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 MARCH 31, 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.)
  
  
       1735 Market Street, Suite 2800
         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 13,262,600  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 9,814,548 shares  outstanding of the registrant's Class
  A Common Stock, $5 par value per share, as of the close of business on April 30,
  1999.
  
  <PAGE>
  
                                                         INDEX
  
  
  --------------------------------------------------------------------------------
  
  
                                                                              Page
  
  
  Part I.    Financial Information
  
  
  Item 1.    Financial Statements
  
  
             Consolidated statements of income for the three months
             ended March 31, 1999 and 1998 (unaudited)                          1
  
             Consolidated balance sheets as of March 31, 1999 (unaudited)
             and December 31, 1998                                              2
  
  
             Consolidated statements of cash flows for the three months ended
             March 31, 1999 and 1998 (unaudited)                                3
  
             Consolidated statements of comprehensive income for the three
             months ended March 31, 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                                          9
  
  Part II.   Other Information
  
  Item 6.    Exhibits and reports on Form 8-K                                  21
  
  
  Signature                                                                    22
  
  Exhibit index                                                                23
  
  
  
  
  <PAGE>
  Part 1. Financial Information
  Item 1. Financial Statements
                               PMA Capital Corporation
                          Consolidated Statements of Income
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                                                          Three Months Ended
                                                                                                March 31,
  
      (dollar amounts in thousands, except per share data)                                1999          1998
  -------------------------------------------------------------------------------------------------------------
  Revenues:
  <S>                                                                                 <C>            <C>      
        Net premiums written                                                          $ 168,517      $ 153,573
        Change in net unearned premiums                                                 (59,195)       (46,651)
                                                                                      ---------      ---------
           Net premiums earned                                                          109,322        106,922
        Net investment income                                                            27,109         31,930
        Net realized investment gains                                                       877          7,514
        Other revenues                                                                    3,138          3,020
                                                                                      ---------      ---------
           Total revenues                                                               140,446        149,386
                                                                                      ---------      ---------
  
  Losses and expenses:
        Losses and loss adjustment expenses                                              81,736         84,857
        Acquisition expenses                                                             20,398         22,703
        Operating expenses                                                               17,084         19,467
        Dividends to policyholders                                                        5,068          3,917
        Interest expense                                                                  3,013          3,701
                                                                                      ---------      ---------
           Total losses and expenses                                                    127,299        134,645
                                                                                      ---------      ---------
  
                 Income before income taxes and cumulative effect of
                         accounting change                                               13,147         14,741
                                                                                      ---------      ---------
  
  
  Provision for income taxes:
  
        Current                                                                             945            210
        Deferred                                                                          3,734          2,443
                                                                                      ---------      ---------
               Total                                                                      4,679          2,653
                                                                                      ---------      ---------
  Income before cumulative effect of accounting change                                    8,468         12,088
                                                                                      ---------      ---------
  
  Cumulative effect of accounting change (net of income tax benefit
           of $1,485)                                                                    (2,759)            --
                                                                                      ---------      ---------
  
  Net income                                                                          $   5,709      $  12,088
                                                                                      =========      =========
  
  
  Earnings per share:
        Basic:
  
              Income before cumulative effect of accounting change                    $    0.36        $  0.51
              Cumulative effect of accounting change                                      (0.12)            --
                                                                                      ---------      ---------
              Net income                                                              $    0.24        $  0.51
                                                                                      =========      =========
  
  
        Diluted:
  
              Income before cumulative effect of accounting change                    $    0.35        $  0.49
              Cumulative effect of accounting change                                      (0.11)            --
                                                                                      ---------      ---------
              Net income                                                              $    0.24        $  0.49
                                                                                      =========      =========
  </TABLE>
  
                                         1
  <PAGE>
                               PMA Capital Corporation
                             Consolidated Balance Sheets
  <TABLE>
  <CAPTION>
                                                                                               (Unaudited)
                                                                                                  As of               As of
                                                                                                 March 31,         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 - $1,764,922; 1998 - $1,781,188)                         $1,772,829         $1,827,354
             Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                              16                 17
             Short-term investments, at amortized cost which approximates fair value               515,504            498,038
                                                                                                ----------         ----------
  
              Total investments                                                                  2,288,349          2,325,409
  
         Cash                                                                                       18,438              2,562
         Accrued investment income                                                                  22,971             19,900
         Premiums receivable (net of valuation allowance:1999 - $20,067; 1998 - $19,874)           317,006            279,633
         Reinsurance receivables (net of valuation allowance:1999 - $2,178; 1998 - $2,178)         605,420            610,291
         Deferred income taxes, net                                                                 75,072             63,929
         Deferred acquisition costs                                                                 62,699             51,115
         Other assets                                                                              118,759            107,879
                                                                                                ----------         ----------
              Total assets                                                                      $3,508,714         $3,460,718
                                                                                                ==========         ==========
  
  
     Liabilities:
  
          Unpaid losses and loss adjustment expenses                                            $1,914,737         $1,940,895
          Unearned premiums                                                                        296,649            227,945
          Long-term debt                                                                           163,000            163,000
          Accounts payable and accrued expenses                                                    112,700            107,952
          Funds held under reinsurance treaties                                                     86,375             77,674
          Dividends to policyholders                                                                11,015             10,700
          Payable under securities loan agreements                                                 440,890            421,072
                                                                                                ----------         ----------
              Total liabilities                                                                  3,025,366          2,949,238
                                                                                                ----------         ----------
  
            Commitments and contingencies (Note 4)
  
     Shareholders' Equity:
  
          Common stock, $5 par value (40,000,000 shares authorized;                                                            
              1999 - 13,736,007 shares issued and 13,300,000 outstanding;                                                      
              1998 - 13,956,268 shares issued and 13,520,261 outstanding)                           68,680             69,781
          Class A common stock, $5 par value (40,000,000 shares authorized;                                                    
              1999 - 10,706,938 shares issued and 9,821,263 outstanding;                                                       
              1998 - 10,486,677 shares issued and 9,837,963 outstanding)                            53,534             52,433
         Additional paid-in capital - Class A common stock                                             339                339
         Retained earnings                                                                         378,644            377,601
         Accumulated other comprehensive income                                                      5,147             30,016
  
         Notes receivable from officers                                                               (209)              (498)
         Treasury stock, at cost:
            Common stock (1999 - 436,007 shares; 1998 - 436,007 shares)                             (5,583)            (5,583)
            Class A common stock (1999 - 885,675 shares; 1998 - 648,714 shares)                    (17,204)           (12,609)
                                                                                                ----------         ----------
              Total shareholders' equity                                                           483,348            511,480
                                                                                                ----------         ----------
              Total liabilities and shareholders' equity                                        $3,508,714         $3,460,718
                                                                                                ==========         ==========
  </TABLE>
  
                                         2
  <PAGE>
                               PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  <TABLE>
  <CAPTION>
                                                                                                   Three Months Ended
                                                                                                        March 31,
      (dollar amounts in thousands)                                                              1999                1998
  --------------------------------------------------------------------------------------------------------------------------
  <S>                                                                                      <C>                   <C>       
     Cash flows from operating activities:
     Net income                                                                             $   5,709             $  12,088
     Adjustments to reconcile net income to net cash flows provided by (used in)
           operating activities:
         Depreciation and amortization                                                          2,002                   942
         Provision for deferred income taxes                                                    3,734                 2,443
         Net realized investment gains                                                           (877)               (7,514)
         Cumulative effect of accounting change                                                 2,759                    --
         Change in:
               Premiums receivable and unearned premiums, net                                  31,331                (8,543)
               Dividends to policyholders                                                         315                  (883)
               Reinsurance receivables                                                          4,871               (21,707)
               Unpaid losses and loss adjustment expenses                                     (26,158)              (14,072)
               Accrued investment income                                                       (3,071)               (3,027)
  
                  Deferred acquisition costs                                                  (11,584)              (11,274)
          Other, net                                                                           (1,863)                6,962
                                                                                            ---------             ---------
     Net cash flows provided by (used in) operating activities                                  7,168               (44,585)
                                                                                            ---------             ---------
  
     Cash flows from investing  activities:  
        Fixed maturity investments available for sale:
               Purchases                                                                     (292,740)             (461,925)
               Maturities or calls                                                             30,955                41,154
               Sales                                                                          278,168               367,404
        Net sales of short-term investments                                                     2,349                75,940
         Other, net                                                                            (1,052)                 (887)
                                                                                            ---------             ---------
     Net cash flows provided by investing activities                                           17,680                21,686
                                                                                            ---------             ---------
  
     Cash flows from financing activities:
        Dividends paid to shareholders                                                         (1,909)               (2,008)
        Repayments of notes receivable from officers                                              289                    --
        Proceeds from exercise of stock options                                                 3,906                   441
        Purchase of treasury stock                                                            (11,258)               (5,415)
                                                                                            ---------             ---------
     Net cash flows used in financing activities                                               (8,972)               (6,982)
                                                                                            ---------             ---------
  
