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 SEPTEMBER 30, 1999
  
                                         OR
  
  /  /       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
  FOR THE TRANSITION PERIOD FROM __________ TO __________
  
  
                          Commission File Number 000-22761
  
                               PMA Capital Corporation
               ------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
                Pennsylvania                                    23-2217932
      -------------------------------                      -------------------
      (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                      Identification No.)
  
    Mellon Bank Center, Suite 2800
          1735 Market Street
       Philadelphia, Pennsylvania                              19103-7590
  ----------------------------------------                     ----------
  (Address of principal executive offices)                     (Zip Code)
  
                                   (215) 665-5046
                ----------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                   Not applicable
                ----------------------------------------------------
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days. YES /X/ NO / /
  
  There were 12,669,378  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 10,081,009 shares outstanding of the registrant's Class
  A Common Stock,  $5 par value per share,  as of the close of business on October
  31, 1999.
  <PAGE>
                                        INDEX
  
  --------------------------------------------------------------------------------
  
                                                                              Page
  
  Part I.    Financial Information
  
  Item 1.    Financial statements
  
             Consolidated statements of operations for the three
             and nine months ended September 30, 1999 and 1998
             (unaudited)                                                       1
  
             Consolidated balance sheets as of September 30, 1999
             (unaudited) and December 31, 1998                                 2
  
             Consolidated statements of cash flows for the nine
             months ended September 30, 1999 and 1998 (unaudited)              3
  
             Consolidated statements of comprehensive income (loss)
             for the three and nine months ended September 30, 1999
             and 1998 (unaudited)                                              4
  
             Notes to the consolidated financial statements                    5
  
  Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              10
  
  Part II.   Other Information
  
  Item 6.    Exhibits and reports on Form 8-K                                 24
  
  <PAGE>
                               PMA Capital Corporation
                        Consolidated Statements of Operations
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                              Three Months Ended            Nine Months Ended
                                                                September 30,                 September 30,
  (dollar amounts in thousands, except per share data)      1999           1998           1999           1998
  --------------------------------------------------------------------------------------------------------------
  <S>                                                    <C>            <C>            <C>            <C>
  Revenues:
         Net premiums written                            $ 124,970      $ 120,653      $ 395,418      $ 369,134
         Change in net unearned premiums                     3,449         (6,636)       (28,536)       (33,541)
                                                         ---------      ---------      ---------      ---------
              Net premiums earned                          128,419        114,017        366,882        335,593
         Net investment income                              28,029         28,410         82,099         92,260
         Net realized investment gains (losses)             (3,283)         4,099         (4,161)        15,362
         Other revenues                                      2,869          2,945          8,828          9,385
                                                         ---------      ---------      ---------      ---------
              Total revenues                               156,034        149,471        453,648        452,600
                                                         ---------      ---------      ---------      ---------
  
  Losses and expenses:
         Losses and loss adjustment expenses                91,491         83,473        268,136        256,230
         Acquisition expenses                               27,986         25,985         80,487         77,748
         Operating expenses                                 17,354         18,154         50,886         55,654
         Dividends to policyholders                          5,782          5,507         15,108         13,637
         Interest expense                                    3,052          3,768          9,134         11,231
                                                         ---------      ---------      ---------      ---------
              Total losses and expenses                    145,665        136,887        423,751        414,500
                                                         ---------      ---------      ---------      ---------
  
         Income before income taxes and cumulative
              effect of accounting change                   10,369         12,584         29,897         38,100
  
  Income tax expense (benefit):
         Current                                             2,770           (424)         8,555            267
         Deferred                                            1,087          2,456           (384)         5,836
                                                         ---------      ---------      ---------      ---------
              Total                                          3,857          2,032          8,171          6,103
                                                         ---------      ---------      ---------      ---------
  
  Income before cumulative effect of accounting
         change                                              6,512         10,552         21,726         31,997
  
  Cumulative effect of accounting change (net of
         income tax benefit of $1,458)                          --             --         (2,759)            --
                                                         ---------      ---------      ---------      ---------
  Net income                                             $   6,512      $  10,552      $  18,967      $  31,997
                                                         =========      =========      =========      =========
  
