         ---------
  Pre-tax operating income                             8,136             7,026            20,406            14,253
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Income before income taxes and
     cumulative effect of accounting change            6,381            10,775            19,528            25,516
  Income tax expense (benefit)                          (365)            1,418             4,314             4,071
                                                   ---------         ---------         ---------         ---------
  Income before cumulative effect of
       accounting change                               6,746             9,357            15,214            21,445
  Cumulative effect of accounting
       change, net of tax                                 --                --            (2,759)               --
                                                   ---------         ---------         ---------         ---------
  Net income                                       $   6,746         $   9,357         $  12,455         $  21,445
                                                   =========         =========         =========         =========
  
  <FN>
  (1)  The Company excludes net realized investment gains (losses) from the profit
       and loss  measure it utilizes to assess the  performance  of its  operating
       segments.
  </FN>
  </TABLE>
  
                                         8
  <PAGE>
  7.   DISPOSITIONS
  
  Effective  July 1, 1998,  the Company  sold PMA  Insurance,  Cayman  Ltd.  ("PMA
  Cayman"),  one of the entities  included in The PMA  Insurance  Group's  Run-off
  Operations, which reinsured claims for certain policies written by other members
  of The PMA  Insurance  Group,  to a third  party  for a  purchase  price of $1.8
  million  and  recorded  an  after-tax  loss of $1.6  million.  This  transaction
  included  the  transfer  of $231.5  million in cash and  invested  assets to the
  buyer.  At June 30, 1999, the Company has recorded $240.9 million in reinsurance
  receivables  related to this transaction,  all of which are secured by assets in
  trust or by letters of credit.  If the actual  claim  payments in the  aggregate
  exceed  the   estimated   payments  upon  which  the  loss  reserves  have  been
  established,  the Company has agreed to indemnify the buyer,  up to a maximum of
  $15.0  million.  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.
  
  
                                         9
  <PAGE>
  
  
  Item 2.  Management's Discussion and Analysis of Financial Condition and Results
           of Operations
  
  The following is a discussion of PMA  Capital's  financial  condition as of June
  30, 1999, compared with December 31, 1998, and its results of operations for the
  three and six months  ended June 30, 1999,  compared  with the same periods last
  year. This discussion should be read in conjunction with Management's Discussion
  and Analysis included in PMA Capital's 1998 Annual Report to Shareholders (pages
  28 through 49), to which the reader is directed for additional information.  The
  term "SAP" refers to the statutory  accounting practices prescribed or permitted
  by  applicable  state  insurance  departments  and the  term  "GAAP"  refers  to
  generally accepted accounting principles.
  
       CONSOLIDATED RESULTS OF OPERATIONS
  
  The table below  presents the major  components of revenues,  pre-tax  operating
  income and net income:
  
  <TABLE>
  <CAPTION>
                                                         Three Months Ended                Six Months Ended
                                                              June 30,                          June 30,
   (dollar amounts in thousands)                      1999             1998              1999              1998
  ----------------------------------------------------------------------------------------------------------------
  <S>                                              <C>               <C>               <C>               <C>
  Operating revenues:
  Net premiums written                             $ 101,931         $  94,908         $ 270,448         $ 248,481
                                                   =========         =========         =========         =========
  
  Net premiums earned                              $ 129,141         $ 114,654         $ 238,463         $ 221,576
  Net investment income                               26,961            31,920            54,070            63,850
  Other revenues                                       2,821             3,420             5,959             6,440
                                                   ---------         ---------         ---------         ---------
       Total operating revenues                    $ 158,923         $ 149,994         $ 298,492         $ 291,866
                                                   =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                           $  10,367         $  11,580         $  23,116         $  22,952
  The PMA Insurance Group:
     Excluding Run-off Operations                      4,755             2,353             9,674             4,954
     Run-off Operations                                 (560)              293              (494)              428
                                                   ---------         ---------         ---------         ---------
     Total                                             4,195             2,646             9,180             5,382
  Caliber One                                           (605)             (681)           (1,301)           (1,070)
  Corporate and Other                                 (5,821)           (6,519)          (10,589)          (13,011)
                                                   ---------         ---------         ---------         ---------
  Pre-tax operating income                             8,136             7,026            20,406            14,253
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Income before income taxes and
     cumulative effect of accounting change            6,381            10,775            19,528            25,516
  Income tax expense (benefit)                          (365)            1,418             4,314             4,071
                                                   ---------         ---------         ---------         ---------
  Income before cumulative effect of
       accounting change                               6,746             9,357            15,214            21,445
  Cumulative effect of accounting
       change, net of tax                                 --                --            (2,759)               --
                                                   ---------         ---------         ---------         ---------
  Net income                                       $   6,746         $   9,357         $  12,455         $  21,445
                                                   =========         =========         =========         =========
  <FN>
  (1)  Pre-tax  operating  income is defined as income from continuing  operations
       before income taxes,  excluding net realized investment gains (losses). The
       Company excludes net realized investment gains (losses) from the profit and
       loss  measurement  it utilizes to assess the  performance  of its operating
       segments   because  (i)  net  realized   investment   gains   (losses)  are
       unpredictable   and  not  necessarily   indicative  of  current   operating
       fundamentals or future performance and (ii) in many instances, decisions to
       buy and sell  securities are made at the holding  company  level,  and such
       decisions  result in net realized  gains (losses) that do not relate to the
       operations of the individual segments.
  </FN>
  </TABLE>
  
                                         10
  <PAGE>
  
  Pre-tax  operating  income for the three and six months  ended June 30, 1999 was
  $8.1  million and $20.4  million,  respectively,  compared to pre-tax  operating
  income of $7.0 million and $14.3 million for the same periods in 1998. After-tax
  operating income was $7.9 million and $15.8 million for the three and six months
  ended June 30, 1999,  respectively,  compared to after-tax  operating  income of
  $6.9  million and $14.1  million for the same periods in 1998.  These  increases
  were  primarily due to improved  underwriting  results  attributable  to The PMA
  Insurance  Group and lower interest  expense,  with after-tax  operating  income
  being partially offset by a higher effective tax rate in 1999.
  
  The Company  currently  expects  operating income to continue to improve in 1999
  reflecting  higher  operating  income from The PMA Insurance Group and continued
  stable operating income from PMA Re. This expectation may differ materially from
  actual results because of the risk factors noted in the "Cautionary  Statements"
  on page 23.
  
  Net income was $6.7 million and $12.5 million for the three and six months ended
  June 30,  1999,  respectively,  compared to net income of $9.4 million and $21.4
  million  for the three and six months  ended June 30,  1998,  respectively.  Net
  income for the six months ended June 30, 1999  includes an  after-tax  charge of
  $2.8 million for the effect of adopting Statement of Position 97-3,  "Accounting
  by Insurance  and Other  Enterprises  for  Insurance-Related  Assessments."  See
  "Recent Accounting Pronouncements" below for additional information.
  
  Net income also includes gains and losses on the sale of investments. The timing
  and  recognition  of  such  gains  and  losses  are  unpredictable  and  are not
  indicative of future operating  performance.  After-tax net realized  investment
  losses were $1.1  million and  $570,000  for the three and six months ended June
  30, 1999,  compared to after-tax net realized  investment  gains of $2.4 million
  and $7.3 million for the comparable  1998 periods.  The realized losses for 1999
  reflect sales of  investments  in an interest rate  environment  when rates were
  rising  in  contrast  to the  realized  gains  in 1998  which  reflect  sales of
  investments in a time when rates were declining.  Also, net realized  investment
  gains for the three and six months  ended June 30, 1998  include a $2.4  million
  pre-tax loss related to the sale of PMA Insurance,  Cayman Ltd. ("PMA  Cayman").
  See Note 7 to the Company's  Consolidated  Financial  Statements  for additional
  information.
  
                                         11
  <PAGE>
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  <TABLE>
  <CAPTION>
                                                         Three Months Ended                 Six Months Ended
                                                              June 30,                          June 30,
   (dollar amounts in thousands)                       1999             1998             1999             1998
  --------------------------------------------------------------------------------------------------------------
  <S>                                                <C>              <C>              <C>              <C>
  Net premiums written                               $ 58,338         $ 47,089         $136,665         $117,908
                                                     ========         ========         ========         ========
  
  Net premiums earned                                $ 69,915         $ 54,869         $122,348         $100,967
  Net investment income                                13,991           13,671           27,619           27,171
                                                     --------         --------         --------         --------
  Operating revenues                                   83,906           68,540          149,967          128,138
  
  Losses and loss adjustment expenses ("LAE")          49,382           36,864           87,243           69,678
  Acquisition and operating expenses                   24,157           20,096           39,608           35,508
                                                     --------         --------         --------         --------
  Total losses and expenses                            73,539           56,960          126,851          105,186
                                                     --------         --------         --------         --------
  
  Pre-tax operating income                           $ 10,367         $ 11,580         $ 23,116         $ 22,952
                                                     ========         ========         ========         ========
  
  GAAP loss and LAE ratio                                70.6%            67.2%            71.3%            69.0%
  GAAP combined ratio                                   105.2%           103.8%           103.7%           104.2%
  
  --------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  PMA Re's pre-tax  operating  income was $10.4  million and $23.1 million for the
  three and six months  ended June 30, 1999,  compared to $11.6  million and $23.0
  million for the comparable  periods in 1999.  The decrease in operating  results
  for the second quarter of 1999 reflects an increase in underwriting  losses, due
  to a higher loss ratio, partially offset by a lower expense ratio.
  
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  
  <TABLE>
  <CAPTION>
                                    Three Months Ended                Six Months Ended
                                          June 30,                        June 30,
  (dollar amounts in thousands)    1999            1998            1999            1998
  ----------------------------------------------------------------------------------------
  <S>                            <C>             <C>             <C>             <C>
  Gross premiums written:
    Casualty lines               $ 49,774        $ 41,804        $122,962        $102,608
    Property lines                 20,368          15,402          46,133          41,313
    Other lines                        70             107             612             501
                                 --------        --------        --------        --------
  Total                          $ 70,212        $ 57,313        $169,707        $144,422
                                 ========        ========        ========        ========
  
  Net premiums written:
    Casualty lines               $ 41,416        $ 35,122        $ 97,963        $ 83,535
    Property lines                 16,857          11,845          38,109          33,849
    Other lines                        65             122             593             524
                                 --------        --------        --------        --------
  Total                          $ 58,338        $ 47,089        $136,665        $117,908
                                 ========        ========        ========        ========
  ----------------------------------------------------------------------------------------
  </TABLE>
  
  Net premiums written  increased $11.2 million,  or 23.9%, and $18.8 million,  or
  15.9%, for the three and six months ended June 30, 1999, respectively,  compared
  to the same periods in 1998.  These increases  primarily  reflect the successful
  expansion of finite and financial product offerings,  expansion of relationships
  with PMA Re's  existing  clients,  and
  
                                         12
  <PAGE>
  contracts  with new  clients.  Partially  offsetting  these  increases  were the
  effects of highly competitive  conditions in the U.S.  reinsurance market, which
  has caused PMA Re to non-renew  certain accounts largely due to inadequate rates
  and/or other underwriting issues.
  
  Net premiums earned  increased $15.0 million,  or 27.4%,  and $21.4 million,  or
  21.2%, for the three and six months ended June 30, 1999, respectively,  compared
  to the same periods in 1998.  Generally,  trends in net premiums  earned  follow
  patterns similar to net premiums written, with premiums being earned principally
  on a pro rata basis over the terms of the contracts.
  
  Losses and Expenses
  
  The following table reflects the components of PMA Re's GAAP combined ratios:
  
  <TABLE>
  <CAPTION>
                                                         Three Months Ended           Six Months Ended
                                                              June 30,                     June 30,
                                                         1999          1998          1999          1998
  ------------------------------------------------------------------------------------------------------
  <S>                                                  <C>           <C>           <C>           <C>
  Loss and LAE ratio                                     70.6%         67.2%         71.3%         69.0%
  Expense ratio:
    Amortization of deferred acquisition costs           29.8%         30.5%         27.0%         28.5%
    Operating expenses                                    4.8%          6.1%          5.4%          6.7%
                                                        -----         -----         -----         -----
  Total expense ratio                                    34.6%         36.6%         32.4%         35.2%
                                                        -----         -----         -----         -----
  Combined ratio  - GAAP (1)                            105.2%        103.8%        103.7%        104.2%
                                                        =====         =====         =====         =====
  
  ------------------------------------------------------------------------------------------------------
  
  <FN>
  (1) The combined ratio computed on a GAAP basis is equal to losses and LAE, plus
  the sum of  acquisition  expenses  and  operating  expenses,  all divided by net
  premiums earned.
  </FN>
  </TABLE>
  
  PMA Re's loss and LAE ratio  increased  3.4  points and 2.3 points for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  in 1998. These increases  primarily relate to a change in PMA Re's business mix,
  with finite and financial  products  representing  an  increasing  percentage of
  earned premiums. Such products typically carry a higher loss and LAE ratio and a
  lower acquisition expense ratio than traditional reinsurance products.
  
  The acquisition  expense ratio decreased 0.7 points and 1.5 points for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  last year. The decrease is primarily  attributable to the change in business mix
  as described  above,  and to changes in PMA Re's  retrocessional  program in the
  first quarter of 1999, resulting in higher ceding commissions, which reduces the
  acquisition expense ratio.
  
  The  operating  expense  ratio  decreased  1.3 points for both the three and six
  months ended June 30, 1999,  compared to the same periods last year,  reflecting
  growth in earned premium and essentially flat operating expenses.
  