     Net increase (decrease) in cash                                                           15,876               (29,881)
     Cash - beginning of period                                                                 2,562                32,148
                                                                                            ---------             ---------
     Cash - end of period                                                                   $  18,438             $   2,267
                                                                                            =========             =========
  
  
      Supplementary cash flow information:
          Income taxes paid                                                                 $   2,997             $      --
          Interest paid                                                                     $   3,061             $   3,316
  
  </TABLE>
  
                                         3
  <PAGE>
                               PMA Capital Corporation
                   Consolidated Statements of Comprehensive Income
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                                                                  Three Months Ended
                                                                                                       March 31,
      (dollar amounts in thousands)                                                              1999                1998
  -------------------------------------------------------------------------------------------------------------------------
  <S>                                                                                       <C>                 <C>        
     Net income                                                                             $   5,709           $    12,088
                                                                                            ---------           -----------
  
     Other comprehensive loss, net of tax:
         Unrealized losses on securities:
           Holding gains (losses) arising during the period                                   (24,299)                  966
           Reclassification adjustment for gains included in net
              income (net of tax effect: 1999 - $307; 1998 - $2,630)                             (570)               (4,884)
                                                                                            ---------           -----------
  
     Other comprehensive loss                                                                 (24,869)               (3,918)
                                                                                            ---------           -----------
  
     Comprehensive income (loss)                                                            $ (19,160)          $     8,170
                                                                                            =========           ===========
  </TABLE>
  
  
  
  
                                         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  ("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 on a national basis. 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 for the remaining 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 months
  ended  March  31,  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 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.  SFAS No. 133 is effective for all
  fiscal quarters of fiscal years beginning after June 15, 1999. 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  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
                                                                     March 31,
   (dollar amounts in thousands)                           1999                    1998
  --------------------------------------------------------------------------------------
  <S>                                                   <C>                     <C>    
  Earned Premiums:
      Direct ............................               $75,326                 $73,399
      Assumed ...........................                69,446                  61,892
      Ceded .............................               (35,450)                (28,369)
                                                       --------                --------
  Net ...................................              $109,322                $106,922
                                                       ========                ========
  Losses and LAE:
      Direct ............................              $ 62,643                 $68,178
      Assumed ...........................                36,056                  32,528
      Ceded .............................               (16,963)                (15,849)
                                                       --------                --------
  Net ...................................              $ 81,736                 $84,857
                                                       ========                ========
  </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
  March 31, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of approximately  $10.6 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
                                                        March 31,
                                                  1999               1998
  -------------------------------------------------------------------------
  <S>                                          <C>               <C>       
  Denominator:
  Basic shares - weighted average
       common and Class A common
       shares outstanding                      23,317,630        23,850,631
  Effect of dilutive stock options                785,822           731,704
                                               ----------        ----------
  Total diluted shares                         24,103,452        24,582,335
                                               ==========        ==========
  </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
                                                         March 31,
   (dollar amounts in thousands)                   1999            1998
  ----------------------------------------------------------------------
  <S>                                           <C>            <C>      
  Revenues:
  PMA Re                                        $  66,061      $  59,598
  The PMA Insurance Group:
     Excluding Run-off Operations                  68,835         75,943
     Run-off Operations                             1,126          5,839
                                                ---------      ---------
     Total                                         69,961         81,782
  Caliber One                                       3,046            369
  Corporate and Other                                 501            123
  Net realized investment gains                       877          7,514
                                                ---------      ---------
  Total revenues                                $ 140,446      $ 149,386
                                                =========      =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                        $  12,749      $  11,372
  The PMA Insurance Group:
     Excluding Run-off Operations                   4,919          2,601
     Run-off Operations                                66            135
                                                ---------      ---------
     Total                                          4,985          2,736
  Caliber One                                        (696)          (389)
  Corporate and Other                              (1,755)        (2,791)
                                                ---------      ---------
  Pre-tax operating income before
     interest expense                              15,283         10,928
  Interest expense                                  3,013          3,701
                                                ---------      ---------
  Pre-tax operating income                         12,270          7,227
  Net realized investment gains                       877          7,514
                                                ---------      ---------
  Income before income taxes and
     cumulative effect of accounting change        13,147         14,741
  Provision for income taxes                        4,679          2,653
                                                ---------      ---------
  Income before cumulative effect of
       accounting change                            8,468         12,088
  Cumulative effect of accounting change,
      net of tax                                   (2,759)            --
                                                ---------      ---------
  Net income                                    $   5,709      $  12,088
                                                =========      =========
  </TABLE>
  
  (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
  <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 March
  31, 1999, compared with December 31, 1998, and its results of operations for the
  quarter  ended March 31,  1999,  compared  with the same period 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
                                                                   March 31,
  (dollar amounts in thousands, except per share data)        1999           1998
  ---------------------------------------------------------------------------------
  <S>                                                      <C>            <C>      
  Operating revenues:
  Net premiums written                                     $ 168,517      $ 153,573
                                                           =========      =========
  
  Net premiums earned                                      $ 109,322      $ 106,922
  Net investment income                                       27,109         31,930
  Other revenues                                               3,138          3,020
                                                           ---------      ---------
       Total operating revenues                            $ 139,569      $ 141,872
                                                           =========      =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                                   $  12,749      $  11,372
  The PMA Insurance Group:
       Excluding Run-off Operations                            4,919          2,601
       Run-off Operations                                         66            135
                                                           ---------      ---------
       Total                                                   4,985          2,736
  Caliber One                                                   (696)          (389)
  Corporate and Other                                         (1,755)        (2,791)
                                                           ---------      ---------
  Pre-tax operating income before interest expense            15,283         10,928
  Interest expense                                             3,013          3,701
                                                           ---------      ---------
  Pre-tax operating income                                    12,270          7,227
  Net realized investment gains                                  877          7,514
                                                           ---------      ---------
  Income before income taxes and cumulative
       effect of accounting change                            13,147         14,741
  Provision for income taxes                                   4,679          2,653
                                                           ---------      ---------
  Income before cumulative effect of accounting change         8,468         12,088
  Cumulative effect of accounting change, net of tax          (2,759)            --
                                                           ---------      ---------
  Net income                                               $   5,709      $  12,088
                                                           =========      =========
  </TABLE>
  
  (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 parent holding  company level,  and
       such decisions  result in net realized gains (losses) that do not relate to
       the operations of the individual segments.
  
  
                                         9
  <PAGE>
  The Company  reported  pre-tax  operating  income of $12.3 million for the three
  months ended March 31, 1999, compared to $7.2 million for the three months ended
  March 31, 1998.  The increase in pre-tax  operating  income was primarily due to
  higher  earnings  from The PMA  Insurance  Group  and PMA Re,  and,  to a lesser
  extent,  lower losses for Corporate and Other.  After-tax  operating  income was
  $7.9  million  and $7.2  million for the three  months  ended March 31, 1999 and
  1998,  respectively,  which reflects the increases  mentioned  above for pre-tax
  operating  income,  partially offset by a higher effective tax rate. The Company
  currently  expects  earnings to continue  to improve in 1999  reflecting  higher
  earnings from PMA Re and The PMA Insurance  Group.  This  expectation may differ
  materially  from  actual  results  because  of the  risk  factors  noted  in the
  "Cautionary Statements" on page 20.
  
  
  On a  consolidated  basis,  net income was $5.7 million for the first quarter of
  1999, compared to $12.1 million for the same period in 1998. Net income for 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  Note  2-B to the  Company's  Consolidated
  Financial Statements for additional information.
  
  Also included in net income were net realized  investment  gains of $900,000 for
  the three  months  ended  March  31,  1999,  compared  to $7.5  million  for the
  comparable 1998 period. The decrease in net realized investment gains reflects a
  higher level of purchase and sale activity in 1998, due to the  restructuring of
  a portion of the investment portfolio.
  
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  
  <TABLE>
  <CAPTION>
                                                                                         Three Months Ended
                                                                                              March 31,
  (dollar amounts in thousands)                                                         1999            1998
  -----------------------------------------------------------------------------------------------------------
  <S>                                                                                  <C>            <C>    
  Net premiums written                                                                 $78,327        $70,819
                                                                                       =======        =======
  
  Net premiums earned                                                                  $52,433        $46,098
  Net investment income                                                                 13,628         13,500
                                                                                       -------        -------
  Operating revenues                                                                    66,061         59,598
                                                                                       -------        -------
  
  Losses and loss adjustment expenses ("LAE")                                           37,861         32,814
  Acquisition and operating expenses                                                    15,451         15,412
                                                                                       -------        -------
  Total losses and expenses                                                             53,312         48,226
                                                                                       -------        -------
  
  Pre-tax operating income                                                             $12,749        $11,372
                                                                                       =======        =======
  
  GAAP loss and LAE ratio                                                                72.2%          71.2%
  GAAP combined ratio                                                                   101.7%         104.6%
  -----------------------------------------------------------------------------------------------------------
  </TABLE>
  
  
  
  PMA Re's  pre-tax  operating  income  increased  to $12.7  million for the three
  months  ended March 31,  1999,  compared to $11.4  million for the three  months
  ended March 31, 1998.  This increase is primarily due to higher  premium  volume
  and a lower acquisition expense ratio, partially offset by a higher loss and LAE
  ratio,  all  of  which  reflects  expansion  of  finite  and  financial  product
  offerings.
  
  
                                         10
  <PAGE>
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  
  
  <TABLE>
  <CAPTION>
                                                                                        Three Months Ended
                                                                                              March 31,
  (dollar amounts in thousands)                                                         1999            1998
  ------------------------------------------------------------------------------------------------------------
  <S>                                                                                  <C>             <C>    
  Gross premiums written:
    Casualty lines                                                                     $73,188         $60,804
    Property lines                                                                      25,765          25,911
    Other lines                                                                            542             394
                                                                                       -------         -------
  Total                                                                                $99,495         $87,109
                                                                                       =======         =======
  
  Net premiums written:
  
    Casualty lines                                                                     $56,547         $48,421
    Property lines                                                                      21,252          22,004
    Other lines                                                                            528             394
                                                                                       -------         -------
  Total                                                                                $78,327         $70,819
                                                                                       =======         =======
  ------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  Net premiums written  increased $7.5 million,  or 10.6%, in the first quarter of
  1999,  compared  to the  first  quarter  of  1998,  primarily  due to  expanding
  relationships  with PMA Re's  existing  clients,  as well as contracts  with new
  clients,  which  primarily  reflect  the  successful  expansion  of  finite  and
  financial  product  offerings.  This increase was partially  offset by increased
  retrocessional protection purchased during the first quarter of 1999.
  
  Net premiums earned  increased  13.7% in the first quarter of 1999,  compared to
  the first  quarter of 1998,  which  corresponds  to the increase in net premiums
  written. 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
                                                                                             March 31,
                                                                                      1999              1998
  -----------------------------------------------------------------------------------------------------------
  <S>                                                                                 <C>               <C>  
  Loss and LAE ratio                                                                  72.2%             71.2%
                                                                                     -----             ----- 
  Expense ratio:
    Acquisition expenses                                                              23.2%             26.0%
    Operating expenses                                                                 6.3%              7.4%
                                                                                     -----             ----- 
  Total expense ratio                                                                 29.5%             33.4%
                                                                                     -----             ----- 
  Combined ratio  - GAAP(1)                                                          101.7%            104.6%
                                                                                     ======            ======
  -----------------------------------------------------------------------------------------------------------
  </TABLE>
  
  (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 1.0 point for the three months ended March
  31, 1999, compared to the same period last year. This increase primarily relates
  to a change in PMA Re's  business mix in the quarter  with finite and  
  
                                         11
  <PAGE>
  financial  products  representing  an  increasing   percentage.   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 2.8 points for the three months ended
  March 31, 1999,  compared to the same period in 1998. This decrease is primarily
  attributable to the change in business mix described  above,  and by changes PMA
  Re made to its  retrocessional  program  in the  first  quarter  of 1999,  which
  resulted in higher ceding commissions.
  
  The  operating  expense  ratio  decreased  1.1 points for the three months ended
  March 31, 1999, compared to the same period in 1998, primarily reflecting growth
  in earned premium and essentially flat operating expenses year-over-year.
  
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  
  <TABLE>
  <CAPTION>
                                                                                       Three Months Ended
                                                                                             March 31,
  (dollar amounts in thousands)                                                        1999            1998
  ------------------------------------------------------------------------------------------------------------
  <S>                                                                                 <C>              <C>    
  Net premiums written                                                                $83,021          $82,542
                                                                                      =======          =======
  
  Net premiums earned                                                                 $54,399          $60,798
  Net investment income:                                                                        
       Excluding Run-off Operations                                                    12,007           12,560
       Run-off Operations(1)                                                            1,126            5,839
                                                                                      -------          -------
           Total                                                                       13,133           18,399
  Other revenues                                                                        2,429            2,585
                                                                                      -------          -------
  Operating revenues                                                                   69,961           81,782
                                                                                      -------          -------
  Losses and LAE:
       Excluding Run-off Operations                                                    41,209           47,206
       Run-off Operations(1)                                                              548            4,896
                                                                                      -------          -------
           Total                                                                       41,757           52,102
                                                                                      -------          -------
  Acquisition and operating expenses:                                         
       Excluding Run-off Operations                                                    17,639           22,219
       Run-off Operations(1)                                                              512              808
                                                                                      -------          -------
           Total                                                                       18,151           23,027
                                                                                      -------          -------
  Dividends to policyholders                                                            5,068            3,917
                                                                                      -------          -------
  Total losses and expenses                                                            64,976           79,046
                                                                                      -------          -------
  Pre-tax operating income                                                            $ 4,985           $2,736
                                                                                      =======          =======
  
  GAAP loss and LAE ratio(2)                                                            76.8%            85.7%
  GAAP combined ratio(2)                                                               116.2%           126.2%
  ------------------------------------------------------------------------------------------------------------
  </TABLE>
  (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 loss and LAE ratio and GAAP  combined  ratio  exclude the impact of
           the  cumulative  effect  of  accounting  change of $4.3  million  ($2.8
           million after-tax) for insurance-related assessments.
  
  
                                         12
  <PAGE>
  Operating Results 
  
  Pre-tax  operating  income for The PMA Insurance Group increased to $5.0 million
  for the three months ended March 31, 1999, compared to $2.7 million for the same
  period in 1998. The increase in operating income for The PMA Insurance Group was
  primarily due to improved loss experience, reduced exposures and lower operating
  expenses resulting from ongoing cost reduction initiatives.
  
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  
  The following table reflects the components of net premiums  written for The PMA
  Insurance Group, excluding Run-off Operations:
  <TABLE>
  <CAPTION>
                                                                                         Three Months Ended
                                                                                                March 31,
  (dollar amounts in thousands)                                                          1999             1998
  -------------------------------------------------------------------------------------------------------------
  <S>                                                                                 <C>              <C>    
   Workers' compensation:
       Direct premiums written                                                        $71,290          $67,182
       Premiums assumed                                                                   725              893
       Premiums ceded                                                                  (9,298)          (3,187)
                                                                                      -------          -------
           Net premiums written                                                        62,717           64,888
                                                                                      -------          -------
  
   Commercial Lines:
       Direct premiums written                                                         28,269           29,091
       Premiums assumed                                                                   894              474
       Premiums ceded                                                                  (8,859)         (11,911)
                                                                                      -------          -------
           Net premiums written                                                        20,304           17,654
                                                                                      -------          -------
  
    Total:
       Direct premiums written                                                         99,559           96,273
       Premiums assumed                                                                 1,619            1,367
       Premiums ceded                                                                 (18,157)         (15,098)
                                                                                      -------          -------
           Net premiums written                                                       $83,021          $82,542
                                                                                      =======          =======
  -------------------------------------------------------------------------------------------------------------
  </TABLE>
  Net premiums  written,  which represent  direct  premiums  written plus premiums
  assumed,  less premiums  ceded,  increased to $83.0 million for the three months
  ended March 31, 1999, compared to $82.5 million for the same period in 1998. The
  slight increase in 1999 primarily  reflects  higher direct premiums  written for
  workers'  compensation of $4.1 million,  substantially  offset by an increase in
  reinsurance premiums ceded of $3.1 million.
  
  Direct workers'  compensation  premiums written were higher in 1999, compared to
  1998, due to an increase in the level of risks  underwritten.  This increase was
  partially offset by manual rate reductions  averaging  approximately 4.6% in The
  PMA Insurance Group's principal marketing  territories,  continued intense price
  competition and an increase in the level of net premium adjustments  returned to
  the insureds--$3.1 million in the first quarter of 1999 compared to $1.7 million
  in the first quarter of 1998.  Changes in actuarial  estimates of future premium
  adjustments on  retrospective  policies are recorded in direct premiums  written
  and direct premiums earned in the period in which they are identified.
  
  The increase in reinsurance premiums ceded of $3.1 million reflects higher ceded
  workers'  compensation premiums of $6.1 million for the three months ended March
  31, 1999,  compared to the same period in 1998, due to a new  reinsurance  cover
  effective  January 1, 1999,  under  which the net  retention  level on  workers'
  compensation  exposures  has been  reduced  from $1.5  million to  $150,000  per
  occurrence. Partially offsetting such increase was a decrease of $3.0 million in
  ceded   premiums  for   commercial   lines  of  business   other  than  workers'
  compensation,  such as 
  
                                         13
  <PAGE>
  commercial  auto,  general  liability,   umbrella,  multi-peril  and  commercial
  property  lines  (collectively,  "Commercial  Lines") for the three months ended
  March 31,  1999,  compared  to the same  period in 1998.  The  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 $6.4 million for the three months ended March 31,
  1999,  compared to the same period 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 GAAP
  combined ratios, excluding Run-off Operations:
  <TABLE>
  <CAPTION>
                                                                                       Three Months Ended
                                                                                               March 31,
                                                                                        1999             1998
  -------------------------------------------------------------------------------------------------------------
  <S>                                                                                  <C>              <C>  
  Loss and LAE ratio(1)                                                                 75.8%            77.6%
                                                                                       ------           ------
  Expense ratio:
    Acquisition expenses                                                                13.8%            17.7%
    Operating expenses (2)                                                              15.4%            15.1%
                                                                                       ------           ------
    Total expense ratio                                                                 29.2%            32.8%
                                                                                       ------           ------
  
  Policyholders' dividends                                                               9.3%             6.4%
                                                                                       ------           ------
  
  Combined ratio - GAAP (1) (3) (4)                                                    114.3%           116.8%
                                                                                       ======           ======
  -------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  (1)  The loss and LAE ratio and GAAP  combined  ratio  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 GAAP Operating  Expense Ratio excludes $1.8 million and $2.3 million in
       1999 and 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  116.2% and 126.2% in the first  quarter of 1999 and 1998,
       respectively.
  