                                         13
  <PAGE>
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  
  <TABLE>
  <CAPTION>
                                                 Three Months Ended                Six Months Ended
                                                      June 30,                          June 30,
  (dollar amounts in thousands)                1999             1998             1999             1998
  ------------------------------------------------------------------------------------------------------
  <S>                                        <C>              <C>              <C>              <C>
  Net premiums written                       $ 36,162         $ 47,285         $119,183         $129,827
                                             ========         ========         ========         ========
  
  Net premiums earned                        $ 55,326         $ 59,791         $109,725         $120,589
  Net investment income:
       Excluding Run-off Operations            11,503           12,726           23,510           25,286
       Run-off Operations(1)                    1,097            5,464            2,223           11,303
                                             --------         --------         --------         --------
           Total                               12,600           18,190           25,733           36,589
  Other revenues                                2,311            2,586            4,740            5,171
                                             --------         --------         --------         --------
  Operating revenues                           70,237           80,567          140,198          162,349
  
  Losses and LAE:
       Excluding Run-off Operations            40,919           46,478           82,128           93,684
       Run-off Operations(1)                    1,411            4,505            1,959            9,401
                                             --------         --------         --------         --------
           Total                               42,330           50,983           84,087          103,085
  Acquisition and operating expenses:
       Excluding Run-off Operations            19,208           22,059           36,847           44,278
       Run-off Operations(1)                      246              666              758            1,474
                                             --------         --------         --------         --------
           Total                               19,454           22,725           37,605           45,752
  Dividends to policyholders                    4,258            4,213            9,326            8,130
                                             --------         --------         --------         --------
  Total losses and expenses                    66,042           77,921          131,018          156,967
                                             --------         --------         --------         --------
  Pre-tax operating income                   $  4,195         $  2,646         $  9,180         $  5,382
                                             ========         ========         ========         ========
  
  GAAP loss and LAE ratio                        76.5%            85.3%            76.6%            85.5%
  GAAP combined ratio(2)                        115.3%           126.3%           115.7%           126.2%
  ------------------------------------------------------------------------------------------------------
  <FN>
  (1)  Run-off operations  ("Run-off  Operations") of The PMA Insurance Group were
       established and segregated from ongoing  operations  effective December 31,
       1996 to reinsure  certain  obligations  primarily  associated with workers'
       compensation  claims written by The PMA Insurance  Group's Pooled Companies
       for the years 1991 and prior.
  
  (2)  The  combined  ratio for the six months  ended June 30, 1999  excludes  the
       impact of the cumulative  effect of accounting change of $4.3 million ($2.8
       million after-tax) for insurance-related assessments.
  </FN>
  </TABLE>
  
  Operating Results
  
  Pre-tax  operating  income for The PMA Insurance Group was $4.2 million and $9.2
  million  for the three and six months  ended  June 30,  1999,  compared  to $2.6
  million  and  $5.4  million  for the same  periods  in 1998.  The  increases  in
  operating  income were primarily due to improved loss  experience,  a relatively
  lower level of risks  underwritten and lower operating  expenses  resulting from
  ongoing cost reduction initiatives.
  
                                         14
  <PAGE>
  
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  
  <TABLE>
  <CAPTION>
                                          Three Months Ended                  Six Months Ended
                                                June 30,                           June 30,
  (dollar amounts in thousands)         1999              1998              1999              1998
  ---------------------------------------------------------------------------------------------------
  <S>                                <C>               <C>               <C>               <C>
  Workers' compensation:
      Direct premiums written        $  34,806         $  34,307         $ 106,096         $ 101,489
      Premiums assumed                     469             1,567             1,194             2,460
      Premiums ceded                    (7,530)           (2,368)          (16,828)           (5,555)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $  27,745         $  33,506         $  90,462         $  98,394
                                     =========         =========         =========         =========
  
  Commercial Lines:
      Direct premiums written        $  16,185         $  22,272         $  44,454         $  51,363
      Premiums assumed                     134               914             1,028             1,388
      Premiums ceded                    (7,902)           (9,407)          (16,761)          (21,318)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $   8,417         $  13,779         $  28,721         $  31,433
                                     =========         =========         =========         =========
  
   Total:
      Direct premiums written        $  50,991         $  56,579         $ 150,550         $ 152,852
      Premiums assumed                     603             2,481             2,222             3,848
      Premiums ceded                   (15,432)          (11,775)          (33,589)          (26,873)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $  36,162         $  47,285         $ 119,183         $ 129,827
                                     =========         =========         =========         =========
  
  ---------------------------------------------------------------------------------------------------
  </TABLE>
  
  Net premiums  written,  which  represent  direct  premiums  written plus assumed
  premiums,  less premiums ceded,  decreased to $36.2 million for the three months
  ended June 30, 1999,  compared to $47.3 million for the same period in 1998, and
  decreased to $119.2 million for the six months ended June 30, 1999,  compared to
  $129.8  million  for the same  period in 1998.  The  decreases  in net  premiums
  written for 1999 were the result of lower direct premiums written for commercial
  lines of business  other than workers'  compensation,  such as commercial  auto,
  general  liability,   umbrella,   multi-peril  and  commercial   property  lines
  (collectively,  "Commercial  Lines"),  which  decreased by $6.1 million and $6.9
  million for the three and six months ended June 30, 1999, and increases in ceded
  premium of $3.7 million and $6.7 million for the three and six months ended June
  30, 1999.  These decreases were partially offset by increases in direct premiums
  written for workers' compensation of $499,000 and $4.6 million for the three and
  six months ended June 30, 1999, compared to the same periods in 1998.
  
  Direct  workers'  compensation  premiums  written  were higher for the first six
  months  of 1999 due to an  increase  in the level of risks  underwritten.  These
  increases   were   partially   offset  by  manual  rate   reductions   averaging
  approximately 3% in The PMA Insurance Group's principal  marketing  territories,
  continued  intense price competition and lower additional audit premiums of $2.3
  million for the six months ended June 30,  1999,  compared to the same period in
  1998.
  
  Direct writings of Commercial Lines decreased for the three and six months ended
  June 30,  1999,  compared to the same periods in 1998  primarily  due to planned
  reductions  in such lines as well as continued  competitive  conditions.  Rather
  than lower prices to what it believes are unacceptable levels, The PMA Insurance
  Group has chosen not to renew some of its business in the Commercial Lines.
  
  The increases in reinsurance  premiums ceded of $3.7 million and $6.7 million in
  the three and six months  ended June 30, 1999  primarily  reflect  higher  ceded
  workers'  compensation  premiums of $5.2 million and $11.3 million for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  in 1998. In 1999, a new  reinsurance  treaty reduced the net retention  level on
  workers'  compensation  exposures from $1.5 million to $150,000 per  occurrence.
  Partially  offsetting  such  increase  was a decrease  of $1.5  million and $4.6
  million  in ceded  premiums  for  Commercial  Lines for the three and six months
  ended June 30, 1999,  respectively,  compared to the same  periods in 1998.  The
  
                                         15
  
  <PAGE>
  
  decrease in ceded Commercial Lines premiums is primarily due to the reduction in
  direct  Commercial  Lines business  written and negotiated  rate  reductions for
  various treaties reinsuring certain Commercial Lines business.
  
  Net premiums  earned  decreased $4.5 million and $10.9 million for the three and
  six months  ended June 30, 1999,  respectively,  compared to the same periods in
  1998.  Generally,  trends in net premiums earned follow patterns  similar to net
  premiums written adjusted for the customary lag related to the timing of premium
  writings within the year.  Direct premiums are earned  principally on a pro rata
  basis over the terms of the policies.
  
  Losses and Expenses
  
  The  following  table  reflects  the  components  of the PMA  Insurance  Group's
  combined ratios:
  
  <TABLE>
  <CAPTION>
                                                         Three Months Ended           Six Months Ended
                                                               June 30,                   June 30,
                                                         1999          1998          1999          1998
  -------------------------------------------------------------------------------------------------------
  <S>                                                  <C>           <C>           <C>           <C>
  Loss and LAE ratio                                     74.0%         77.7%         74.8%         77.7%
  Expense ratio:
    Amortization of deferred acquisition costs           18.5%         20.7%         16.2%         19.2%
    Operating expenses(1) (2)                            12.1%         12.1%         13.7%         13.6%
                                                        -----         -----         -----         -----
    Total expense ratio                                  30.6%         32.8%         29.9%         32.8%
  
  Policyholders' dividends                                7.7%          7.0%          8.5%          6.7%
                                                        -----         -----         -----         -----
  
  Combined ratio  - GAAP (1) (2) (3) (4)                112.3%        117.5%        113.2%        117.2%
                                                        =====         =====         =====         =====
  -------------------------------------------------------------------------------------------------------
  <FN>
  (1)  The expense ratio and the combined ratios for the six months ended June 30,
       1999 exclude the impact of the  cumulative  effect of accounting  change of
       $4.3 million ($2.8 million after-tax) for insurance-related assessments.
  (2)  The expense  ratio and the  combined  ratio  exclude  $2.2 million and $4.0
       million for the three and six months ended June 30, 1999, respectively, and
       $2.4  million and $4.7  million for the three and six months ended June 30,
       1998, respectively, for expenses related to service revenues, which are not
       included in premiums earned.
  (3)  The  combined  ratio  computed  on a GAAP basis is equal to losses and LAE,
       plus the sum of acquisition expenses, operating expenses and policyholders'
       dividends, all divided by net premiums earned.
  (4)  The GAAP combined  ratios for The PMA Insurance Group including the Run-off
       Operations  were 115.3% and 115.7% for the three and six months  ended June
       30, 1999, and 126.3% and 126.2% for the three and six months ended June 30,
       1998, respectively.
  </FN>
  </TABLE>
  
  For the three months and six months  ended June 30, 1999,  the GAAP loss and LAE
  ratio improved by 3.7 points and 2.9 points, respectively,  compared to the same
  periods in 1998. These  improvements  were primarily due to favorable prior year
  reserve  development  and improved loss and LAE ratios in workers'  compensation
  and  Commercial  Lines in 1999,  partially  offset by a decline  in the level of
  reserve discount.
  
  The PMA Insurance Group has experienced $1.7 million of favorable development of
  prior accident year results ("prior year development") for the second quarter of
  1999 compared to $1.5 million of favorable prior year development in 1998, which
  improved the overall  loss and LAE ratio by 0.4 points in the second  quarter of
  1999.  For the six  months  ended June 30,  1999,  The PMA  Insurance  Group has
  experienced $2.6 million of favorable prior year  development,  compared to $1.4
  million of favorable prior year  development for the same period in 1998,  which
  improved  the overall  loss and LAE ratio by 1.2 points for the six months ended
  June 30, 1999.
  
  The  improvement  in loss and LAE  ratios  in  Commercial  Lines  has  favorably
  impacted  the  overall  loss and LAE ratio by 2.8  points and 2.2 points for the
  three months and six months ended June 30, 1999,  respectively,  compared to the
  same periods in 1998.  The  improvements  in the  Commercial  Lines loss and LAE
  ratio were  primarily due to the continued
  
                                         16
  
  <PAGE>
  
  reduction in  exposures  underwritten  reflecting  the  application  of stricter
  underwriting standards and continued intense price competition.
  
  In addition, the improvement in the workers' compensation accident year loss and
  LAE ratio has  favorably  impacted  the overall loss and LAE ratio by 1.7 points
  and 1.3  points  for the  three  months  and six  months  ended  June 30,  1999,
  respectively,  compared to the same periods in 1998. These improvements  reflect
  the application of stricter  underwriting  standards and a relatively lower risk
  profile of business written.
  
  The loss  and LAE  ratio is  negatively  impacted  by  accretion  of prior  year
  discounted  reserves and  favorably  impacted by setting up discount for current
  year reserves.  The net of these is referred to as net discount  accretion.  The
  PMA Insurance Group  experienced  $0.8 million of net discount  accretion in the
  second quarter of 1999 compared with $0.1 million in the second quarter of 1998,
  which  caused a 1.3 point  increase  in the loss and LAE  ratio  for the  second
  quarter of 1999. The increase in net discount  accretion reflects a reduction in
  the amount of discount  recorded on current year's reserve as a result of higher
  ceded loss reserves due to the new reinsurance treaty for workers' compensation.
  The PMA Insurance Group  experienced $1.8 million of net discount  accretion for
  the first six months of 1999 compared to no net discount  accretion for the same
  period in 1998.  This resulted in a 1.7 point increase in the loss and LAE ratio
  for the six months ended June 30, 1999.
  
  The GAAP expense ratio  decreased by 2.2 points and 2.9 points for the three and
  six months  ended June 30, 1999,  respectively,  compared to the same periods in
  1998,  primarily due to a lower acquisition  expense ratio. The decreases in the
  acquisition expense ratio of 2.2 points for the three months ended June 30, 1999
  and 3.0 points for the six months  ended  June 30,  1999,  compared  to the same
  periods in 1998,  were primarily due to higher ceded  commissions  received as a
  result of the new  reinsurance  treaty in 1999 and a reduction in certain  state
  assessments.
  
  The policyholders' dividend ratio was 7.7% and 8.5% for the three and six months
  ended  June  30,  1999,  respectively,  compared  to 7.0%  and 6.7% for the same
  periods last year.  These  increases  are primarily due to selling more business
  under  dividend  plans and improved  loss  experience,  which  results in higher
  dividend payouts to policyholders.
  
       Net Investment Income
  
  Net investment  income was $11.5 million and $23.5 million for the three and six
  months ended June 30, 1999,  compared to $12.7 million and $25.3 million for the
  same periods in 1998. The decrease primarily reflects a lower asset base, due to
  the paydown of loss reserves from prior accident years.
  
  
       Run-off Operations
  
  Effective  July 1,  1998,  the  Company  sold PMA  Cayman,  one of the  entities
  included in The PMA Insurance Group's Run-off Operations, which reinsured claims
  for certain  policies  written by other members of The PMA Insurance Group, to a
  third party for a purchase  price of $1.8 million and recorded an after-tax loss
  of  $1.6  million.  See  Note 7 to the  Consolidated  Financial  Statements  for
  additional information. This transaction included the transfer of $231.5 million
  in cash and invested assets to the buyer.
  
  Net investment income for the Run-off  Operations  decreased by $1.1 million and
  $5.8  million in the three and six months  ended  June 30,  1999,  respectively,
  compared to the same  periods in 1998.  The  decrease in  investment  income was
  primarily due to the decrease in invested assets resulting from the sale, and to
  a lesser extent, from the paydown of losses by the remaining run-off entities.
  
  The  sale of PMA  Cayman  also  resulted  in a  reduction  in  losses  and  LAE,
  acquisition  expenses and operating  expenses of the Run-off  Operations for the
  three and six months ended June 30, 1999, compared to the same periods in 1998.
  
                                         17
  <PAGE>
  
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  
  <TABLE>
  <CAPTION>
                                                Three Months Ended                 Six Months Ended
                                                     June 30,                          June 30,
                                              1999             1998             1999             1998
  -----------------------------------------------------------------------------------------------------
  <S>                                       <C>              <C>              <C>              <C>
  Net premiums written                      $  7,531         $    705         $ 14,853         $    917
                                            ========         ========         ========         ========
  
  Net premiums earned                       $  4,000         $    165         $  6,643         $    191
  Net investment income                          493              371              896              714
                                            --------         --------         --------         --------
  Operating revenues                           4,493              536            7,539              905
  
  Losses and LAE incurred                      3,197              133            5,315              153
  Acquisition and operating expenses           1,901            1,084            3,525            1,822
                                            --------         --------         --------         --------
  Total losses and expenses                    5,098            1,217            8,840            1,975
                                            --------         --------         --------         --------
  
  Pre-tax operating loss                    $   (605)        $   (681)        $ (1,301)        $ (1,070)
                                            ========         ========         ========         ========
  
  -----------------------------------------------------------------------------------------------------
  </TABLE>
  
  Caliber One recorded  pre-tax  operating losses of $605,000 and $1.3 million for
  the three and six months ended June 30, 1999, respectively,  compared to pre-tax
  operating losses of $681,000 and $1.1 million for the three and six months ended
  June 30, 1998. The increase in the pre-tax  operating loss for the six months of
  1999,  compared to the same period in 1998,  reflects the cost of expanding  the
  scope of Caliber One's  operations.  Pre-tax operating loss for the three months
  ended June 30, 1999 improved compared with the same period last year, reflecting
  revenue  growth  mitigating a relatively  larger  portion of losses and start up
  costs.
  