  For the three months ended March 31, 1999,  the GAAP loss and LAE ratio improved
  by 1.8  points, compared  to the same  period  in  1998.  This  improvement  was
  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  $905,000 of favorable  development of
  prior accident year results for the first quarter of 1999 compared to $85,000 of
  unfavorable  development for the same period in 1998, which improved the overall
  loss and LAE ratio by 1.8 points in the first quarter of 1999.
  
  The  improvement in the  Commercial  Lines accident year loss and LAE ratio from
  86.3% for the first  quarter of 1998 to 81.3% for the first  quarter of 1999 has
  favorably  impacted  the overall  first  quarter  1999 loss and LAE ratio by 1.4
  points,  compared to the same period in 1998. The  improvement in the Commercial
  Lines  loss and LAE  ratio  was  primarily  due to the  continued  reduction  in
  exposures  underwritten  reflecting  the  application  of stricter  underwriting
  standards and continued intense price competition.
  
                                         14
  <PAGE>
  In addition, the improvement in the workers' compensation accident year loss and
  LAE  ratio  from  74.8%  for the  first  quarter  of 1998 to 73.7% for the first
  quarter of 1999 has  favorably  impacted the overall first quarter 1999 loss and
  LAE ratio by 0.8 points,  compared to the same period in 1998 due to a reduction
  in net exposures underwritten.
  
  The new reinsurance cover for workers' compensation business caused the level of
  discount to decline in the first  quarter of 1999 compared to 1998. As a result,
  the accretion of discount on prior year's reserves (net of the discount recorded
  for current accident year reserves)  increased the overall loss and LAE ratio in
  the first quarter of 1999 by 2.0 points, compared to the same period in 1998.
  
  The GAAP expense ratio  decreased by 3.6 points for the three months ended March
  31,  1999,  compared  to the  same  period  in  1998,  primarily  due to a lower
  acquisition  expense ratio. The decrease in the acquisition expense ratio of 3.9
  points was primarily due to higher ceded commissions received as a result of the
  new  reinsurance  treaty in 1999 and a reduction in expenses  for certain  state
  assessments that were reported as surcharges.
  
  The policyholders'  dividend ratio was 9.3% for the three months ended March 31,
  1999, compared to 6.4% for the same period in 1998. The increase in the dividend
  ratio is  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 $12.0  million for the three  months ended March 31,
  1999,  compared  to $12.6  million  for the same  period in 1998.  The  decrease
  primarily reflects lower yields.
  
  Run-off Operations
  
  Investment  income for the Run-off  Operations  decreased by $4.7 million in the
  three months ended March 31, 1999, compared to the same period in 1998 primarily
  due to lower invested  assets.  The decline in invested assets reflects the sale
  of PMA Insurance,  Cayman Limited ("PMA Cayman"), which included the transfer of
  $231.5 million in cash and invested  assets to the buyer effective July 1, 1998.
  In addition,  invested assets  decreased as a result of the paydown of losses at
  the remaining run-off entities.
  
  Losses and LAE,  acquisition  expenses  and  operating  expenses  of the Run-off
  Operations  decreased  by $4.6 million in the three months ended March 31, 1999,
  compared to the same period in 1998 primarily due to the sale of PMA Cayman.
  
  
                                         15
  <PAGE>
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  <TABLE>
  <CAPTION>
                                                                                  Three Months Ended
                                                                                       March 31,
  (dollar amounts in thousands)                                                    1999         1998
  ---------------------------------------------------------------------------------------------------
  <S>                                                                            <C>          <C>    
  Net premiums written                                                           $ 7,322      $   212
                                                                                 =======      =======
  
  Net premiums earned                                                            $ 2,643      $    26
  Net investment income                                                              403          343
                                                                                 -------      -------
  Operating revenues                                                               3,046          369
                                                                                 -------      -------
  
  Losses and LAE                                                                   2,118           20
  Acquisition and operating expenses                                               1,624          738
                                                                                 -------      -------
  Total losses and expenses                                                        3,742          758
                                                                                 -------      -------
  
  Pre-tax operating loss                                                         $  (696)     $  (389)
                                                                                 =======      =======
  ---------------------------------------------------------------------------------------------------
  </TABLE>
  
  For the three  months  ended  March 31,  1999,  Caliber  One  recorded a pre-tax
  operating loss of $696,000, compared with a loss of $389,000 for the same period
  last  year.  The  increase  in  losses  primarily  relates  to costs  to  expand
  operations.  The growth in net premiums  written and net premiums  earned in the
  first quarter of 1999 compared to the same period in 1998, reflects higher staff
  levels, increased market acceptance and an expanded distribution network.
  
  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 months ended March 31,
  1999,  Corporate  and Other  recorded a pre-tax  operating  loss of $4.8 million
  compared to a loss of $6.5  million for the three  months  ended March 31, 1998.
  The decrease in the operating  loss is primarily due to lower  interest  expense
  reflecting a $40 million  paydown in  outstanding  debt in the fourth quarter of
  1998 and higher net revenues 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.
  
  At March 31, 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  will be December 31, 2002,  which
  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 March 31, 1999, the
  Company had $45.8 million  outstanding  in letters of credit under the Letter of
  Credit Facility, compared with $46.9 million as of December 31, 1998.
  
                                         16
  <PAGE>
  
  The  Company  paid  interest  of $3.1  million  and $3.3  million on both credit
  facilities for the three months ended March 31, 1999 and 1998, respectively.
  
  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 surplus as regards to  policyholders  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 $10.8 million
  and $4.0 million for the first quarter of 1999 and 1998, respectively.
  
  Net tax payments  received from  subsidiaries were $3.5 million and $6.0 million
  for the three months ended March 31, 1999 and 1998, respectively.
  
  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 $1.9  million and $2.0 million for the three months ended March
  31, 1999 and 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries  totaling  $2.6 million  during the first  quarter of 1999. 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 quarter of 1999,  the Company  repurchased  577,000  shares at a total
  cost of $11.3  million  (average  per share  price was  $19.53),  leaving  $14.9
  million of share repurchase authorization  remaining.  Decisions regarding share
  repurchases  are  subject  to  prevailing  market  conditions  and the costs and
  benefits associated with alternative uses of capital.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet short-term and long-term obligations.
  
  Capital Resources
  
  The  Company's  total assets  increased  to $3,508.7  million at March 31, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $37.1 million to $2,288.3 million at March 31, 1999. The decrease in investments
  is primarily  attributable  to declines in market  value due to rising  interest
  rates. All other assets  increased $85.1 million at March 31, 1999,  compared to
  December 31,  1998,  primarily  due to an increase of $37.4  million in premiums
  receivable.  The  increase  in  premiums  receivable  primarily  relates  to the
  increase in net premiums written.
  
  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 
  
                                         17
  <PAGE>
  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  March 31,  1999 has been
  approximately $5.4 million. No material costs were incurred in the first quarter
  of  1999.  The  Company  does not  expect  to  incur  material  costs in 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 April 30, 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.
  
  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,
  
                                         18
  <PAGE>
  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 second  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 second  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
  
  The results  presented  above vary in certain  respects  from SAP  prescribed or
  permitted by the Pennsylvania  Insurance  Department and the Delaware  Insurance
  Department.   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")  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,  which is effective  for fiscal years  beginning  after
  December 15, 1998,  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. In the first quarter of 1999, the
  Company recorded a $2.8 million  after-tax charge for the effect of adopting SOP
  97-3,  which is reflected as a cumulative  effect of an  accounting  change (see
  Note 2-B for additional information).
  
                                         19
  <PAGE>
  In June 1998,  the  Financial  Accounting  Standards  Board 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.  SFAS No. 133 is  effective  for all
  fiscal quarters of fiscal years beginning after June 15, 1999. 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.
  
  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.
  
  
  
  
  
                                         20
  <PAGE>
  Part II. Other Information
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  
  The Exhibits are listed in the Index to Exhibits on page 23.
  
  
  
  (b) Reports on Form 8-K filed during the quarter ended March 31, 1999:
  
  
  None.
  