  The growth in net premiums written and earned for the three and six months ended
  June 30, 1999,  compared to the same  periods in 1998,  reflects  Caliber  One's
  rising  market  acceptance  and  expanded  distribution  network  combined  with
  increased staffing levels.
  
  CORPORATE AND OTHER
  
  The  Corporate  and  Other  segment  includes  unallocated   investment  income,
  expenses,  including debt service,  and taxes, as well as the results of certain
  of the Company's real estate properties. For the three and six months ended June
  30, 1999,  Corporate and Other recorded pre-tax operating losses of $5.8 million
  and $10.6 million,  respectively,  compared to pre-tax  operating losses of $6.5
  million and $13.0  million  for the same  periods in 1998.  The  decrease in the
  operating loss is primarily due to lower  interest  expense of $700,000 and $1.4
  million  for the  second  quarter  and first six  months of 1999,  respectively,
  reflecting a $40 million  paydown in  outstanding  debt in the fourth quarter of
  1998.  Operating  losses also  improved due to lower net expenses  from non-core
  real estate properties.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
  Liquidity
  
  Liquidity is a measure of an entity's ability to secure  sufficient cash to meet
  its contractual  obligations and operating  needs. At the holding company level,
  the Company requires cash to pay debt obligations, dividends to shareholders and
  taxes to the Federal government, as well as to capitalize subsidiaries from time
  to  time.  PMA  Capital's  primary  sources  of  liquidity  are  dividends  from
  subsidiaries, net tax payments received from subsidiaries and borrowings.
  
                                         18
  
  <PAGE>
  
  At June 30, 1999 and  December  31,  1998,  the  Company  had $163.0  million of
  outstanding  debt under its Revolving  Credit Facility (the "Credit  Facility").
  The final expiration of the Credit Facility is December 31, 2002, and the Credit
  Facility  matures in an installment of $38.0 million in 2000 and installments of
  $62.5 million in 2001 and 2002.
  
  In addition to the Credit Facility,  the Company maintains a committed  facility
  of $50.0  million for letters of credit (the "Letter of Credit  Facility").  The
  Letter of  Credit  Facility  is  utilized  primarily  for  securing  reinsurance
  obligations of the Company's  insurance  subsidiaries.  As of June 30, 1999, the
  Company had $44.9 million  outstanding  in letters of credit under the Letter of
  Credit Facility, compared with $46.9 million as of December 31, 1998.
  
  The  Company  paid  interest  of $2.9  million  and $6.0  million on both credit
  facilities  for the three and six  months  ended  June 30,  1999,  respectively,
  compared to $4.2 million and $7.5 million for the same periods in 1998.
  
  The Company's domestic insurance  subsidiaries'  ability to pay dividends to the
  holding company is limited by the insurance laws and regulations of Pennsylvania
  and Delaware (such laws are substantially similar).  Under Pennsylvania laws and
  regulations,  without prior approval of the Pennsylvania  Insurance Commissioner
  (the "Commissioner"),  dividends may not be paid in excess of the greater of (i)
  10% of  policyholders'  surplus as of the end of the preceding  year or (ii) SAP
  net income for the preceding year, but in no event to exceed  unassigned  funds.
  Under this standard,  the Pooled  Companies and PMA Reinsurance  Corporation can
  pay an aggregate of $51.8 million of dividends without the prior approval of the
  Commissioner  during 1999. Caliber One Indemnity  Company, a  Delaware-domiciled
  company,  is directly  owned by PMA  Reinsurance  Corporation  and, as such, its
  dividends may not be paid directly to PMA Capital.  As stated above,  Delaware's
  insurance  laws as they  apply to  restricting  the  payment  of  dividends  are
  substantially similar to Pennsylvania's insurance laws. Under Delaware insurance
  laws,  Caliber One  Indemnity  Company can pay $2.5 million in dividends  during
  1999.  Dividends  received from subsidiaries were $8.0 million and $18.8 million
  for the three and six months ended June 30, 1999, respectively, compared to $6.0
  million and $10.0 million for the comparable 1998 periods.
  
  Net tax payments  received from subsidiaries were $8.2 million and $11.7 million
  for the three and six months ended June 30, 1999, respectively, compared to $8.7
  million and $14.7 million for the same periods in 1998.
  
  PMA Capital's  dividends to shareholders  are restricted by its debt agreements.
  Based upon the terms of the Credit  Facility and the Letter of Credit  Facility,
  under the most  restrictive  debt  covenant,  PMA  Capital  would be able to pay
  dividends of approximately  $15.6 million in 1999. The Company paid dividends to
  shareholders of $2.0 million and $3.9 million for the three and six months ended
  June 30, 1999 and 1998, respectively,  compared to $2.1 million and $4.1 million
  for the three and six months ended June 30, 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries totaling $1.5 million and $4.1 million for the three and six months
  ended June 30, 1999,  respectively.  No cash capital  contributions were made to
  subsidiaries during 1998.
  
  In  February  1998,  the  Company's  Board  of  Directors  authorized  a plan to
  repurchase  shares of common  stock and Class A common stock in an amount not to
  exceed $25.0  million.  In February  1999, an additional  $20.0 million of share
  repurchase  authority was approved by the Company's  Board of Directors.  During
  the first six months of 1999, the Company  repurchased 627,000 shares at a total
  cost of $12.3  million  (average per share price was $19.54).  In addition,  PMA
  Capital repurchased 200,000 shares in July 1999 for a total cost of $4.0 million
  (average per share price was approximately  $20.00).  Since the inception of its
  share  repurchase  program in February 1998, PMA Capital has repurchased a total
  of 1.8 million shares at a total cost of $35.1 million  (average per share price
  was $19.25).  As of August 4, 1999, PMA Capital has remaining  share  repurchase
  authorization of $9.9 million. Decisions regarding share repurchases are subject
  to the costs and  benefits  associated  with  alternative  uses of  capital  and
  prevailing market conditions.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet its short-term and long-term obligations.
  
                                         19
  <PAGE>
  
  Capital Resources
  
  The  Company's  total  assets  decreased  to $3,398.8  million at June 30, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $159.2 million to $2,166.2 million at June 30, 1999. The decrease in investments
  is primarily  attributable  to declines in market  value due to rising  interest
  rates as well as a decrease  of $59.5  million in  securities  on loan under the
  Company's  securities lending program.  All other assets increased $97.3 million
  at June 30, 1999 compared to December 31, 1998.
  
  Presently,   management   believes  that  the  existing  capital   structure  is
  appropriate.  However,  management continually monitors the capital structure in
  light of developments in the business,  and the present  assessment could change
  as management becomes aware of new opportunities and challenges in the Company's
  business.
  
  OTHER MATTERS
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written to provide coverage  unanticipated by the Company. The
  eventual effect on the Company of the changing  environment in which it operates
  remains uncertain.
  
  Year 2000 Issue
  
  As a consequence of the programming  convention which utilized a two-digit field
  rather than a four-digit field,  certain  information  technology ("IT") systems
  and non-IT  systems,  such as equipment with embedded chips or  microprocessors,
  require  reprogramming  or replacement to enable them to perform  correctly date
  operations involving year 2000 or later ("Year 2000 Issue").
  
  With the assistance of outside  consulting  groups, the Company began evaluating
  and  reprogramming  its IT systems to address  the Year 2000 Issue in late 1995.
  The  Company's  Year  2000  systems'  program  consists  of  four  phases:   (i)
  identifying  systems requiring  remediation;  (ii) assessing the requirements to
  remediate those systems;  (iii) remediating those systems to make them Year 2000
  ready by either  modifying or replacing  them;  and (iv) testing the systems for
  Year 2000 readiness,  including, where applicable,  that they properly interface
  with third parties.  The Company has completed the identification and assessment
  phases  with  respect  to  its IT  systems  that  are  critical  to  maintaining
  operations  or the  failure  of  which  would  result  in  significant  costs or
  disruption of operations ("mission critical systems").  As of February 28, 1999,
  the Company had remediated and tested all of its mission  critical  systems.  In
  addition,  the Company will continue to test its mission  critical systems under
  varying testing scenarios throughout 1999.
  
  The Company has  identified all of its non-IT systems that may require Year 2000
  remediation,  including office equipment and physical facilities,  which contain
  microprocessors  or other embedded  technology over which it has control.  As of
  April 30, 1999,  substantially  all of these  non-IT  systems are believed to be
  Year 2000 ready to the extent  reasonably  necessary  to conduct  the  Company's
  day-to-day  operations.  Because the Company is not  materially  dependent  upon
  non-IT  systems,  the effect of a failure of these systems is not expected to be
  material to the Company's financial condition or results of operations. The cost
  of the  Company's  Year  2000  readiness  work  through  June 30,  1999 has been
  approximately  $5.4  million.  No  material  costs were  incurred  in the second
  quarter of 1999. The Company does not expect to incur material costs through the
  rest of 1999 in connection with the Year 2000 Issue.
  
  The Company also is continuing to evaluate its relationships  with certain third
  parties  with  which the  Company  has a direct  and  material  relationship  to
  determine whether they are Year 2000 ready, such as banks, brokers,  reinsurers,
  third party service  providers,  software and other service vendors,  and agents
  and other intermediaries.  As of July 31, 1999, the responses received from such
  third parties to inquiries made by the Company indicate that these third parties
  either are or expect to be Year 2000 ready by December 31, 1999.
  
                                         20
  <PAGE>
  
  Even assuming that all material  third parties  provide a timely  representation
  concerning their Year 2000 readiness, it is not possible to state with certainty
  that  such  representations  will turn out to have  been  accurate,  or that the
  operations  of such third  parties  will not be  materially  impacted in turn by
  other parties with whom they  themselves have a material  relationship,  and who
  fail to timely become Year 2000 ready. Consequently,  the effect, if any, on the
  Company's  results of  operations  from the failure of such third  parties to be
  Year 2000 ready is not reasonably estimable. However, the failure of one or more
  third parties with whom the Company has a material  relationship to be Year 2000
  ready  could  cause  significant  disruptions  in the  Company's  ability to pay
  claims,  receive  and  deposit  funds and make  investments,  which could have a
  material  adverse  effect on the  Company's  financial  condition and results of
  operations.  The  Company's  contingency  plans in the event of  failure of such
  third  parties  to be  Year  2000  ready  include  replacing  the  third  party,
  performing  directly the services  performed by the third party and  maintaining
  liquidity under the Company's Credit Facility.
  
  Although the Company  believes that Year 2000 Issues related to its hardware and
  internal  software  programs  are not likely to result in any  material  adverse
  disruptions in the Company's computer systems or its other business  operations,
  it has begun,  but not yet completed,  an analysis of the  operational  problems
  that the Company believes would be reasonably  likely to result from the failure
  by the  Company and  certain  third  parties to  successfully  complete  efforts
  necessary to achieve Year 2000 readiness on a timely basis.  The Company expects
  to  complete  this  analysis in the third  quarter of 1999.  The Company is also
  developing  contingency  plans to provide  for the  resumption  of its  computer
  systems and its other  business  operations in the event such Year 2000 problems
  occur.  These plans are expected to be  completed in the third  quarter of 1999;
  however,  the Company intends throughout 1999 to review and modify such plans on
  an  ongoing  basis  as  new  information   becomes  available  or  circumstances
  materially change.
  
  The costs of the Company's  Year 2000 efforts and the dates on which the Company
  believes it will complete such efforts are based on management's best estimates,
  which were derived using numerous assumptions regarding future events, including
  the continued availability of certain resources,  third-party remediation plans,
  and other factors.  There can be no assurance that these estimates will prove to
  be accurate,  and actual results could differ  materially  from those  currently
  anticipated.  Specific  factors  that  could  cause  such  material  differences
  include, but are not limited to, the availability and costs of personnel trained
  in Year 2000 Issues;  the Company's ability to identify,  assess,  remediate and
  test all  relevant  computer  codes  and  embedded  technology;  the  risk  that
  reasonable  testing  will  not  uncover  all Year  2000  problems;  and  similar
  uncertainties.
  
  In addition to the costs and risks  associated  with internal  systems and third
  parties,  the Company may have  underwriting  exposure  related to the Year 2000
  Issue.  Businesses  materially  damaged  as a result of the Year 2000  Issue may
  attempt to recoup  their  losses by claiming  coverage  under  various  types of
  insurance  policies  underwritten by the Company and by ceding companies to whom
  the Company provides reinsurance. The Company is attempting,  whenever possible,
  to avoid or  otherwise  limit its  potential  Year  2000  exposure  through  its
  underwriting process. In the event that claims for Year 2000 Issues are asserted
  against the Company, it is not possible to predict whether or to what extent any
  such  coverage  could  ultimately  be  found  to  exist  by  courts  in  various
  jurisdictions,  or, if found,  the effect  thereof on the Company.  In addition,
  even if such  coverage were found not to exist,  which cannot be predicted,  the
  costs of litigation could be material.  In the absence of any claims  experience
  at this time, such losses and costs are not currently reasonably estimable.
  
  Comparison of SAP and GAAP Results
  
  Results  presented  in  accordance  with  GAAP  vary in  certain  respects  from
  statutory  accounting  practices  prescribed  or permitted  by the  Pennsylvania
  Insurance  Department  and  the  Delaware  Insurance  Department  (collectively,
  "SAP").   Prescribed   SAP  includes   state  laws,   regulations   and  general
  administrative  rules, as well as a variety of National Association of Insurance
  Commissioners  ("NAIC")  publications.  Permitted SAP encompasses all accounting
  practices that are not prescribed. In 1998, the NAIC adopted the Codification of
  Statutory Accounting Principles  ("Codification")
  
                                         21
  
  <PAGE>
  
  guidance,  which will replace the current  Accounting  Practices and  Procedures
  manual as the NAIC's  primary  guidance on  statutory  accounting.  Codification
  provides  guidance  for areas  where  statutory  accounting  has been silent and
  changes  current  statutory  accounting in some areas,  such as deferred  income
  taxes.
  
  The  Pennsylvania  Insurance  Department  has  adopted  Codification,  effective
  January 1, 2001.  The  Company is in the process of  estimating  the impact that
  Codification will have on its statutory surplus.
  
  Recent Accounting Pronouncements
  
  Effective  January 1, 1999, the Company  adopted  Statement of Position  ("SOP")
  97-3,  "Accounting  by Insurance  and Other  Enterprises  for  Insurance-Related
  Assessments."  SOP 97-3  provides  guidance  for  determining  when an insurance
  company  should  recognize a liability  for  guaranty  fund and other  insurance
  related  assessments and how to measure that liability.  As a result of adopting
  SOP 97-3,  the  Company  recorded a  liability  of $4.3  million  pre-tax  and a
  resulting charge to earnings of $2.8 million,  net of income tax benefit of $1.5
  million,  which has been reported as a cumulative  effect of accounting  change.
  This accounting change impacts The PMA Insurance Group segment.
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  
                                         22
  <PAGE>
  
  CAUTIONARY STATEMENTS
  
  Except for historical  information provided in this Management's  Discussion and
  Analysis and otherwise in this report,  statements  made  throughout this report
  are forward-looking  and contain  information about financial results,  economic
  conditions, trends and known uncertainties. These forward-looking statements are
  based on currently  available  financial,  competitive and economic data and the
  Company's current operating plans based on assumptions  regarding future events.
  The Company's actual results could differ  materially from those expected by the
  Company's  management.  The  factors  that could  cause  actual  results to vary
  materially,  some of which are described  with the  forward-looking  statements,
  include,  but are not  limited  to,  changes  in  general  economic  conditions,
  including the performance of financial markets and interest rates; regulatory or
  tax  changes,  including  changes  in  risk-based  capital  or other  regulatory
  standards  that  affect the  ability of the  Company  to conduct  its  business;
  competitive  or  regulatory  changes  that  affect the cost of or demand for the
  Company's products; the Company's ability to meet its marketing objectives;  the
  effect of changes in workers'  compensation  statutes and their  administration;
  the  Company's  ability to predict  and  effectively  manage  claims  related to
  insurance and  reinsurance  policies;  reliance on key  management;  adequacy of
  reserves for claim  liabilities;  adverse property and casualty loss development
  for events the Company insured in prior years;  adequacy and  collectibility  of
  reinsurance  purchased by the Company;  severity of natural  disasters and other
  catastrophes;  and other factors disclosed from time to time in reports filed by
  the Company with the Securities and Exchange  Commission.  Investors  should not
  place undue reliance on any such forward-looking statements.
  
                                         23
  <PAGE>
  
  Part II. Other Information
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
  The Company's 1999 Annual Meeting of Shareholders ("Annual Meeting") was held on
  April 26, 1999. At the Annual Meeting,  the shareholders elected nominees to the
  Board of Directors and approved the 1999 Equity Incentive Plan.
  
  The  following  nominees  were  elected  as members  of the  Company's  Board of
  Directors to serve for terms expiring at the 2002 Annual Meeting and until their
  successors are elected:
  
  Name of Nominee                   Votes Cast For              Votes Withheld
  ---------------                   --------------              --------------
  Paul I. Detwiler, Jr               117,739,338                    21,934
  Anne S. Genter                     117,749,035                    12,237
  A. John May                        113,648,772                 4,112,500
  Roderic H. Ross                    117,749,035                    12,237
  John W. Smithson                   117,724,333                    36,939
  
  The shareholders voted to approve the Company's 1999 Equity Incentive Plan:
  
  Votes Cast For       Votes Cast Against     Abstentions        Broker Non-Votes
  --------------       ------------------     -----------        ----------------
  114,402,725          341,043                1,307,339          1,710,165
  
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  The Exhibits are listed in the Index to Exhibits on page 26.
  
  
  (b)  Reports on Form 8-K filed during the quarter ended June 30, 1999:
  
  During the quarterly period ended June 30, 1999, the Company filed the following
  Reports on Form 8-K:
  
  -    dated May 5, 1999,  Item 5 - containing a news release  regarding its first
       quarter 1999 results.
  
                                         24
  <PAGE>
  
                                                        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:    8/12/99                       By: /s/  Francis W. McDonnell
         ----------                          -------------------------------------
                                             Francis W. McDonnell,
                                             Senior Vice President,
                                             Chief Financial Officer and Treasurer
                                             (Principal Financial Officer)
  
  
  
  
                                         25
  <PAGE>
  
  
                                    Exhibit Index
  
  <TABLE>
  <CAPTION>
  Exhibit No.    Description of Exhibit                                      Method of Filing
  -----------    ----------------------                                      ----------------
  <S>            <C>                                                         <C>
  (10)           Material Contracts
                    Exhibits 10.1 to 10.5 are compensatory plans.
  
  10.1           Amendment No. 1 to the Amended and Restated  1991           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.2           Amendment No. 1 to the Amended and Restated  1993           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.3           Amendment No. 1 to the Amended and Restated  1994           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.4           Amendment No. 1 to the 1995 Equity  Incentive Plan          Filed herewith
                 dated May 5, 1999
  
  10.5           Amendment No. 1 to the 1996 Equity  Incentive Plan          Filed herewith
                 dated May 5, 1999
  
  (12)           Computation of Ratio of Earnings to Fixed Charges           Filed herewith
  
  (27)           Financial Data Schedule                                     Filed herewith (EDGAR version only)
  
  </TABLE>
  
  
                                         26
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 104926}]
metadata_filer: {"company-data": {"conformed-name": "PMA CAPITAL CORP", "cik": "0001041665", "assigned-sic": "6331", "irs-number": "232217932", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22761", "film-number": "99685871"}, "business-address": {"street1": "1735 MARKET STREET SUITE 2800", "city": "PHILADELPHIA", "state": "PA", "zip": "19103-7590", "phone": "2156655046"}, "mail-address": {"street1": "1735 MARKET STREET SUITE 2800", "city": "PHILADELPHIA", "state": "PA", "zip": "19103-7590"}, "former-company": {"former-conformed-name": "PENNSYLVANIA MANUFACTURERS CORP", "date-changed": "19970702"}}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      FORM 10-Q
  (MARK ONE)
  /X/         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
  
                                         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 / /
  
  There were 12,918,466  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 10,005,482 shares outstanding of the registrant's Class
  A Common Stock,  $5 par value per share, as of the close of business on July 31,
  1999.
  INDEX
  
  --------------------------------------------------------------------------------
  
                                                                              Page
  
  Part I.    Financial Information
  
  Item 1.    Financial Statements
  
             Consolidated statements of operations for the three and six
             months ended June 30, 1999 and 1998 (unaudited)                   1
  
             Consolidated balance sheets as of June 30, 1999 (unaudited)
             and December 31, 1998                                             2
  
             Consolidated statements of cash flows for the six months
             ended June 30, 1999 and 1998 (unaudited)                          3
  
             Consolidated statements of comprehensive income for the
             three and six months ended June 30, 1999 and 1998
             (unaudited)                                                       4
  
             Notes to the consolidated financial statements                    5
  
  Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        10
  
  Part II.   Other Information
  
  Item 4.    Submission of Matters to a Vote of Security Holders              24
  
  Item 6.    Exhibits and reports on Form 8-K                                 24
  Part1.  Item 1.
                               PMA Capital Corporation
                        Consolidated Statements of Operations
                                     (Unaudited)
  Three Months Ended           Six Months Ended
                                                               June 30,                     June 30,
  (dollar amounts in thousands, except per share data)   1999           1998           1999           1998
  ----------------------------------------------------------------------------------------------------------
  Revenues:
        Net premiums written                          $ 101,931      $  94,908      $ 270,448      $ 248,481
        Change in net unearned premiums                  27,210         19,746        (31,985)       (26,905)
                                                      ---------      ---------      ---------      ---------
           Net premiums earned                          129,141        114,654        238,463        221,576
        Net investment income                            26,961         31,920         54,070         63,850
        Net realized investment gains (losses)           (1,755)         3,749           (878)        11,263
        Other revenues                                    2,821          3,420          5,959          6,440
                                                      ---------      ---------      ---------      ---------
           Total revenues                               157,168        153,743        297,614        303,129
                                                      ---------      ---------      ---------      ---------
  
  Losses and expenses:
        Losses and loss adjustment expenses              94,909         87,900        176,645        172,757
        Acquisition expenses                             32,103         29,060         52,501         51,763
        Operating expenses                               16,448         18,033         33,532         37,500
        Dividends to policyholders                        4,258          4,213          9,326          8,130
        Interest expense                                  3,069          3,762          6,082          7,463
                                                      ---------      ---------      ---------      ---------
           Total losses and expenses                    150,787        142,968        278,086        277,613
                                                      ---------      ---------      ---------      ---------
  
        Income before income taxes and cumulative
           effect of accounting change                    6,381         10,775         19,528         25,516
  
  Income tax expense (benefit):
        Current                                           4,840            481          5,785            691
        Deferred                                         (5,205)           937         (1,471)         3,380
                                                      ---------      ---------      ---------      ---------
           Total                                           (365)         1,418          4,314          4,071
                                                      ---------      ---------      ---------      ---------
  
  Income before cumulative effect of accounting
           change                                         6,746          9,357         15,214         21,445
  
  Cumulative effect of accounting change (net of
           income tax benefit of $1,458)
                                                             --             --         (2,759)            --
                                                      ---------      ---------      ---------      ---------
  Net income                                          $   6,746      $   9,357      $  12,455      $  21,445
                                                      =========      =========      =========      =========
  
  Earnings per share:
        Basic:
           Income before cumulative effect of
                     accounting change                $    0.29      $    0.39      $    0.65      $    0.90
           Cumulative effect of accounting change            --             --          (0.12)            --
                                                      ---------      ---------      ---------      ---------
  
              Net income                              $    0.29      $    0.39      $    0.53      $    0.90
                                                      =========      =========      =========      =========
  
        Diluted:
           Income before cumulative effect of
                     accounting change                $    0.28      $    0.38      $    0.63      $    0.87
           Cumulative effect of accounting change            --             --          (0.11)            --
                                                      ---------      ---------      ---------      ---------
              Net income                              $    0.28      $    0.38      $    0.52      $    0.87
                                                      =========      =========      =========      =========
  See accompanying notes to the consolidated financial statements.
  
                                          1
  PMA Capital Corporation
                             Consolidated Balance Sheets
  (Unaudited)
                                                                                             As of             As of
                                                                                            June 30,        December 31,
     (dollar amounts in thousands, except share data)                                        1999              1998
  --------------------------------------------------------------------------------------------------------------------
  Assets
      Investments:
      Fixed maturities available for sale, at fair value
               (amortized cost:1999 - $1,773,493; 1998 - $1,781,188)                      $ 1,741,420      $ 1,827,354
      Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                                14               17
      Short-term investments, at amortized cost which approximates fair value                 424,750          498,038
                                                                                          -----------      -----------
           Total investments                                                                2,166,184        2,325,409
  
      Cash                                                                                     10,534            2,562
      Accrued investment income                                                                18,317           19,900
      Premiums receivable (net of valuation allowance:1999 - $20,563; 1998 - $19,874)         294,702          279,633
      Reinsurance receivables (net of valuation allowance:1999 - $2,178; 1998 - $2,178)       625,440          610,291
      Deferred income taxes, net                                                               94,271           63,929
      Deferred acquisition costs                                                               54,070           51,115
      Other assets                                                                            135,254          107,879
                                                                                          -----------      -----------
           Total assets                                                                   $ 3,398,772      $ 3,460,718
                                                                                          ===========      ===========
  
  Liabilities:
       Unpaid losses and loss adjustment expenses                                         $ 1,915,067      $ 1,940,895
       Unearned premiums                                                                      275,751          227,945
       Long-term debt                                                                         163,000          163,000
       Accounts payable and accrued expenses                                                  115,617          107,952
       Funds held under reinsurance treaties                                                   93,384           77,674
       Dividends to policyholders                                                              12,621           10,700
       Payable under securities loan agreements                                               361,540          421,072
                                                                                          -----------      -----------
           Total liabilities                                                                2,936,980        2,949,238
                                                                                          -----------      -----------
  
        Commitments and contingencies (Note 4)
  
  Shareholders' Equity:
       Common stock, $5 par value (40,000,000 shares authorized;
           1999 - 13,354,473 shares issued and 12,918,466 outstanding;
           1998 - 13,956,268 shares issued and 13,520,261 outstanding)                         66,959           69,781
       Class A common stock, $5 par value (40,000,000 shares authorized;
           1999 - 11,088,472 shares issued and 10,200,982 outstanding;
           1998 - 10,486,677 shares issued and 9,837,963 outstanding)                          55,255           52,433
      Additional paid-in capital - Class A common stock                                           339              339
      Retained earnings                                                                       383,193          377,601
      Accumulated other comprehensive income (loss)                                           (20,841)          30,016
       Notes receivable from officers                                                            (224)            (498)
       Treasury stock, at cost:
         Common stock (1999 - 436,007 shares; 1998 - 436,007 shares)                           (5,582)          (5,582)
         Class A common stock (1999 - 887,490 shares; 1998 - 648,714 shares)                  (17,307)         (12,610)
                                                                                          -----------      -----------
           Total shareholders' equity                                                         461,792          511,480
                                                                                          -----------      -----------
           Total liabilities and shareholders' equity                                     $ 3,398,772      $ 3,460,718
                                                                                          ===========      ===========
  See accompanying notes to the consolidated financial statements.
  