  
  
  
  
  
  
                                         21
  <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:    May 12, 1999                  By: /s/  Francis W. McDonnell
           ------------                      --------------------------
  
                                             Francis W. McDonnell,
                                             Senior Vice President,
                                             Chief Financial Officer and Treasurer
                                            (Principal Financial Officer)
  
  
  
  
  
  
  
  
  
                                         22
  <PAGE>
                                    Exhibit Index
  <TABLE>
  <CAPTION>
  Exhibit No.       Description of Exhibit                                      Method of Filing
  <S>               <C>                                                        <C>
  (10)              Company's 1999 Equity Incentive Plan                        Filed  as  Annex A to the  registrant's  Definitive
                                                                                Proxy  Statement  on  Schedule  14A dated March 26,
                                                                                1999 and incorporated herein by reference
  
  (12)              Computation of Ratio of Earnings to Fixed Charges           Filed herewith
  
  (27)              Financial Data Schedule                                     Filed herewith (EDGAR version only)
  
  </TABLE>
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                         23
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 96420}]
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": "99618423"}, "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 MARCH 31, 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.)
  
       1735 Market Street, Suite 2800
         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 13,262,600  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 9,814,548 shares  outstanding of the registrant's Class
  A Common Stock, $5 par value per share, as of the close of business on April 30,
  1999.
  INDEX
  
  --------------------------------------------------------------------------------
  
                                                                              Page
  
  Part I.    Financial Information
  
  Item 1.    Financial Statements
  
             Consolidated statements of income for the three months
             ended March 31, 1999 and 1998 (unaudited)                          1
  
             Consolidated balance sheets as of March 31, 1999 (unaudited)
             and December 31, 1998                                              2
  
             Consolidated statements of cash flows for the three months ended
             March 31, 1999 and 1998 (unaudited)                                3
  
             Consolidated statements of comprehensive income for the three
             months ended March 31, 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                                          9
  
  Part II.   Other Information
  
  Item 6.    Exhibits and reports on Form 8-K                                  21
  
  Signature                                                                    22
  
  Exhibit index                                                                23
  Part 1. Financial Information
  Item 1. Financial Statements
                               PMA Capital Corporation
                          Consolidated Statements of Income
                                     (Unaudited)
  Three Months Ended
                                                                                                March 31,
  
      (dollar amounts in thousands, except per share data)                                1999          1998
  -------------------------------------------------------------------------------------------------------------
  Revenues:
  Net premiums written                                                          $ 168,517      $ 153,573
        Change in net unearned premiums                                                 (59,195)       (46,651)
                                                                                      ---------      ---------
           Net premiums earned                                                          109,322        106,922
        Net investment income                                                            27,109         31,930
        Net realized investment gains                                                       877          7,514
        Other revenues                                                                    3,138          3,020
                                                                                      ---------      ---------
           Total revenues                                                               140,446        149,386
                                                                                      ---------      ---------
  
  Losses and expenses:
        Losses and loss adjustment expenses                                              81,736         84,857
        Acquisition expenses                                                             20,398         22,703
        Operating expenses                                                               17,084         19,467
        Dividends to policyholders                                                        5,068          3,917
        Interest expense                                                                  3,013          3,701
                                                                                      ---------      ---------
           Total losses and expenses                                                    127,299        134,645
                                                                                      ---------      ---------
  
                 Income before income taxes and cumulative effect of
                         accounting change                                               13,147         14,741
                                                                                      ---------      ---------
  
  Provision for income taxes:
  
        Current                                                                             945            210
        Deferred                                                                          3,734          2,443
                                                                                      ---------      ---------
               Total                                                                      4,679          2,653
                                                                                      ---------      ---------
  Income before cumulative effect of accounting change                                    8,468         12,088
                                                                                      ---------      ---------
  
  Cumulative effect of accounting change (net of income tax benefit
           of $1,485)                                                                    (2,759)            --
                                                                                      ---------      ---------
  
  Net income                                                                          $   5,709      $  12,088
                                                                                      =========      =========
  
  Earnings per share:
        Basic:
  
              Income before cumulative effect of accounting change                    $    0.36        $  0.51
              Cumulative effect of accounting change                                      (0.12)            --
                                                                                      ---------      ---------
              Net income                                                              $    0.24        $  0.51
                                                                                      =========      =========
  
        Diluted:
  
              Income before cumulative effect of accounting change                    $    0.35        $  0.49
              Cumulative effect of accounting change                                      (0.11)            --
                                                                                      ---------      ---------
              Net income                                                              $    0.24        $  0.49
                                                                                      =========      =========
  1
  PMA Capital Corporation
                             Consolidated Balance Sheets
  (Unaudited)
                                                                                                  As of               As of
                                                                                                 March 31,         December 31,
     (dollar amounts in thousands, except share data)                                              1999                1998
  ----------------------------------------------------------------------------------------------------------------------------
  Assets:
         Investments:
  
             Fixed maturities available for sale, at fair value
                  (amortized cost:1999 - $1,764,922; 1998 - $1,781,188)                         $1,772,829         $1,827,354
             Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                              16                 17
             Short-term investments, at amortized cost which approximates fair value               515,504            498,038
                                                                                                ----------         ----------
  
              Total investments                                                                  2,288,349          2,325,409
  
         Cash                                                                                       18,438              2,562
         Accrued investment income                                                                  22,971             19,900
         Premiums receivable (net of valuation allowance:1999 - $20,067; 1998 - $19,874)           317,006            279,633
         Reinsurance receivables (net of valuation allowance:1999 - $2,178; 1998 - $2,178)         605,420            610,291
         Deferred income taxes, net                                                                 75,072             63,929
         Deferred acquisition costs                                                                 62,699             51,115
         Other assets                                                                              118,759            107,879
                                                                                                ----------         ----------
              Total assets                                                                      $3,508,714         $3,460,718
                                                                                                ==========         ==========
  
     Liabilities:
  
          Unpaid losses and loss adjustment expenses                                            $1,914,737         $1,940,895
          Unearned premiums                                                                        296,649            227,945
          Long-term debt                                                                           163,000            163,000
          Accounts payable and accrued expenses                                                    112,700            107,952
          Funds held under reinsurance treaties                                                     86,375             77,674
          Dividends to policyholders                                                                11,015             10,700
          Payable under securities loan agreements                                                 440,890            421,072
                                                                                                ----------         ----------
              Total liabilities                                                                  3,025,366          2,949,238
                                                                                                ----------         ----------
  
            Commitments and contingencies (Note 4)
  
     Shareholders' Equity:
  
          Common stock, $5 par value (40,000,000 shares authorized;                                                            
              1999 - 13,736,007 shares issued and 13,300,000 outstanding;                                                      
              1998 - 13,956,268 shares issued and 13,520,261 outstanding)                           68,680             69,781
          Class A common stock, $5 par value (40,000,000 shares authorized;                                                    
              1999 - 10,706,938 shares issued and 9,821,263 outstanding;                                                       
              1998 - 10,486,677 shares issued and 9,837,963 outstanding)                            53,534             52,433
         Additional paid-in capital - Class A common stock                                             339                339
         Retained earnings                                                                         378,644            377,601
         Accumulated other comprehensive income                                                      5,147             30,016
  
         Notes receivable from officers                                                               (209)              (498)
         Treasury stock, at cost:
            Common stock (1999 - 436,007 shares; 1998 - 436,007 shares)                             (5,583)            (5,583)
            Class A common stock (1999 - 885,675 shares; 1998 - 648,714 shares)                    (17,204)           (12,609)
                                                                                                ----------         ----------
              Total shareholders' equity                                                           483,348            511,480
                                                                                                ----------         ----------
              Total liabilities and shareholders' equity                                        $3,508,714         $3,460,718
                                                                                                ==========         ==========
  2
  PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  Three Months Ended
                                                                                                        March 31,
      (dollar amounts in thousands)                                                              1999                1998
  --------------------------------------------------------------------------------------------------------------------------
  Cash flows from operating activities:
     Net income                                                                             $   5,709             $  12,088
     Adjustments to reconcile net income to net cash flows provided by (used in)
           operating activities:
         Depreciation and amortization                                                          2,002                   942
         Provision for deferred income taxes                                                    3,734                 2,443
         Net realized investment gains                                                           (877)               (7,514)
         Cumulative effect of accounting change                                                 2,759                    --
         Change in:
               Premiums receivable and unearned premiums, net                                  31,331                (8,543)
               Dividends to policyholders                                                         315                  (883)
               Reinsurance receivables                                                          4,871               (21,707)
               Unpaid losses and loss adjustment expenses                                     (26,158)              (14,072)
               Accrued investment income                                                       (3,071)               (3,027)
  
                  Deferred acquisition costs                                                  (11,584)              (11,274)
          Other, net                                                                           (1,863)                6,962
                                                                                            ---------             ---------
     Net cash flows provided by (used in) operating activities                                  7,168               (44,585)
                                                                                            ---------             ---------
  
     Cash flows from investing  activities:  
        Fixed maturity investments available for sale:
               Purchases                                                                     (292,740)             (461,925)
               Maturities or calls                                                             30,955                41,154
               Sales                                                                          278,168               367,404
        Net sales of short-term investments                                                     2,349                75,940
         Other, net                                                                            (1,052)                 (887)
                                                                                            ---------             ---------
     Net cash flows provided by investing activities                                           17,680                21,686
                                                                                            ---------             ---------
  