                                          2
  PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  Six Months Ended
                                                                                          June 30,
  (dollar amounts in thousands)                                                      1999           1998
  --------------------------------------------------------------------------------------------------------
  Cash flows from operating activities:
  Net income                                                                      $  12,455      $  21,445
  Adjustments to reconcile net income to net cash flows provided by (used in)
        operating activities:
      Depreciation and amortization                                                   3,763          1,466
      Provision (benefit) for deferred income taxes                                  (1,471)         3,380
      Net realized investment losses (gains)                                            878        (11,263)
      Cumulative effect of accounting change                                          2,759             --
      Change in:
            Premiums receivable and unearned premiums, net                           32,737         (9,321)
            Dividends to policyholders                                                1,921            579
            Reinsurance receivables                                                 (15,149)       (56,740)
            Unpaid losses and loss adjustment expenses                              (25,828)       (27,346)
            Accrued investment income                                                 1,583          3,010
            Deferred acquisition costs                                               (2,955)        (8,075)
       Other, net                                                                    (8,474)         9,326
                                                                                  ---------      ---------
  Net cash flows provided by (used in) operating activities                           2,219        (73,539)
                                                                                  ---------      ---------
  
  Cash flows from investing activities:
     Fixed maturity investments available for sale:
       Purchases                                                                   (739,603)      (927,342)
       Maturities or calls                                                           65,019         84,915
       Sales                                                                        680,051        802,825
     Net sales of short-term investments                                             13,811        101,572
     Other, net                                                                      (2,239)        (2,053)
                                                                                  ---------      ---------
  Net cash flows provided by investing activities                                    17,039         59,917
                                                                                  ---------      ---------
  
  Cash flows from financing activities:
     Dividends paid to shareholders                                                  (3,852)        (4,059)
     Proceeds from exercise of stock options                                          4,546          2,316
     Purchase of treasury stock                                                     (12,254)        (9,198)
     Net repayments of notes receivable from officers                                   274             --
                                                                                  ---------      ---------
  Net cash flows used in financing activities                                       (11,286)       (10,941)
                                                                                  ---------      ---------
  
  Net increase (decrease) in cash                                                     7,972        (24,563)
  Cash - beginning of period                                                          2,562         32,148
                                                                                  ---------      ---------
  Cash - end of period                                                            $  10,534      $   7,585
                                                                                  =========      =========
  
   Supplementary cash flow information:
       Income taxes paid                                                          $   5,437      $      --
       Interest paid                                                              $   5,994      $   7,467
  See accompanying notes to the consolidated financial statements.
  
                                          3
  PMA Capital Corporation
          Consolidated Statements of Comprehensive Income (Loss)
                                     (Unaudited)
  Three Months Ended           Six Months Ended
                                                                     June 30,                   June 30,
  (dollar amounts in thousands)                                1999          1998          1999          1998
  -------------------------------------------------------------------------------------------------------------
  Net income                                                 $  6,746      $  9,357      $ 12,455      $ 21,445
                                                             --------      --------      --------      --------
  
  Other comprehensive income (loss), net of tax:
      Unrealized gains (losses) on securities:
        Holding gains (losses) arising during the period      (27,129)       15,433       (51,428)       16,399
        Less:  reclassification adjustment for (gains)
        losses included in net income (net of tax
        expense (benefit): $(614) and $1,312 for
        three months ended June 30, 1999 and 1998;
        $(307) and $3,942 for six months ended June 30,
        1999 and 1998)                                          1,141        (4,024)          571        (8,908)
                                                             --------      --------      --------      --------
  
  Other comprehensive income (loss)                           (25,988)       11,409       (50,857)        7,491
                                                             --------      --------      --------      --------
  
  Comprehensive income (loss)                                $(19,242)     $ 20,766      $(38,402)     $ 28,936
                                                             ========      ========      ========      ========
  See accompanying notes to the consolidated financial statements.
  
                                          4
  PMA Capital Corporation
  
                   Notes to the Consolidated Financial Statements
  
  1.   BUSINESS DESCRIPTION
  
  The accompanying  consolidated  financial statements include the accounts of PMA
  Capital   Corporation   and  its  wholly  and  majority  owned   subsidiaries  (
  collectively  referred to as "PMA Capital" or the "Company").  PMA Capital is an
  insurance   holding  company  that  operates  three  specialty  risk  management
  businesses, which are more fully described below.
  
  Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of
  PMA Reinsurance  Corporation,  a Pennsylvania domiciled insurance company, which
  emphasizes risk-exposed, excess of loss reinsurance and operates in the brokered
  market. PMA Re's business is predominantly in casualty lines of reinsurance.
  
  Workers'  Compensation and Primary Standard  Insurance -- PMA Capital's property
  and  casualty  insurance   subsidiaries  ("The  PMA  Insurance  Group")  include
  Pennsylvania   domiciled   insurance   companies  as  well  as  certain  foreign
  subsidiaries.  The PMA Insurance Group primarily  writes workers'  compensation,
  and to a lesser extent other standard lines of commercial  insurance,  primarily
  in the Mid-Atlantic and Southern regions of the U.S.
  
  Specialty  Property and Casualty -- In January  1998,  the  Company's  specialty
  insurance unit,  Caliber One,  commenced  writing  business.  Caliber One writes
  business  through  surplus lines brokers  throughout the United States.  Caliber
  One's  excess and surplus  lines  insurance  affiliate,  Caliber  One  Indemnity
  Company,  is authorized as a surplus lines carrier in 40 states, the District of
  Columbia and Puerto Rico, with applications pending in seven other states.
  
  2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  A. Basis of  Presentation  - The  consolidated  financial  statements  have been
  prepared in accordance with generally accepted  accounting  principles  ("GAAP")
  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 1999 presentation.
  
  The  preparation of  consolidated  financial  statements in conformity with GAAP
  requires  management to make certain  estimates and assumptions  that affect the
  reported amounts of assets and liabilities,  disclosure of contingent assets and
  liabilities at the date of the financial  statements and the reported amounts of
  revenues and expenses during the period.  Due to this and certain other factors,
  such as the  seasonal  nature of portions of the  insurance  business as well as
  competitive and other market conditions, operating results for the three and six
  months ended June 30, 1999 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 1998 Annual Report to Shareholders  and  incorporated by reference in its
  Form 10-K for the year ended December 31, 1998.
  
  B. Recent  Accounting  Pronouncements  - Effective  January 1, 1999, the Company
  adopted  Statement of Position ("SOP") 97-3,  "Accounting by Insurance and Other
  Enterprises for  Insurance-Related  Assessments." SOP 97-3 provides guidance for
  determining when an insurance  company should recognize a liability for guaranty
  fund and other insurance related  assessments and how to measure that liability.
  As a result of  adopting  SOP 97-3,  the Company  recorded a  liability  of $4.3
  million  pre-tax and a resulting  charge to  earnings  of $2.8  million,  net of
  income tax benefit of $1.5  million,  which has been  reported  as a  cumulative
  effect of accounting  change.  This accounting  change impacts The PMA Insurance
  Group segment.
  
                                         5
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  3.   REINSURANCE
  
  In the ordinary  course of business,  PMA  Capital's  reinsurance  and insurance
  subsidiaries  assume and cede  premiums with other  insurance  companies and are
  members of various  underwriting  pools and  associations.  The  reinsurance and
  insurance  subsidiaries cede business,  primarily on an excess of loss basis, in
  order to limit the maximum net loss from large risks and limit the  accumulation
  of many smaller losses from a catastrophic  event. The reinsurance and insurance
  subsidiaries  remain  primarily  liable  to their  clients  in the  event  their
  reinsurers are unable to meet their financial obligations.
  
  The components of net premiums  earned and losses and loss  adjustment  expenses
  ("LAE") are as follows:
  Three Months Ended                  Six Months Ended
                                           June 30,                           June 30,
  (dollar amounts in thousands)    1999              1998              1999              1998
  ---------------------------------------------------------------------------------------------
  Earned Premiums:
      Direct ..............     $  78,801         $  69,629         $ 154,126         $ 143,020
      Assumed .............        83,078            66,172           152,524           128,064
      Ceded ...............       (32,738)          (21,147)          (68,187)          (49,508)
                                ---------         ---------         ---------         ---------
      Net .................     $ 129,141         $ 114,654         $ 238,463         $ 221,576
                                =========         =========         =========         =========
  Losses and LAE:
      Direct ..............     $  64,669         $  63,640         $ 125,029         $ 126,818
      Assumed .............        60,125            46,994            96,181            79,522
      Ceded ...............       (29,885)          (22,734)          (44,565)          (33,583)
                                ---------         ---------         ---------         ---------
      Net .................     $  94,909         $  87,900         $ 176,645         $ 172,757
                                =========         =========         =========         =========
  6
  4.   COMMITMENTS AND CONTINGENCIES
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written 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.  The Company is not aware of any material potential assessments at
  June 30, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of  approximately  $8.5 million,  primarily
  related to loans on properties in which the Company has an interest.
  
  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  results  of  operations,  liquidity  or  financial  condition.  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 results of operations, liquidity or financial condition.
  
  5.   EARNINGS PER SHARE
  
  A reconciliation  of the shares used as the denominator of the basic and diluted
  earnings per share  computations is presented below. For all periods  presented,
  there were no differences in the numerator  (income before  cumulative effect of
  accounting change) for the basic and diluted earnings per share calculation:
  Three Months Ended                Six Months Ended
                                                    June 30,                          June 30,
                                             1999             1998              1999             1998
  --------------------------------------------------------------------------------------------------------
  Denominator:
  Basic shares - weighted average
    common and Class A common
    shares outstanding ...............    23,083,506        23,692,071        23,199,921        23,770,912
  
  Effect of dilutive stock options....       853,211         1,002,385           823,293           887,999
                                          ----------        ----------        ----------        ----------
  Total diluted shares ...............    23,936,717        24,694,456        24,023,214        24,658,911
                                          ==========        ==========        ==========        ==========
  7
  6.   BUSINESS SEGMENTS
  
  The following table indicates the Company's revenues, all of which are generated
  within the U.S.,  and pre-tax  operating  income  (loss) by  principal  business
  segment:
  Three Months Ended                 Six Months Ended
                                                             June 30,                           June 30,
  (dollar amounts in thousands)                       1999             1998              1999              1998
  ----------------------------------------------------------------------------------------------------------------
  Revenues:
  PMA Re                                           $  83,906         $  68,540         $ 149,967         $ 128,138
  The PMA Insurance Group:
     Excluding Run-off Operations                     69,140            75,103           137,975           151,046
     Run-off Operations                                1,097             5,464             2,223            11,303
                                                   ---------         ---------         ---------         ---------
     Total                                            70,237            80,567           140,198           162,349
  Caliber One                                          4,493               536             7,539               905
  Corporate and Other                                    287               351               788               474
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Total revenues                                   $ 157,168         $ 153,743         $ 297,614         $ 303,129
                                                   =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                           $  10,367         $  11,580         $  23,116         $  22,952
  The PMA Insurance Group:
     Excluding Run-off Operations                      4,755             2,353             9,674             4,954
     Run-off Operations                                 (560)              293              (494)              428
                                                   ---------         ---------         ---------         ---------
     Total                                             4,195             2,646             9,180             5,382
  Caliber One                                           (605)             (681)           (1,301)           (1,070)
  Corporate and Other                                 (5,821)           (6,519)          (10,589)          (13,011)
                                                   ---------         ---------         ---------         ---------
  Pre-tax operating income                             8,136             7,026            20,406            14,253
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Income before income taxes and
     cumulative effect of accounting change            6,381            10,775            19,528            25,516
  Income tax expense (benefit)                          (365)            1,418             4,314             4,071
                                                   ---------         ---------         ---------         ---------
  Income before cumulative effect of
       accounting change                               6,746             9,357            15,214            21,445
  Cumulative effect of accounting
       change, net of tax                                 --                --            (2,759)               --
                                                   ---------         ---------         ---------         ---------
  Net income                                       $   6,746         $   9,357         $  12,455         $  21,445
                                                   =========         =========         =========         =========
  (1)  The Company excludes net realized investment gains (losses) from the profit
       and loss  measure it utilizes to assess the  performance  of its  operating
       segments.
  8
  7.   DISPOSITIONS
  
  Effective  July 1, 1998,  the Company  sold PMA  Insurance,  Cayman  Ltd.  ("PMA
  Cayman"),  one of the entities  included in The PMA  Insurance  Group's  Run-off
  Operations, which reinsured claims for certain policies written by other members
  of The PMA  Insurance  Group,  to a third  party  for a  purchase  price of $1.8
  million  and  recorded  an  after-tax  loss of $1.6  million.  This  transaction
  included  the  transfer  of $231.5  million in cash and  invested  assets to the
  buyer.  At June 30, 1999, the Company has recorded $240.9 million in reinsurance
  receivables  related to this transaction,  all of which are secured by assets in
  trust or by letters of credit.  If the actual  claim  payments in the  aggregate
  exceed  the   estimated   payments  upon  which  the  loss  reserves  have  been
  established,  the Company has agreed to indemnify the buyer,  up to a maximum of
  $15.0  million.  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.
  
                                         9
  Item 2.  Management's Discussion and Analysis of Financial Condition and Results
           of Operations
  
  The following is a discussion of PMA  Capital's  financial  condition as of June
  30, 1999, compared with December 31, 1998, and its results of operations for the
  three and six months  ended June 30, 1999,  compared  with the same periods last
  year. This discussion should be read in conjunction with Management's Discussion
  and Analysis included in PMA Capital's 1998 Annual Report to Shareholders (pages
  28 through 49), to which the reader is directed for additional information.  The
  term "SAP" refers to the statutory  accounting practices prescribed or permitted
  by  applicable  state  insurance  departments  and the  term  "GAAP"  refers  to
  generally accepted accounting principles.
  
       CONSOLIDATED RESULTS OF OPERATIONS
  
  The table below  presents the major  components of revenues,  pre-tax  operating
  income and net income:
  Three Months Ended                Six Months Ended
                                                              June 30,                          June 30,
   (dollar amounts in thousands)                      1999             1998              1999              1998
  ----------------------------------------------------------------------------------------------------------------
  Operating revenues:
  Net premiums written                             $ 101,931         $  94,908         $ 270,448         $ 248,481
                                                   =========         =========         =========         =========
  
  Net premiums earned                              $ 129,141         $ 114,654         $ 238,463         $ 221,576
  Net investment income                               26,961            31,920            54,070            63,850
  Other revenues                                       2,821             3,420             5,959             6,440
                                                   ---------         ---------         ---------         ---------
       Total operating revenues                    $ 158,923         $ 149,994         $ 298,492         $ 291,866
                                                   =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                           $  10,367         $  11,580         $  23,116         $  22,952
  The PMA Insurance Group:
     Excluding Run-off Operations                      4,755             2,353             9,674             4,954
     Run-off Operations                                 (560)              293              (494)              428
                                                   ---------         ---------         ---------         ---------
     Total                                             4,195             2,646             9,180             5,382
  Caliber One                                           (605)             (681)           (1,301)           (1,070)
  Corporate and Other                                 (5,821)           (6,519)          (10,589)          (13,011)
                                                   ---------         ---------         ---------         ---------
  Pre-tax operating income                             8,136             7,026            20,406            14,253
  Net realized investment gains (losses)              (1,755)            3,749              (878)           11,263
                                                   ---------         ---------         ---------         ---------
  Income before income taxes and
     cumulative effect of accounting change            6,381            10,775            19,528            25,516
  Income tax expense (benefit)                          (365)            1,418             4,314             4,071
                                                   ---------         ---------         ---------         ---------
  Income before cumulative effect of
       accounting change                               6,746             9,357            15,214            21,445
  Cumulative effect of accounting
       change, net of tax                                 --                --            (2,759)               --
                                                   ---------         ---------         ---------         ---------
  Net income                                       $   6,746         $   9,357         $  12,455         $  21,445
                                                   =========         =========         =========         =========
  (1)  Pre-tax  operating  income is defined as income from continuing  operations
       before income taxes,  excluding net realized investment gains (losses). The
       Company excludes net realized investment gains (losses) from the profit and
       loss  measurement  it utilizes to assess the  performance  of its operating
       segments   because  (i)  net  realized   investment   gains   (losses)  are
       unpredictable   and  not  necessarily   indicative  of  current   operating
       fundamentals or future performance and (ii) in many instances, decisions to
       buy and sell  securities are made at the holding  company  level,  and such
       decisions  result in net realized  gains (losses) that do not relate to the
       operations of the individual segments.
  10
  Pre-tax  operating  income for the three and six months  ended June 30, 1999 was
  $8.1  million and $20.4  million,  respectively,  compared to pre-tax  operating
  income of $7.0 million and $14.3 million for the same periods in 1998. After-tax
  operating income was $7.9 million and $15.8 million for the three and six months
  ended June 30, 1999,  respectively,  compared to after-tax  operating  income of
  $6.9  million and $14.1  million for the same periods in 1998.  These  increases
  were  primarily due to improved  underwriting  results  attributable  to The PMA
  Insurance  Group and lower interest  expense,  with after-tax  operating  income
  being partially offset by a higher effective tax rate in 1999.
  
  The Company  currently  expects  operating income to continue to improve in 1999
  reflecting  higher  operating  income from The PMA Insurance Group and continued
  stable operating income from PMA Re. This expectation may differ materially from
  actual results because of the risk factors noted in the "Cautionary  Statements"
  on page 23.
  
  Net income was $6.7 million and $12.5 million for the three and six months ended
  June 30,  1999,  respectively,  compared to net income of $9.4 million and $21.4
  million  for the three and six months  ended June 30,  1998,  respectively.  Net
  income for the six months ended June 30, 1999  includes an  after-tax  charge of
  $2.8 million for the effect of adopting Statement of Position 97-3,  "Accounting
  by Insurance  and Other  Enterprises  for  Insurance-Related  Assessments."  See
  "Recent Accounting Pronouncements" below for additional information.
  
  Net income also includes gains and losses on the sale of investments. The timing
  and  recognition  of  such  gains  and  losses  are  unpredictable  and  are not
  indicative of future operating  performance.  After-tax net realized  investment
  losses were $1.1  million and  $570,000  for the three and six months ended June
  30, 1999,  compared to after-tax net realized  investment  gains of $2.4 million
  and $7.3 million for the comparable  1998 periods.  The realized losses for 1999
  reflect sales of  investments  in an interest rate  environment  when rates were
  rising  in  contrast  to the  realized  gains  in 1998  which  reflect  sales of
  investments in a time when rates were declining.  Also, net realized  investment
  gains for the three and six months  ended June 30, 1998  include a $2.4  million
  pre-tax loss related to the sale of PMA Insurance,  Cayman Ltd. ("PMA  Cayman").
  See Note 7 to the Company's  Consolidated  Financial  Statements  for additional
  information.
  
                                         11
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  Three Months Ended                 Six Months Ended
                                                              June 30,                          June 30,
   (dollar amounts in thousands)                       1999             1998             1999             1998
  --------------------------------------------------------------------------------------------------------------
  Net premiums written                               $ 58,338         $ 47,089         $136,665         $117,908
                                                     ========         ========         ========         ========
  
  Net premiums earned                                $ 69,915         $ 54,869         $122,348         $100,967
  Net investment income                                13,991           13,671           27,619           27,171
                                                     --------         --------         --------         --------
  Operating revenues                                   83,906           68,540          149,967          128,138
  
  Losses and loss adjustment expenses ("LAE")          49,382           36,864           87,243           69,678
  Acquisition and operating expenses                   24,157           20,096           39,608           35,508
                                                     --------         --------         --------         --------
  Total losses and expenses                            73,539           56,960          126,851          105,186
                                                     --------         --------         --------         --------
  
  Pre-tax operating income                           $ 10,367         $ 11,580         $ 23,116         $ 22,952
                                                     ========         ========         ========         ========
  
  GAAP loss and LAE ratio                                70.6%            67.2%            71.3%            69.0%
  GAAP combined ratio                                   105.2%           103.8%           103.7%           104.2%
  
  --------------------------------------------------------------------------------------------------------------
  PMA Re's pre-tax  operating  income was $10.4  million and $23.1 million for the
  three and six months  ended June 30, 1999,  compared to $11.6  million and $23.0
  million for the comparable  periods in 1999.  The decrease in operating  results
  for the second quarter of 1999 reflects an increase in underwriting  losses, due
  to a higher loss ratio, partially offset by a lower expense ratio.
  
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  Three Months Ended                Six Months Ended
                                          June 30,                        June 30,
  (dollar amounts in thousands)    1999            1998            1999            1998
  ----------------------------------------------------------------------------------------
  Gross premiums written:
    Casualty lines               $ 49,774        $ 41,804        $122,962        $102,608
    Property lines                 20,368          15,402          46,133          41,313
    Other lines                        70             107             612             501
                                 --------        --------        --------        --------
  Total                          $ 70,212        $ 57,313        $169,707        $144,422
                                 ========        ========        ========        ========
  
  Net premiums written:
    Casualty lines               $ 41,416        $ 35,122        $ 97,963        $ 83,535
    Property lines                 16,857          11,845          38,109          33,849
    Other lines                        65             122             593             524
                                 --------        --------        --------        --------
  Total                          $ 58,338        $ 47,089        $136,665        $117,908
                                 ========        ========        ========        ========
  ----------------------------------------------------------------------------------------
  Net premiums written  increased $11.2 million,  or 23.9%, and $18.8 million,  or
  15.9%, for the three and six months ended June 30, 1999, respectively,  compared
  to the same periods in 1998.  These increases  primarily  reflect the successful
  expansion of finite and financial product offerings,  expansion of relationships
  with PMA Re's  existing  clients,  and
  
                                         12
  contracts  with new  clients.  Partially  offsetting  these  increases  were the
  effects of highly competitive  conditions in the U.S.  reinsurance market, which
  has caused PMA Re to non-renew  certain accounts largely due to inadequate rates
  and/or other underwriting issues.
  
  Net premiums earned  increased $15.0 million,  or 27.4%,  and $21.4 million,  or
  21.2%, for the three and six months ended June 30, 1999, respectively,  compared
  to the same periods in 1998.  Generally,  trends in net premiums  earned  follow
  patterns similar to net premiums written, with premiums being earned principally
  on a pro rata basis over the terms of the contracts.
  
  Losses and Expenses
  
  The following table reflects the components of PMA Re's GAAP combined ratios:
  Three Months Ended           Six Months Ended
                                                              June 30,                     June 30,
                                                         1999          1998          1999          1998
  ------------------------------------------------------------------------------------------------------
  Loss and LAE ratio                                     70.6%         67.2%         71.3%         69.0%
  Expense ratio:
    Amortization of deferred acquisition costs           29.8%         30.5%         27.0%         28.5%
    Operating expenses                                    4.8%          6.1%          5.4%          6.7%
                                                        -----         -----         -----         -----
  Total expense ratio                                    34.6%         36.6%         32.4%         35.2%
                                                        -----         -----         -----         -----
  Combined ratio  - GAAP (1)                            105.2%        103.8%        103.7%        104.2%
                                                        =====         =====         =====         =====
  
  ------------------------------------------------------------------------------------------------------
  (1) The combined ratio computed on a GAAP basis is equal to losses and LAE, plus
  the sum of  acquisition  expenses  and  operating  expenses,  all divided by net
  premiums earned.
  PMA Re's loss and LAE ratio  increased  3.4  points and 2.3 points for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  in 1998. These increases  primarily relate to a change in PMA Re's business mix,
  with finite and financial  products  representing  an  increasing  percentage of
  earned premiums. Such products typically carry a higher loss and LAE ratio and a
  lower acquisition expense ratio than traditional reinsurance products.
  
  The acquisition  expense ratio decreased 0.7 points and 1.5 points for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  last year. The decrease is primarily  attributable to the change in business mix
  as described  above,  and to changes in PMA Re's  retrocessional  program in the
  first quarter of 1999, resulting in higher ceding commissions, which reduces the
  acquisition expense ratio.
  
  The  operating  expense  ratio  decreased  1.3 points for both the three and six
  months ended June 30, 1999,  compared to the same periods last year,  reflecting
  growth in earned premium and essentially flat operating expenses.
  
                                         13
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  Three Months Ended                Six Months Ended
                                                      June 30,                          June 30,
  (dollar amounts in thousands)                1999             1998             1999             1998
  ------------------------------------------------------------------------------------------------------
  Net premiums written                       $ 36,162         $ 47,285         $119,183         $129,827
                                             ========         ========         ========         ========
  
  Net premiums earned                        $ 55,326         $ 59,791         $109,725         $120,589
  Net investment income:
       Excluding Run-off Operations            11,503           12,726           23,510           25,286
       Run-off Operations(1)                    1,097            5,464            2,223           11,303
                                             --------         --------         --------         --------
           Total                               12,600           18,190           25,733           36,589
  Other revenues                                2,311            2,586            4,740            5,171
                                             --------         --------         --------         --------
  Operating revenues                           70,237           80,567          140,198          162,349
  
  Losses and LAE:
       Excluding Run-off Operations            40,919           46,478           82,128           93,684
       Run-off Operations(1)                    1,411            4,505            1,959            9,401
                                             --------         --------         --------         --------
           Total                               42,330           50,983           84,087          103,085
  Acquisition and operating expenses:
       Excluding Run-off Operations            19,208           22,059           36,847           44,278
       Run-off Operations(1)                      246              666              758            1,474
                                             --------         --------         --------         --------
           Total                               19,454           22,725           37,605           45,752
  Dividends to policyholders                    4,258            4,213            9,326            8,130
                                             --------         --------         --------         --------
  Total losses and expenses                    66,042           77,921          131,018          156,967
                                             --------         --------         --------         --------
  Pre-tax operating income                   $  4,195         $  2,646         $  9,180         $  5,382
                                             ========         ========         ========         ========
  
  GAAP loss and LAE ratio                        76.5%            85.3%            76.6%            85.5%
  GAAP combined ratio(2)                        115.3%           126.3%           115.7%           126.2%
  ------------------------------------------------------------------------------------------------------
  (1)  Run-off operations  ("Run-off  Operations") of The PMA Insurance Group were
       established and segregated from ongoing  operations  effective December 31,
       1996 to reinsure  certain  obligations  primarily  associated with workers'
       compensation  claims written by The PMA Insurance  Group's Pooled Companies
       for the years 1991 and prior.
  
  (2)  The  combined  ratio for the six months  ended June 30, 1999  excludes  the
       impact of the cumulative  effect of accounting change of $4.3 million ($2.8
       million after-tax) for insurance-related assessments.
  Operating Results
  
  Pre-tax  operating  income for The PMA Insurance Group was $4.2 million and $9.2
  million  for the three and six months  ended  June 30,  1999,  compared  to $2.6
  million  and  $5.4  million  for the same  periods  in 1998.  The  increases  in
  operating  income were primarily due to improved loss  experience,  a relatively
  lower level of risks  underwritten and lower operating  expenses  resulting from
  ongoing cost reduction initiatives.
  
                                         14
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  Three Months Ended                  Six Months Ended
                                                June 30,                           June 30,
  (dollar amounts in thousands)         1999              1998              1999              1998
  ---------------------------------------------------------------------------------------------------
  Workers' compensation:
      Direct premiums written        $  34,806         $  34,307         $ 106,096         $ 101,489
      Premiums assumed                     469             1,567             1,194             2,460
      Premiums ceded                    (7,530)           (2,368)          (16,828)           (5,555)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $  27,745         $  33,506         $  90,462         $  98,394
                                     =========         =========         =========         =========
  
  Commercial Lines:
      Direct premiums written        $  16,185         $  22,272         $  44,454         $  51,363
      Premiums assumed                     134               914             1,028             1,388
      Premiums ceded                    (7,902)           (9,407)          (16,761)          (21,318)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $   8,417         $  13,779         $  28,721         $  31,433
                                     =========         =========         =========         =========
  
   Total:
      Direct premiums written        $  50,991         $  56,579         $ 150,550         $ 152,852
      Premiums assumed                     603             2,481             2,222             3,848
      Premiums ceded                   (15,432)          (11,775)          (33,589)          (26,873)
                                     ---------         ---------         ---------         ---------
      Net premiums written           $  36,162         $  47,285         $ 119,183         $ 129,827
                                     =========         =========         =========         =========
  
  ---------------------------------------------------------------------------------------------------
  Net premiums  written,  which  represent  direct  premiums  written plus assumed
  premiums,  less premiums ceded,  decreased to $36.2 million for the three months
  ended June 30, 1999,  compared to $47.3 million for the same period in 1998, and
  decreased to $119.2 million for the six months ended June 30, 1999,  compared to
  $129.8  million  for the same  period in 1998.  The  decreases  in net  premiums
  written for 1999 were the result of lower direct premiums written for commercial
  lines of business  other than workers'  compensation,  such as commercial  auto,
  general  liability,   umbrella,   multi-peril  and  commercial   property  lines
  (collectively,  "Commercial  Lines"),  which  decreased by $6.1 million and $6.9
  million for the three and six months ended June 30, 1999, and increases in ceded
  premium of $3.7 million and $6.7 million for the three and six months ended June
  30, 1999.  These decreases were partially offset by increases in direct premiums
  written for workers' compensation of $499,000 and $4.6 million for the three and
  six months ended June 30, 1999, compared to the same periods in 1998.
  
  Direct  workers'  compensation  premiums  written  were higher for the first six
  months  of 1999 due to an  increase  in the level of risks  underwritten.  These
  increases   were   partially   offset  by  manual  rate   reductions   averaging
  approximately 3% in The PMA Insurance Group's principal  marketing  territories,
  continued  intense price competition and lower additional audit premiums of $2.3
  million for the six months ended June 30,  1999,  compared to the same period in
  1998.
  