     Cash flows from financing activities:
        Dividends paid to shareholders                                                         (1,909)               (2,008)
        Repayments of notes receivable from officers                                              289                    --
        Proceeds from exercise of stock options                                                 3,906                   441
        Purchase of treasury stock                                                            (11,258)               (5,415)
                                                                                            ---------             ---------
     Net cash flows used in financing activities                                               (8,972)               (6,982)
                                                                                            ---------             ---------
  
     Net increase (decrease) in cash                                                           15,876               (29,881)
     Cash - beginning of period                                                                 2,562                32,148
                                                                                            ---------             ---------
     Cash - end of period                                                                   $  18,438             $   2,267
                                                                                            =========             =========
  
      Supplementary cash flow information:
          Income taxes paid                                                                 $   2,997             $      --
          Interest paid                                                                     $   3,061             $   3,316
  3
  PMA Capital Corporation
                   Consolidated Statements of Comprehensive Income
                                     (Unaudited)
  Three Months Ended
                                                                                                       March 31,
      (dollar amounts in thousands)                                                              1999                1998
  -------------------------------------------------------------------------------------------------------------------------
  Net income                                                                             $   5,709           $    12,088
                                                                                            ---------           -----------
  
     Other comprehensive loss, net of tax:
         Unrealized losses on securities:
           Holding gains (losses) arising during the period                                   (24,299)                  966
           Reclassification adjustment for gains included in net
              income (net of tax effect: 1999 - $307; 1998 - $2,630)                             (570)               (4,884)
                                                                                            ---------           -----------
  
     Other comprehensive loss                                                                 (24,869)               (3,918)
                                                                                            ---------           -----------
  
     Comprehensive income (loss)                                                            $ (19,160)          $     8,170
                                                                                            =========           ===========
  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  ("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 on a national basis. 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 for the remaining 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 months
  ended  March  31,  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 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.  SFAS No. 133 is effective for all
  fiscal quarters of fiscal years beginning after June 15, 1999. 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  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
                                                                     March 31,
   (dollar amounts in thousands)                           1999                    1998
  --------------------------------------------------------------------------------------
  Earned Premiums:
      Direct ............................               $75,326                 $73,399
      Assumed ...........................                69,446                  61,892
      Ceded .............................               (35,450)                (28,369)
                                                       --------                --------
  Net ...................................              $109,322                $106,922
                                                       ========                ========
  Losses and LAE:
      Direct ............................              $ 62,643                 $68,178
      Assumed ...........................                36,056                  32,528
      Ceded .............................               (16,963)                (15,849)
                                                       --------                --------
  Net ...................................              $ 81,736                 $84,857
                                                       ========                ========
  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
  March 31, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of approximately  $10.6 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
                                                        March 31,
                                                  1999               1998
  -------------------------------------------------------------------------
  Denominator:
  Basic shares - weighted average
       common and Class A common
       shares outstanding                      23,317,630        23,850,631
  Effect of dilutive stock options                785,822           731,704
                                               ----------        ----------
  Total diluted shares                         24,103,452        24,582,335
                                               ==========        ==========
  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
                                                         March 31,
   (dollar amounts in thousands)                   1999            1998
  ----------------------------------------------------------------------
  Revenues:
  PMA Re                                        $  66,061      $  59,598
  The PMA Insurance Group:
     Excluding Run-off Operations                  68,835         75,943
     Run-off Operations                             1,126          5,839
                                                ---------      ---------
     Total                                         69,961         81,782
  Caliber One                                       3,046            369
  Corporate and Other                                 501            123
  Net realized investment gains                       877          7,514
                                                ---------      ---------
  Total revenues                                $ 140,446      $ 149,386
                                                =========      =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                        $  12,749      $  11,372
  The PMA Insurance Group:
     Excluding Run-off Operations                   4,919          2,601
     Run-off Operations                                66            135
                                                ---------      ---------
     Total                                          4,985          2,736
  Caliber One                                        (696)          (389)
  Corporate and Other                              (1,755)        (2,791)
                                                ---------      ---------
  Pre-tax operating income before
     interest expense                              15,283         10,928
  Interest expense                                  3,013          3,701
                                                ---------      ---------
  Pre-tax operating income                         12,270          7,227
  Net realized investment gains                       877          7,514
                                                ---------      ---------
  Income before income taxes and
     cumulative effect of accounting change        13,147         14,741
  Provision for income taxes                        4,679          2,653
                                                ---------      ---------
  Income before cumulative effect of
       accounting change                            8,468         12,088
  Cumulative effect of accounting change,
      net of tax                                   (2,759)            --
                                                ---------      ---------
  Net income                                    $   5,709      $  12,088
                                                =========      =========
  (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
  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 March
  31, 1999, compared with December 31, 1998, and its results of operations for the
  quarter  ended March 31,  1999,  compared  with the same period 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
                                                                   March 31,
  (dollar amounts in thousands, except per share data)        1999           1998
  ---------------------------------------------------------------------------------
  Operating revenues:
  Net premiums written                                     $ 168,517      $ 153,573
                                                           =========      =========
  
  Net premiums earned                                      $ 109,322      $ 106,922
  Net investment income                                       27,109         31,930
  Other revenues                                               3,138          3,020
                                                           ---------      ---------
       Total operating revenues                            $ 139,569      $ 141,872
                                                           =========      =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                                   $  12,749      $  11,372
  The PMA Insurance Group:
       Excluding Run-off Operations                            4,919          2,601
       Run-off Operations                                         66            135
                                                           ---------      ---------
       Total                                                   4,985          2,736
  Caliber One                                                   (696)          (389)
  Corporate and Other                                         (1,755)        (2,791)
                                                           ---------      ---------
  Pre-tax operating income before interest expense            15,283         10,928
  Interest expense                                             3,013          3,701
                                                           ---------      ---------
  Pre-tax operating income                                    12,270          7,227
  Net realized investment gains                                  877          7,514
                                                           ---------      ---------
  Income before income taxes and cumulative
       effect of accounting change                            13,147         14,741
  Provision for income taxes                                   4,679          2,653
                                                           ---------      ---------
  Income before cumulative effect of accounting change         8,468         12,088
  Cumulative effect of accounting change, net of tax          (2,759)            --
                                                           ---------      ---------
  Net income                                               $   5,709      $  12,088
                                                           =========      =========
  (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 parent holding  company level,  and
       such decisions  result in net realized gains (losses) that do not relate to
       the operations of the individual segments.
  
                                         9
  The Company  reported  pre-tax  operating  income of $12.3 million for the three
  months ended March 31, 1999, compared to $7.2 million for the three months ended
  March 31, 1998.  The increase in pre-tax  operating  income was primarily due to
  higher  earnings  from The PMA  Insurance  Group  and PMA Re,  and,  to a lesser
  extent,  lower losses for Corporate and Other.  After-tax  operating  income was
  $7.9  million  and $7.2  million for the three  months  ended March 31, 1999 and
  1998,  respectively,  which reflects the increases  mentioned  above for pre-tax
  operating  income,  partially offset by a higher effective tax rate. The Company
  currently  expects  earnings to continue  to improve in 1999  reflecting  higher
  earnings from PMA Re and The PMA Insurance  Group.  This  expectation may differ
  materially  from  actual  results  because  of the  risk  factors  noted  in the
  "Cautionary Statements" on page 20.
  
  On a  consolidated  basis,  net income was $5.7 million for the first quarter of
  1999, compared to $12.1 million for the same period in 1998. Net income for 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  Note  2-B to the  Company's  Consolidated
  Financial Statements for additional information.
  
  Also included in net income were net realized  investment  gains of $900,000 for
  the three  months  ended  March  31,  1999,  compared  to $7.5  million  for the
  comparable 1998 period. The decrease in net realized investment gains reflects a
  higher level of purchase and sale activity in 1998, due to the  restructuring of
  a portion of the investment portfolio.
  
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  Three Months Ended
                                                                                              March 31,
  (dollar amounts in thousands)                                                         1999            1998
  -----------------------------------------------------------------------------------------------------------
  Net premiums written                                                                 $78,327        $70,819
                                                                                       =======        =======
  
  Net premiums earned                                                                  $52,433        $46,098
  Net investment income                                                                 13,628         13,500
                                                                                       -------        -------
  Operating revenues                                                                    66,061         59,598
                                                                                       -------        -------
  
  Losses and loss adjustment expenses ("LAE")                                           37,861         32,814
  Acquisition and operating expenses                                                    15,451         15,412
                                                                                       -------        -------
  Total losses and expenses                                                             53,312         48,226
                                                                                       -------        -------
  
  Pre-tax operating income                                                             $12,749        $11,372
                                                                                       =======        =======
  
  GAAP loss and LAE ratio                                                                72.2%          71.2%
  GAAP combined ratio                                                                   101.7%         104.6%
  -----------------------------------------------------------------------------------------------------------
  PMA Re's  pre-tax  operating  income  increased  to $12.7  million for the three
  months  ended March 31,  1999,  compared to $11.4  million for the three  months
  ended March 31, 1998.  This increase is primarily due to higher  premium  volume
  and a lower acquisition expense ratio, partially offset by a higher loss and LAE
  ratio,  all  of  which  reflects  expansion  of  finite  and  financial  product
  offerings.
  