  Direct writings of Commercial Lines decreased for the three and six months ended
  June 30,  1999,  compared to the same periods in 1998  primarily  due to planned
  reductions  in such lines as well as continued  competitive  conditions.  Rather
  than lower prices to what it believes are unacceptable levels, The PMA Insurance
  Group has chosen not to renew some of its business in the Commercial Lines.
  
  The increases in reinsurance  premiums ceded of $3.7 million and $6.7 million in
  the three and six months  ended June 30, 1999  primarily  reflect  higher  ceded
  workers'  compensation  premiums of $5.2 million and $11.3 million for the three
  and six months ended June 30, 1999,  respectively,  compared to the same periods
  in 1998. In 1999, a new  reinsurance  treaty reduced the net retention  level on
  workers'  compensation  exposures from $1.5 million to $150,000 per  occurrence.
  Partially  offsetting  such  increase  was a decrease  of $1.5  million and $4.6
  million  in ceded  premiums  for  Commercial  Lines for the three and six months
  ended June 30, 1999,  respectively,  compared to the same  periods in 1998.  The
  
                                         15
  decrease in ceded Commercial Lines premiums is primarily due to the reduction in
  direct  Commercial  Lines business  written and negotiated  rate  reductions for
  various treaties reinsuring certain Commercial Lines business.
  
  Net premiums  earned  decreased $4.5 million and $10.9 million for the three and
  six months  ended June 30, 1999,  respectively,  compared to the same periods in
  1998.  Generally,  trends in net premiums earned follow patterns  similar to net
  premiums written adjusted for the customary lag related to the timing of premium
  writings within the year.  Direct premiums are earned  principally on a pro rata
  basis over the terms of the policies.
  
  Losses and Expenses
  
  The  following  table  reflects  the  components  of the PMA  Insurance  Group's
  combined ratios:
  Three Months Ended           Six Months Ended
                                                               June 30,                   June 30,
                                                         1999          1998          1999          1998
  -------------------------------------------------------------------------------------------------------
  Loss and LAE ratio                                     74.0%         77.7%         74.8%         77.7%
  Expense ratio:
    Amortization of deferred acquisition costs           18.5%         20.7%         16.2%         19.2%
    Operating expenses(1) (2)                            12.1%         12.1%         13.7%         13.6%
                                                        -----         -----         -----         -----
    Total expense ratio                                  30.6%         32.8%         29.9%         32.8%
  
  Policyholders' dividends                                7.7%          7.0%          8.5%          6.7%
                                                        -----         -----         -----         -----
  
  Combined ratio  - GAAP (1) (2) (3) (4)                112.3%        117.5%        113.2%        117.2%
                                                        =====         =====         =====         =====
  -------------------------------------------------------------------------------------------------------
  (1)  The expense ratio and the combined ratios for the six months ended June 30,
       1999 exclude the impact of the  cumulative  effect of accounting  change of
       $4.3 million ($2.8 million after-tax) for insurance-related assessments.
  (2)  The expense  ratio and the  combined  ratio  exclude  $2.2 million and $4.0
       million for the three and six months ended June 30, 1999, respectively, and
       $2.4  million and $4.7  million for the three and six months ended June 30,
       1998, respectively, for expenses related to service revenues, which are not
       included in premiums earned.
  (3)  The  combined  ratio  computed  on a GAAP basis is equal to losses and LAE,
       plus the sum of acquisition expenses, operating expenses and policyholders'
       dividends, all divided by net premiums earned.
  (4)  The GAAP combined  ratios for The PMA Insurance Group including the Run-off
       Operations  were 115.3% and 115.7% for the three and six months  ended June
       30, 1999, and 126.3% and 126.2% for the three and six months ended June 30,
       1998, respectively.
  For the three months and six months  ended June 30, 1999,  the GAAP loss and LAE
  ratio improved by 3.7 points and 2.9 points, respectively,  compared to the same
  periods in 1998. These  improvements  were primarily due to favorable prior year
  reserve  development  and improved loss and LAE ratios in workers'  compensation
  and  Commercial  Lines in 1999,  partially  offset by a decline  in the level of
  reserve discount.
  
  The PMA Insurance Group has experienced $1.7 million of favorable development of
  prior accident year results ("prior year development") for the second quarter of
  1999 compared to $1.5 million of favorable prior year development in 1998, which
  improved the overall  loss and LAE ratio by 0.4 points in the second  quarter of
  1999.  For the six  months  ended June 30,  1999,  The PMA  Insurance  Group has
  experienced $2.6 million of favorable prior year  development,  compared to $1.4
  million of favorable prior year  development for the same period in 1998,  which
  improved  the overall  loss and LAE ratio by 1.2 points for the six months ended
  June 30, 1999.
  
  The  improvement  in loss and LAE  ratios  in  Commercial  Lines  has  favorably
  impacted  the  overall  loss and LAE ratio by 2.8  points and 2.2 points for the
  three months and six months ended June 30, 1999,  respectively,  compared to the
  same periods in 1998.  The  improvements  in the  Commercial  Lines loss and LAE
  ratio were  primarily due to the continued
  
                                         16
  reduction in  exposures  underwritten  reflecting  the  application  of stricter
  underwriting standards and continued intense price competition.
  
  In addition, the improvement in the workers' compensation accident year loss and
  LAE ratio has  favorably  impacted  the overall loss and LAE ratio by 1.7 points
  and 1.3  points  for the  three  months  and six  months  ended  June 30,  1999,
  respectively,  compared to the same periods in 1998. These improvements  reflect
  the application of stricter  underwriting  standards and a relatively lower risk
  profile of business written.
  
  The loss  and LAE  ratio is  negatively  impacted  by  accretion  of prior  year
  discounted  reserves and  favorably  impacted by setting up discount for current
  year reserves.  The net of these is referred to as net discount  accretion.  The
  PMA Insurance Group  experienced  $0.8 million of net discount  accretion in the
  second quarter of 1999 compared with $0.1 million in the second quarter of 1998,
  which  caused a 1.3 point  increase  in the loss and LAE  ratio  for the  second
  quarter of 1999. The increase in net discount  accretion reflects a reduction in
  the amount of discount  recorded on current year's reserve as a result of higher
  ceded loss reserves due to the new reinsurance treaty for workers' compensation.
  The PMA Insurance Group  experienced $1.8 million of net discount  accretion for
  the first six months of 1999 compared to no net discount  accretion for the same
  period in 1998.  This resulted in a 1.7 point increase in the loss and LAE ratio
  for the six months ended June 30, 1999.
  
  The GAAP expense ratio  decreased by 2.2 points and 2.9 points for the three and
  six months  ended June 30, 1999,  respectively,  compared to the same periods in
  1998,  primarily due to a lower acquisition  expense ratio. The decreases in the
  acquisition expense ratio of 2.2 points for the three months ended June 30, 1999
  and 3.0 points for the six months  ended  June 30,  1999,  compared  to the same
  periods in 1998,  were primarily due to higher ceded  commissions  received as a
  result of the new  reinsurance  treaty in 1999 and a reduction in certain  state
  assessments.
  
  The policyholders' dividend ratio was 7.7% and 8.5% for the three and six months
  ended  June  30,  1999,  respectively,  compared  to 7.0%  and 6.7% for the same
  periods last year.  These  increases  are primarily due to selling more business
  under  dividend  plans and improved  loss  experience,  which  results in higher
  dividend payouts to policyholders.
  
       Net Investment Income
  
  Net investment  income was $11.5 million and $23.5 million for the three and six
  months ended June 30, 1999,  compared to $12.7 million and $25.3 million for the
  same periods in 1998. The decrease primarily reflects a lower asset base, due to
  the paydown of loss reserves from prior accident years.
  
       Run-off Operations
  
  Effective  July 1,  1998,  the  Company  sold PMA  Cayman,  one of the  entities
  included in The PMA Insurance Group's Run-off Operations, which reinsured claims
  for certain  policies  written by other members of The PMA Insurance Group, to a
  third party for a purchase  price of $1.8 million and recorded an after-tax loss
  of  $1.6  million.  See  Note 7 to the  Consolidated  Financial  Statements  for
  additional information. This transaction included the transfer of $231.5 million
  in cash and invested assets to the buyer.
  
  Net investment income for the Run-off  Operations  decreased by $1.1 million and
  $5.8  million in the three and six months  ended  June 30,  1999,  respectively,
  compared to the same  periods in 1998.  The  decrease in  investment  income was
  primarily due to the decrease in invested assets resulting from the sale, and to
  a lesser extent, from the paydown of losses by the remaining run-off entities.
  
  The  sale of PMA  Cayman  also  resulted  in a  reduction  in  losses  and  LAE,
  acquisition  expenses and operating  expenses of the Run-off  Operations for the
  three and six months ended June 30, 1999, compared to the same periods in 1998.
  
                                         17
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  Three Months Ended                 Six Months Ended
                                                     June 30,                          June 30,
                                              1999             1998             1999             1998
  -----------------------------------------------------------------------------------------------------
  Net premiums written                      $  7,531         $    705         $ 14,853         $    917
                                            ========         ========         ========         ========
  
  Net premiums earned                       $  4,000         $    165         $  6,643         $    191
  Net investment income                          493              371              896              714
                                            --------         --------         --------         --------
  Operating revenues                           4,493              536            7,539              905
  
  Losses and LAE incurred                      3,197              133            5,315              153
  Acquisition and operating expenses           1,901            1,084            3,525            1,822
                                            --------         --------         --------         --------
  Total losses and expenses                    5,098            1,217            8,840            1,975
                                            --------         --------         --------         --------
  
  Pre-tax operating loss                    $   (605)        $   (681)        $ (1,301)        $ (1,070)
                                            ========         ========         ========         ========
  
  -----------------------------------------------------------------------------------------------------
  Caliber One recorded  pre-tax  operating losses of $605,000 and $1.3 million for
  the three and six months ended June 30, 1999, respectively,  compared to pre-tax
  operating losses of $681,000 and $1.1 million for the three and six months ended
  June 30, 1998. The increase in the pre-tax  operating loss for the six months of
  1999,  compared to the same period in 1998,  reflects the cost of expanding  the
  scope of Caliber One's  operations.  Pre-tax operating loss for the three months
  ended June 30, 1999 improved compared with the same period last year, reflecting
  revenue  growth  mitigating a relatively  larger  portion of losses and start up
  costs.
  
  The growth in net premiums written and earned for the three and six months ended
  June 30, 1999,  compared to the same  periods in 1998,  reflects  Caliber  One's
  rising  market  acceptance  and  expanded  distribution  network  combined  with
  increased staffing levels.
  
  CORPORATE AND OTHER
  
  The  Corporate  and  Other  segment  includes  unallocated   investment  income,
  expenses,  including debt service,  and taxes, as well as the results of certain
  of the Company's real estate properties. For the three and six months ended June
  30, 1999,  Corporate and Other recorded pre-tax operating losses of $5.8 million
  and $10.6 million,  respectively,  compared to pre-tax  operating losses of $6.5
  million and $13.0  million  for the same  periods in 1998.  The  decrease in the
  operating loss is primarily due to lower  interest  expense of $700,000 and $1.4
  million  for the  second  quarter  and first six  months of 1999,  respectively,
  reflecting a $40 million  paydown in  outstanding  debt in the fourth quarter of
  1998.  Operating  losses also  improved due to lower net expenses  from non-core
  real estate properties.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
  Liquidity
  
  Liquidity is a measure of an entity's ability to secure  sufficient cash to meet
  its contractual  obligations and operating  needs. At the holding company level,
  the Company requires cash to pay debt obligations, dividends to shareholders and
  taxes to the Federal government, as well as to capitalize subsidiaries from time
  to  time.  PMA  Capital's  primary  sources  of  liquidity  are  dividends  from
  subsidiaries, net tax payments received from subsidiaries and borrowings.
  
                                         18
  At June 30, 1999 and  December  31,  1998,  the  Company  had $163.0  million of
  outstanding  debt under its Revolving  Credit Facility (the "Credit  Facility").
  The final expiration of the Credit Facility is December 31, 2002, and the Credit
  Facility  matures in an installment of $38.0 million in 2000 and installments of
  $62.5 million in 2001 and 2002.
  
  In addition to the Credit Facility,  the Company maintains a committed  facility
  of $50.0  million for letters of credit (the "Letter of Credit  Facility").  The
  Letter of  Credit  Facility  is  utilized  primarily  for  securing  reinsurance
  obligations of the Company's  insurance  subsidiaries.  As of June 30, 1999, the
  Company had $44.9 million  outstanding  in letters of credit under the Letter of
  Credit Facility, compared with $46.9 million as of December 31, 1998.
  
  The  Company  paid  interest  of $2.9  million  and $6.0  million on both credit
  facilities  for the three and six  months  ended  June 30,  1999,  respectively,
  compared to $4.2 million and $7.5 million for the same periods in 1998.
  
  The Company's domestic insurance  subsidiaries'  ability to pay dividends to the
  holding company is limited by the insurance laws and regulations of Pennsylvania
  and Delaware (such laws are substantially similar).  Under Pennsylvania laws and
  regulations,  without prior approval of the Pennsylvania  Insurance Commissioner
  (the "Commissioner"),  dividends may not be paid in excess of the greater of (i)
  10% of  policyholders'  surplus as of the end of the preceding  year or (ii) SAP
  net income for the preceding year, but in no event to exceed  unassigned  funds.
  Under this standard,  the Pooled  Companies and PMA Reinsurance  Corporation can
  pay an aggregate of $51.8 million of dividends without the prior approval of the
  Commissioner  during 1999. Caliber One Indemnity  Company, a  Delaware-domiciled
  company,  is directly  owned by PMA  Reinsurance  Corporation  and, as such, its
  dividends may not be paid directly to PMA Capital.  As stated above,  Delaware's
  insurance  laws as they  apply to  restricting  the  payment  of  dividends  are
  substantially similar to Pennsylvania's insurance laws. Under Delaware insurance
  laws,  Caliber One  Indemnity  Company can pay $2.5 million in dividends  during
  1999.  Dividends  received from subsidiaries were $8.0 million and $18.8 million
  for the three and six months ended June 30, 1999, respectively, compared to $6.0
  million and $10.0 million for the comparable 1998 periods.
  
  Net tax payments  received from subsidiaries were $8.2 million and $11.7 million
  for the three and six months ended June 30, 1999, respectively, compared to $8.7
  million and $14.7 million for the same periods in 1998.
  