                                         10
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  Three Months Ended
                                                                                              March 31,
  (dollar amounts in thousands)                                                         1999            1998
  ------------------------------------------------------------------------------------------------------------
  Gross premiums written:
    Casualty lines                                                                     $73,188         $60,804
    Property lines                                                                      25,765          25,911
    Other lines                                                                            542             394
                                                                                       -------         -------
  Total                                                                                $99,495         $87,109
                                                                                       =======         =======
  
  Net premiums written:
  
    Casualty lines                                                                     $56,547         $48,421
    Property lines                                                                      21,252          22,004
    Other lines                                                                            528             394
                                                                                       -------         -------
  Total                                                                                $78,327         $70,819
                                                                                       =======         =======
  ------------------------------------------------------------------------------------------------------------
  Net premiums written  increased $7.5 million,  or 10.6%, in the first quarter of
  1999,  compared  to the  first  quarter  of  1998,  primarily  due to  expanding
  relationships  with PMA Re's  existing  clients,  as well as contracts  with new
  clients,  which  primarily  reflect  the  successful  expansion  of  finite  and
  financial  product  offerings.  This increase was partially  offset by increased
  retrocessional protection purchased during the first quarter of 1999.
  
  Net premiums earned  increased  13.7% in the first quarter of 1999,  compared to
  the first  quarter of 1998,  which  corresponds  to the increase in net premiums
  written. 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
                                                                                             March 31,
                                                                                      1999              1998
  -----------------------------------------------------------------------------------------------------------
  Loss and LAE ratio                                                                  72.2%             71.2%
                                                                                     -----             ----- 
  Expense ratio:
    Acquisition expenses                                                              23.2%             26.0%
    Operating expenses                                                                 6.3%              7.4%
                                                                                     -----             ----- 
  Total expense ratio                                                                 29.5%             33.4%
                                                                                     -----             ----- 
  Combined ratio  - GAAP(1)                                                          101.7%            104.6%
                                                                                     ======            ======
  -----------------------------------------------------------------------------------------------------------
  (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 1.0 point for the three months ended March
  31, 1999, compared to the same period last year. This increase primarily relates
  to a change in PMA Re's  business mix in the quarter  with finite and  
  
                                         11
  financial  products  representing  an  increasing   percentage.   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 2.8 points for the three months ended
  March 31, 1999,  compared to the same period in 1998. This decrease is primarily
  attributable to the change in business mix described  above,  and by changes PMA
  Re made to its  retrocessional  program  in the  first  quarter  of 1999,  which
  resulted in higher ceding commissions.
  
  The  operating  expense  ratio  decreased  1.1 points for the three months ended
  March 31, 1999, compared to the same period in 1998, primarily reflecting growth
  in earned premium and essentially flat operating expenses year-over-year.
  
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  Three Months Ended
                                                                                             March 31,
  (dollar amounts in thousands)                                                        1999            1998
  ------------------------------------------------------------------------------------------------------------
  Net premiums written                                                                $83,021          $82,542
                                                                                      =======          =======
  
  Net premiums earned                                                                 $54,399          $60,798
  Net investment income:                                                                        
       Excluding Run-off Operations                                                    12,007           12,560
       Run-off Operations(1)                                                            1,126            5,839
                                                                                      -------          -------
           Total                                                                       13,133           18,399
  Other revenues                                                                        2,429            2,585
                                                                                      -------          -------
  Operating revenues                                                                   69,961           81,782
                                                                                      -------          -------
  Losses and LAE:
       Excluding Run-off Operations                                                    41,209           47,206
       Run-off Operations(1)                                                              548            4,896
                                                                                      -------          -------
           Total                                                                       41,757           52,102
                                                                                      -------          -------
  Acquisition and operating expenses:                                         
       Excluding Run-off Operations                                                    17,639           22,219
       Run-off Operations(1)                                                              512              808
                                                                                      -------          -------
           Total                                                                       18,151           23,027
                                                                                      -------          -------
  Dividends to policyholders                                                            5,068            3,917
                                                                                      -------          -------
  Total losses and expenses                                                            64,976           79,046
                                                                                      -------          -------
  Pre-tax operating income                                                            $ 4,985           $2,736
                                                                                      =======          =======
  
  GAAP loss and LAE ratio(2)                                                            76.8%            85.7%
  GAAP combined ratio(2)                                                               116.2%           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 loss and LAE ratio and GAAP  combined  ratio  exclude the impact of
           the  cumulative  effect  of  accounting  change of $4.3  million  ($2.8
           million after-tax) for insurance-related assessments.
  
                                         12
  Operating Results 
  
  Pre-tax  operating  income for The PMA Insurance Group increased to $5.0 million
  for the three months ended March 31, 1999, compared to $2.7 million for the same
  period in 1998. The increase in operating income for The PMA Insurance Group was
  primarily due to improved loss experience, reduced exposures and lower operating
  expenses resulting from ongoing cost reduction initiatives.
  
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  
  The following table reflects the components of net premiums  written for The PMA
  Insurance Group, excluding Run-off Operations:
  Three Months Ended
                                                                                                March 31,
  (dollar amounts in thousands)                                                          1999             1998
  -------------------------------------------------------------------------------------------------------------
  Workers' compensation:
       Direct premiums written                                                        $71,290          $67,182
       Premiums assumed                                                                   725              893
       Premiums ceded                                                                  (9,298)          (3,187)
                                                                                      -------          -------
           Net premiums written                                                        62,717           64,888
                                                                                      -------          -------
  
   Commercial Lines:
       Direct premiums written                                                         28,269           29,091
       Premiums assumed                                                                   894              474
       Premiums ceded                                                                  (8,859)         (11,911)
                                                                                      -------          -------
           Net premiums written                                                        20,304           17,654
                                                                                      -------          -------
  
    Total:
       Direct premiums written                                                         99,559           96,273
       Premiums assumed                                                                 1,619            1,367
       Premiums ceded                                                                 (18,157)         (15,098)
                                                                                      -------          -------
           Net premiums written                                                       $83,021          $82,542
                                                                                      =======          =======
  -------------------------------------------------------------------------------------------------------------
  Net premiums  written,  which represent  direct  premiums  written plus premiums
  assumed,  less premiums  ceded,  increased to $83.0 million for the three months
  ended March 31, 1999, compared to $82.5 million for the same period in 1998. The
  slight increase in 1999 primarily  reflects  higher direct premiums  written for
  workers'  compensation of $4.1 million,  substantially  offset by an increase in
  reinsurance premiums ceded of $3.1 million.
  
  Direct workers'  compensation  premiums written were higher in 1999, compared to
  1998, due to an increase in the level of risks  underwritten.  This increase was
  partially offset by manual rate reductions  averaging  approximately 4.6% in The
  PMA Insurance Group's principal marketing  territories,  continued intense price
  competition and an increase in the level of net premium adjustments  returned to
  the insureds--$3.1 million in the first quarter of 1999 compared to $1.7 million
  in the first quarter of 1998.  Changes in actuarial  estimates of future premium
  adjustments on  retrospective  policies are recorded in direct premiums  written
  and direct premiums earned in the period in which they are identified.
  
  The increase in reinsurance premiums ceded of $3.1 million reflects higher ceded
  workers'  compensation premiums of $6.1 million for the three months ended March
  31, 1999,  compared to the same period in 1998, due to a new  reinsurance  cover
  effective  January 1, 1999,  under  which the net  retention  level on  workers'
  compensation  exposures  has been  reduced  from $1.5  million to  $150,000  per
  occurrence. Partially offsetting such increase was a decrease of $3.0 million in
  ceded   premiums  for   commercial   lines  of  business   other  than  workers'
  compensation,  such as 
  
                                         13
  commercial  auto,  general  liability,   umbrella,  multi-peril  and  commercial
  property  lines  (collectively,  "Commercial  Lines") for the three months ended
  March 31,  1999,  compared  to the same  period in 1998.  The  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 $6.4 million for the three months ended March 31,
  1999,  compared to the same period 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 GAAP
  combined ratios, excluding Run-off Operations:
  Three Months Ended
                                                                                               March 31,
                                                                                        1999             1998
  -------------------------------------------------------------------------------------------------------------
  Loss and LAE ratio(1)                                                                 75.8%            77.6%
                                                                                       ------           ------
  Expense ratio:
    Acquisition expenses                                                                13.8%            17.7%
    Operating expenses (2)                                                              15.4%            15.1%
                                                                                       ------           ------
    Total expense ratio                                                                 29.2%            32.8%
                                                                                       ------           ------
  
  Policyholders' dividends                                                               9.3%             6.4%
                                                                                       ------           ------
  
  Combined ratio - GAAP (1) (3) (4)                                                    114.3%           116.8%
                                                                                       ======           ======
  -------------------------------------------------------------------------------------------------------------
  (1)  The loss and LAE ratio and GAAP  combined  ratio  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 GAAP Operating  Expense Ratio excludes $1.8 million and $2.3 million in
       1999 and 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  116.2% and 126.2% in the first  quarter of 1999 and 1998,
       respectively.
  