  PMA Capital's  dividends to shareholders  are restricted by its debt agreements.
  Based upon the terms of the Credit  Facility and the Letter of Credit  Facility,
  under the most  restrictive  debt  covenant,  PMA  Capital  would be able to pay
  dividends of approximately  $15.6 million in 1999. The Company paid dividends to
  shareholders of $2.0 million and $3.9 million for the three and six months ended
  June 30, 1999 and 1998, respectively,  compared to $2.1 million and $4.1 million
  for the three and six months ended June 30, 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries totaling $1.5 million and $4.1 million for the three and six months
  ended June 30, 1999,  respectively.  No cash capital  contributions were made to
  subsidiaries during 1998.
  
  In  February  1998,  the  Company's  Board  of  Directors  authorized  a plan to
  repurchase  shares of common  stock and Class A common stock in an amount not to
  exceed $25.0  million.  In February  1999, an additional  $20.0 million of share
  repurchase  authority was approved by the Company's  Board of Directors.  During
  the first six months of 1999, the Company  repurchased 627,000 shares at a total
  cost of $12.3  million  (average per share price was $19.54).  In addition,  PMA
  Capital repurchased 200,000 shares in July 1999 for a total cost of $4.0 million
  (average per share price was approximately  $20.00).  Since the inception of its
  share  repurchase  program in February 1998, PMA Capital has repurchased a total
  of 1.8 million shares at a total cost of $35.1 million  (average per share price
  was $19.25).  As of August 4, 1999, PMA Capital has remaining  share  repurchase
  authorization of $9.9 million. Decisions regarding share repurchases are subject
  to the costs and  benefits  associated  with  alternative  uses of  capital  and
  prevailing market conditions.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet its short-term and long-term obligations.
  
                                         19
  Capital Resources
  
  The  Company's  total  assets  decreased  to $3,398.8  million at June 30, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $159.2 million to $2,166.2 million at June 30, 1999. The decrease in investments
  is primarily  attributable  to declines in market  value due to rising  interest
  rates as well as a decrease  of $59.5  million in  securities  on loan under the
  Company's  securities lending program.  All other assets increased $97.3 million
  at June 30, 1999 compared to December 31, 1998.
  
  Presently,   management   believes  that  the  existing  capital   structure  is
  appropriate.  However,  management continually monitors the capital structure in
  light of developments in the business,  and the present  assessment could change
  as management becomes aware of new opportunities and challenges in the Company's
  business.
  
  OTHER MATTERS
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written to provide coverage  unanticipated by the Company. The
  eventual effect on the Company of the changing  environment in which it operates
  remains uncertain.
  
  Year 2000 Issue
  
  As a consequence of the programming  convention which utilized a two-digit field
  rather than a four-digit field,  certain  information  technology ("IT") systems
  and non-IT  systems,  such as equipment with embedded chips or  microprocessors,
  require  reprogramming  or replacement to enable them to perform  correctly date
  operations involving year 2000 or later ("Year 2000 Issue").
  
  With the assistance of outside  consulting  groups, the Company began evaluating
  and  reprogramming  its IT systems to address  the Year 2000 Issue in late 1995.
  The  Company's  Year  2000  systems'  program  consists  of  four  phases:   (i)
  identifying  systems requiring  remediation;  (ii) assessing the requirements to
  remediate those systems;  (iii) remediating those systems to make them Year 2000
  ready by either  modifying or replacing  them;  and (iv) testing the systems for
  Year 2000 readiness,  including, where applicable,  that they properly interface
  with third parties.  The Company has completed the identification and assessment
  phases  with  respect  to  its IT  systems  that  are  critical  to  maintaining
  operations  or the  failure  of  which  would  result  in  significant  costs or
  disruption of operations ("mission critical systems").  As of February 28, 1999,
  the Company had remediated and tested all of its mission  critical  systems.  In
  addition,  the Company will continue to test its mission  critical systems under
  varying testing scenarios throughout 1999.
  
  The Company has  identified all of its non-IT systems that may require Year 2000
  remediation,  including office equipment and physical facilities,  which contain
  microprocessors  or other embedded  technology over which it has control.  As of
  April 30, 1999,  substantially  all of these  non-IT  systems are believed to be
  Year 2000 ready to the extent  reasonably  necessary  to conduct  the  Company's
  day-to-day  operations.  Because the Company is not  materially  dependent  upon
  non-IT  systems,  the effect of a failure of these systems is not expected to be
  material to the Company's financial condition or results of operations. The cost
  of the  Company's  Year  2000  readiness  work  through  June 30,  1999 has been
  approximately  $5.4  million.  No  material  costs were  incurred  in the second
  quarter of 1999. The Company does not expect to incur material costs through the
  rest of 1999 in connection with the Year 2000 Issue.
  
  The Company also is continuing to evaluate its relationships  with certain third
  parties  with  which the  Company  has a direct  and  material  relationship  to
  determine whether they are Year 2000 ready, such as banks, brokers,  reinsurers,
  third party service  providers,  software and other service vendors,  and agents
  and other intermediaries.  As of July 31, 1999, the responses received from such
  third parties to inquiries made by the Company indicate that these third parties
  either are or expect to be Year 2000 ready by December 31, 1999.
  
                                         20
  Even assuming that all material  third parties  provide a timely  representation
  concerning their Year 2000 readiness, it is not possible to state with certainty
  that  such  representations  will turn out to have  been  accurate,  or that the
  operations  of such third  parties  will not be  materially  impacted in turn by
  other parties with whom they  themselves have a material  relationship,  and who
  fail to timely become Year 2000 ready. Consequently,  the effect, if any, on the
  Company's  results of  operations  from the failure of such third  parties to be
  Year 2000 ready is not reasonably estimable. However, the failure of one or more
  third parties with whom the Company has a material  relationship to be Year 2000
  ready  could  cause  significant  disruptions  in the  Company's  ability to pay
  claims,  receive  and  deposit  funds and make  investments,  which could have a
  material  adverse  effect on the  Company's  financial  condition and results of
  operations.  The  Company's  contingency  plans in the event of  failure of such
  third  parties  to be  Year  2000  ready  include  replacing  the  third  party,
  performing  directly the services  performed by the third party and  maintaining
  liquidity under the Company's Credit Facility.
  
  Although the Company  believes that Year 2000 Issues related to its hardware and
  internal  software  programs  are not likely to result in any  material  adverse
  disruptions in the Company's computer systems or its other business  operations,
  it has begun,  but not yet completed,  an analysis of the  operational  problems
  that the Company believes would be reasonably  likely to result from the failure
  by the  Company and  certain  third  parties to  successfully  complete  efforts
  necessary to achieve Year 2000 readiness on a timely basis.  The Company expects
  to  complete  this  analysis in the third  quarter of 1999.  The Company is also
  developing  contingency  plans to provide  for the  resumption  of its  computer
  systems and its other  business  operations in the event such Year 2000 problems
  occur.  These plans are expected to be  completed in the third  quarter of 1999;
  however,  the Company intends throughout 1999 to review and modify such plans on
  an  ongoing  basis  as  new  information   becomes  available  or  circumstances
  materially change.
  
  The costs of the Company's  Year 2000 efforts and the dates on which the Company
  believes it will complete such efforts are based on management's best estimates,
  which were derived using numerous assumptions regarding future events, including
  the continued availability of certain resources,  third-party remediation plans,
  and other factors.  There can be no assurance that these estimates will prove to
  be accurate,  and actual results could differ  materially  from those  currently
  anticipated.  Specific  factors  that  could  cause  such  material  differences
  include, but are not limited to, the availability and costs of personnel trained
  in Year 2000 Issues;  the Company's ability to identify,  assess,  remediate and
  test all  relevant  computer  codes  and  embedded  technology;  the  risk  that
  reasonable  testing  will  not  uncover  all Year  2000  problems;  and  similar
  uncertainties.
  
  In addition to the costs and risks  associated  with internal  systems and third
  parties,  the Company may have  underwriting  exposure  related to the Year 2000
  Issue.  Businesses  materially  damaged  as a result of the Year 2000  Issue may
  attempt to recoup  their  losses by claiming  coverage  under  various  types of
  insurance  policies  underwritten by the Company and by ceding companies to whom
  the Company provides reinsurance. The Company is attempting,  whenever possible,
  to avoid or  otherwise  limit its  potential  Year  2000  exposure  through  its
  underwriting process. In the event that claims for Year 2000 Issues are asserted
  against the Company, it is not possible to predict whether or to what extent any
  such  coverage  could  ultimately  be  found  to  exist  by  courts  in  various
  jurisdictions,  or, if found,  the effect  thereof on the Company.  In addition,
  even if such  coverage were found not to exist,  which cannot be predicted,  the
  costs of litigation could be material.  In the absence of any claims  experience
  at this time, such losses and costs are not currently reasonably estimable.
  
  Comparison of SAP and GAAP Results
  
  Results  presented  in  accordance  with  GAAP  vary in  certain  respects  from
  statutory  accounting  practices  prescribed  or permitted  by the  Pennsylvania
  Insurance  Department  and  the  Delaware  Insurance  Department  (collectively,
  "SAP").   Prescribed   SAP  includes   state  laws,   regulations   and  general
  administrative  rules, as well as a variety of National Association of Insurance
  Commissioners  ("NAIC")  publications.  Permitted SAP encompasses all accounting
  practices that are not prescribed. In 1998, the NAIC adopted the Codification of
  Statutory Accounting Principles  ("Codification")
  
                                         21
  guidance,  which will replace the current  Accounting  Practices and  Procedures
  manual as the NAIC's  primary  guidance on  statutory  accounting.  Codification
  provides  guidance  for areas  where  statutory  accounting  has been silent and
  changes  current  statutory  accounting in some areas,  such as deferred  income
  taxes.
  
  The  Pennsylvania  Insurance  Department  has  adopted  Codification,  effective
  January 1, 2001.  The  Company is in the process of  estimating  the impact that
  Codification will have on its statutory surplus.
  
  Recent Accounting Pronouncements
  
  Effective  January 1, 1999, the Company  adopted  Statement of Position  ("SOP")
  97-3,  "Accounting  by Insurance  and Other  Enterprises  for  Insurance-Related
  Assessments."  SOP 97-3  provides  guidance  for  determining  when an insurance
  company  should  recognize a liability  for  guaranty  fund and other  insurance
  related  assessments and how to measure that liability.  As a result of adopting
  SOP 97-3,  the  Company  recorded a  liability  of $4.3  million  pre-tax  and a
  resulting charge to earnings of $2.8 million,  net of income tax benefit of $1.5
  million,  which has been reported as a cumulative  effect of accounting  change.
  This accounting change impacts The PMA Insurance Group segment.
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
                                         22
  CAUTIONARY STATEMENTS
  
  Except for historical  information provided in this Management's  Discussion and
  Analysis and otherwise in this report,  statements  made  throughout this report
  are forward-looking  and contain  information about financial results,  economic
  conditions, trends and known uncertainties. These forward-looking statements are
  based on currently  available  financial,  competitive and economic data and the
  Company's current operating plans based on assumptions  regarding future events.
  The Company's actual results could differ  materially from those expected by the
  Company's  management.  The  factors  that could  cause  actual  results to vary
  materially,  some of which are described  with the  forward-looking  statements,
  include,  but are not  limited  to,  changes  in  general  economic  conditions,
  including the performance of financial markets and interest rates; regulatory or
  tax  changes,  including  changes  in  risk-based  capital  or other  regulatory
  standards  that  affect the  ability of the  Company  to conduct  its  business;
  competitive  or  regulatory  changes  that  affect the cost of or demand for the
  Company's products; the Company's ability to meet its marketing objectives;  the
  effect of changes in workers'  compensation  statutes and their  administration;
  the  Company's  ability to predict  and  effectively  manage  claims  related to
  insurance and  reinsurance  policies;  reliance on key  management;  adequacy of
  reserves for claim  liabilities;  adverse property and casualty loss development
  for events the Company insured in prior years;  adequacy and  collectibility  of
  reinsurance  purchased by the Company;  severity of natural  disasters and other
  catastrophes;  and other factors disclosed from time to time in reports filed by
  the Company with the Securities and Exchange  Commission.  Investors  should not
  place undue reliance on any such forward-looking statements.
  
                                         23
  Part II. Other Information
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
  The Company's 1999 Annual Meeting of Shareholders ("Annual Meeting") was held on
  April 26, 1999. At the Annual Meeting,  the shareholders elected nominees to the
  Board of Directors and approved the 1999 Equity Incentive Plan.
  
  The  following  nominees  were  elected  as members  of the  Company's  Board of
  Directors to serve for terms expiring at the 2002 Annual Meeting and until their
  successors are elected:
  
  Name of Nominee                   Votes Cast For              Votes Withheld
  ---------------                   --------------              --------------
  Paul I. Detwiler, Jr               117,739,338                    21,934
  Anne S. Genter                     117,749,035                    12,237
  A. John May                        113,648,772                 4,112,500
  Roderic H. Ross                    117,749,035                    12,237
  John W. Smithson                   117,724,333                    36,939
  
  The shareholders voted to approve the Company's 1999 Equity Incentive Plan:
  
  Votes Cast For       Votes Cast Against     Abstentions        Broker Non-Votes
  --------------       ------------------     -----------        ----------------
  114,402,725          341,043                1,307,339          1,710,165
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  The Exhibits are listed in the Index to Exhibits on page 26.
  
  (b)  Reports on Form 8-K filed during the quarter ended June 30, 1999:
  
  During the quarterly period ended June 30, 1999, the Company filed the following
  Reports on Form 8-K:
  
  -    dated May 5, 1999,  Item 5 - containing a news release  regarding its first
       quarter 1999 results.
  
                                         24
  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:    8/12/99                       By: /s/  Francis W. McDonnell
         ----------                          -------------------------------------
                                             Francis W. McDonnell,
                                             Senior Vice President,
                                             Chief Financial Officer and Treasurer
                                             (Principal Financial Officer)
  
                                         25
  Exhibit Index
  Exhibit No.    Description of Exhibit                                      Method of Filing
  -----------    ----------------------                                      ----------------
  (10)           Material Contracts
                    Exhibits 10.1 to 10.5 are compensatory plans.
  
  10.1           Amendment No. 1 to the Amended and Restated  1991           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.2           Amendment No. 1 to the Amended and Restated  1993           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.3           Amendment No. 1 to the Amended and Restated  1994           Filed  herewith
                 Equity Incentive Plan dated May 5, 1999
  
  10.4           Amendment No. 1 to the 1995 Equity  Incentive Plan          Filed herewith
                 dated May 5, 1999
  
  10.5           Amendment No. 1 to the 1996 Equity  Incentive Plan          Filed herewith
                 dated May 5, 1999
  
  (12)           Computation of Ratio of Earnings to Fixed Charges           Filed herewith
  
  (27)           Financial Data Schedule                                     Filed herewith (EDGAR version only)
  26