  For the three months ended March 31, 1999,  the GAAP loss and LAE ratio improved
  by 1.8  points, compared  to the same  period  in  1998.  This  improvement  was
  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  $905,000 of favorable  development of
  prior accident year results for the first quarter of 1999 compared to $85,000 of
  unfavorable  development for the same period in 1998, which improved the overall
  loss and LAE ratio by 1.8 points in the first quarter of 1999.
  
  The  improvement in the  Commercial  Lines accident year loss and LAE ratio from
  86.3% for the first  quarter of 1998 to 81.3% for the first  quarter of 1999 has
  favorably  impacted  the overall  first  quarter  1999 loss and LAE ratio by 1.4
  points,  compared to the same period in 1998. The  improvement in the Commercial
  Lines  loss and LAE  ratio  was  primarily  due to the  continued  reduction  in
  exposures  underwritten  reflecting  the  application  of stricter  underwriting
  standards and continued intense price competition.
  
                                         14
  In addition, the improvement in the workers' compensation accident year loss and
  LAE  ratio  from  74.8%  for the  first  quarter  of 1998 to 73.7% for the first
  quarter of 1999 has  favorably  impacted the overall first quarter 1999 loss and
  LAE ratio by 0.8 points,  compared to the same period in 1998 due to a reduction
  in net exposures underwritten.
  
  The new reinsurance cover for workers' compensation business caused the level of
  discount to decline in the first  quarter of 1999 compared to 1998. As a result,
  the accretion of discount on prior year's reserves (net of the discount recorded
  for current accident year reserves)  increased the overall loss and LAE ratio in
  the first quarter of 1999 by 2.0 points, compared to the same period in 1998.
  
  The GAAP expense ratio  decreased by 3.6 points for the three months ended March
  31,  1999,  compared  to the  same  period  in  1998,  primarily  due to a lower
  acquisition  expense ratio. The decrease in the acquisition expense ratio of 3.9
  points was primarily due to higher ceded commissions received as a result of the
  new  reinsurance  treaty in 1999 and a reduction in expenses  for certain  state
  assessments that were reported as surcharges.
  
  The policyholders'  dividend ratio was 9.3% for the three months ended March 31,
  1999, compared to 6.4% for the same period in 1998. The increase in the dividend
  ratio is  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 $12.0  million for the three  months ended March 31,
  1999,  compared  to $12.6  million  for the same  period in 1998.  The  decrease
  primarily reflects lower yields.
  
  Run-off Operations
  
  Investment  income for the Run-off  Operations  decreased by $4.7 million in the
  three months ended March 31, 1999, compared to the same period in 1998 primarily
  due to lower invested  assets.  The decline in invested assets reflects the sale
  of PMA Insurance,  Cayman Limited ("PMA Cayman"), which included the transfer of
  $231.5 million in cash and invested  assets to the buyer effective July 1, 1998.
  In addition,  invested assets  decreased as a result of the paydown of losses at
  the remaining run-off entities.
  
  Losses and LAE,  acquisition  expenses  and  operating  expenses  of the Run-off
  Operations  decreased  by $4.6 million in the three months ended March 31, 1999,
  compared to the same period in 1998 primarily due to the sale of PMA Cayman.
  
                                         15
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  Three Months Ended
                                                                                       March 31,
  (dollar amounts in thousands)                                                    1999         1998
  ---------------------------------------------------------------------------------------------------
  Net premiums written                                                           $ 7,322      $   212
                                                                                 =======      =======
  
  Net premiums earned                                                            $ 2,643      $    26
  Net investment income                                                              403          343
                                                                                 -------      -------
  Operating revenues                                                               3,046          369
                                                                                 -------      -------
  
  Losses and LAE                                                                   2,118           20
  Acquisition and operating expenses                                               1,624          738
                                                                                 -------      -------
  Total losses and expenses                                                        3,742          758
                                                                                 -------      -------
  
  Pre-tax operating loss                                                         $  (696)     $  (389)
                                                                                 =======      =======
  ---------------------------------------------------------------------------------------------------
  For the three  months  ended  March 31,  1999,  Caliber  One  recorded a pre-tax
  operating loss of $696,000, compared with a loss of $389,000 for the same period
  last  year.  The  increase  in  losses  primarily  relates  to costs  to  expand
  operations.  The growth in net premiums  written and net premiums  earned in the
  first quarter of 1999 compared to the same period in 1998, reflects higher staff
  levels, increased market acceptance and an expanded distribution network.
  
  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 months ended March 31,
  1999,  Corporate  and Other  recorded a pre-tax  operating  loss of $4.8 million
  compared to a loss of $6.5  million for the three  months  ended March 31, 1998.
  The decrease in the operating  loss is primarily due to lower  interest  expense
  reflecting a $40 million  paydown in  outstanding  debt in the fourth quarter of
  1998 and higher net revenues 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.
  
  At March 31, 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  will be December 31, 2002,  which
  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 March 31, 1999, the
  Company had $45.8 million  outstanding  in letters of credit under the Letter of
  Credit Facility, compared with $46.9 million as of December 31, 1998.
  
                                         16
  The  Company  paid  interest  of $3.1  million  and $3.3  million on both credit
  facilities for the three months ended March 31, 1999 and 1998, respectively.
  
  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 surplus as regards to  policyholders  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 $10.8 million
  and $4.0 million for the first quarter of 1999 and 1998, respectively.
  
  Net tax payments  received from  subsidiaries were $3.5 million and $6.0 million
  for the three months ended March 31, 1999 and 1998, respectively.
  
  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 $1.9  million and $2.0 million for the three months ended March
  31, 1999 and 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries  totaling  $2.6 million  during the first  quarter of 1999. 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 quarter of 1999,  the Company  repurchased  577,000  shares at a total
  cost of $11.3  million  (average  per share  price was  $19.53),  leaving  $14.9
  million of share repurchase authorization  remaining.  Decisions regarding share
  repurchases  are  subject  to  prevailing  market  conditions  and the costs and
  benefits associated with alternative uses of capital.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet short-term and long-term obligations.
  
  Capital Resources
  
  The  Company's  total assets  increased  to $3,508.7  million at March 31, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $37.1 million to $2,288.3 million at March 31, 1999. The decrease in investments
  is primarily  attributable  to declines in market  value due to rising  interest
  rates. All other assets  increased $85.1 million at March 31, 1999,  compared to
  December 31,  1998,  primarily  due to an increase of $37.4  million in premiums
  receivable.  The  increase  in  premiums  receivable  primarily  relates  to the
  increase in net premiums written.
  
  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 
  
                                         17
  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  March 31,  1999 has been
  approximately $5.4 million. No material costs were incurred in the first quarter
  of  1999.  The  Company  does not  expect  to  incur  material  costs in 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 April 30, 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.
  
  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,
  
                                         18
  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 second  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 second  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
  
  The results  presented  above vary in certain  respects  from SAP  prescribed or
  permitted by the Pennsylvania  Insurance  Department and the Delaware  Insurance
  Department.   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")  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,  which is effective  for fiscal years  beginning  after
  December 15, 1998,  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. In the first quarter of 1999, the
  Company recorded a $2.8 million  after-tax charge for the effect of adopting SOP
  97-3,  which is reflected as a cumulative  effect of an  accounting  change (see
  Note 2-B for additional information).
  
                                         19
  In June 1998,  the  Financial  Accounting  Standards  Board 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.  SFAS No. 133 is  effective  for all
  fiscal quarters of fiscal years beginning after June 15, 1999. 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.
  
  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.
  
                                         20
  Part II. Other Information
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  The Exhibits are listed in the Index to Exhibits on page 23.
  
  (b) Reports on Form 8-K filed during the quarter ended March 31, 1999:
  
  None.
  
                                         21
  Signatures
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
  has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
  thereunto duly authorized.
  
                                         PMA CAPITAL CORPORATION
  
  Date:    May 12, 1999                  By: /s/  Francis W. McDonnell
           ------------                      --------------------------
  
                                             Francis W. McDonnell,
                                             Senior Vice President,
                                             Chief Financial Officer and Treasurer
                                            (Principal Financial Officer)
  
                                         22
  Exhibit Index
  Exhibit No.       Description of Exhibit                                      Method of Filing
  (10)              Company's 1999 Equity Incentive Plan                        Filed  as  Annex A to the  registrant's  Definitive
                                                                                Proxy  Statement  on  Schedule  14A dated March 26,
                                                                                1999 and incorporated herein by reference
  
  (12)              Computation of Ratio of Earnings to Fixed Charges           Filed herewith
  
  (27)              Financial Data Schedule                                     Filed herewith (EDGAR version only)
  23