  Earnings per share:
         Basic:
              Income before cumulative effect of
                   accounting change                     $    0.28      $    0.45      $    0.94      $    1.35
              Cumulative effect of accounting change            --             --          (0.12)            --
                                                         ---------      ---------      ---------      ---------
              Net income                                 $    0.28      $    0.45      $    0.82      $    1.35
                                                         =========      =========      =========      =========
  
         Diluted:
              Income before cumulative effect of
                   accounting change                     $    0.27      $    0.43      $    0.90      $    1.30
              Cumulative effect of accounting change            --             --          (0.11)            --
                                                         ---------      ---------      ---------      ---------
              Net income                                 $    0.27      $    0.43      $    0.79      $    1.30
                                                         =========      =========      =========      =========
  </TABLE>
  
          See accompanying notes to the consolidated financial statements.
  
                                         1
  <PAGE>
                               PMA Capital Corporation
                             Consolidated Balance Sheets
  
  <TABLE>
  <CAPTION>
                                                                                    (Unaudited)
                                                                                       As of            As of
                                                                                   September 30,     December 31,
  (dollar amounts in thousands, except per share data)                                 1999              1998
  ---------------------------------------------------------------------------------------------------------------
  <S>                                                                               <C>              <C>
  Assets:
        Investments:
        Fixed maturities available for sale, at fair value
             (amortized cost: 1999 - $1,686,311; 1998 - $1,781,188)                 $ 1,642,788      $ 1,827,354
        Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                         5               17
        Short-term investments, at amortized cost which approximates fair value         408,714          498,038
                                                                                    -----------      -----------
             Total investments                                                        2,051,507        2,325,409
  
        Cash                                                                             15,356            2,562
        Accrued investment income                                                        21,703           19,900
        Premiums receivable (net of valuation allowance:
             1999 - $20,840; 1998 - $19,874)                                            278,179          279,633
        Reinsurance receivables (net of valuation allowance:
             1999 - $2,178; 1998 - $2,178)                                              641,273          610,291
        Deferred income taxes, net                                                       97,194           63,929
        Deferred acquisition costs                                                       49,772           51,115
        Other assets                                                                    140,426          107,879
                                                                                    -----------      -----------
             Total assets                                                           $ 3,295,410      $ 3,460,718
                                                                                    ===========      ===========
  
  Liabilities:
        Unpaid losses and loss adjustment expenses                                  $ 1,902,681      $ 1,940,895
        Unearned premiums                                                               266,425          227,945
        Long-term debt                                                                  163,000          163,000
        Accounts payable and accrued expenses                                           121,532          107,952
        Funds held under reinsurance treaties                                            92,077           77,674
        Dividends to policyholders                                                       12,800           10,700
        Payable under securitites loan agreements                                       284,986          421,072
                                                                                    -----------      -----------
             Total liabilities                                                        2,843,501        2,949,238
                                                                                    -----------      -----------
  
  
        Commitments and contingencies (Note 4)
  
  Shareholders' Equity:
        Common stock, $5 par value (40,000,000 shares authorized;
             1999 - 13,132,795 shares issued and 12,696,788 outstanding;
             1998 - 13,956,268 shares issued and 13,520,261 outstanding)                 65,664           69,781
        Class A common stock, $5 par value (40,000,000 shares authorized;
             1999 - 11,310,150 shares issued and 10,077,760 outstanding;
             1998 - 10,486,677 shares issued and 9,837,963 outstanding)                  56,550           52,433
        Additional paid-in capital - Class A common stock                                   339              339
        Retained earnings                                                               387,577          377,601
        Accumulated other comprehensive income (loss)                                   (28,289)          30,016
        Notes receivable from officers                                                     (151)            (498)
        Treasury stock, at cost:
             Common stock (shares: 1999 - 436,007 and 1998 - 436,007)                    (5,582)          (5,582)
             Class A common stock (shares: 1999 - 1,232,390 and 1998 - 648,714)         (24,199)         (12,610)
                                                                                    -----------      -----------
                  Total shareholders' equity                                            451,909          511,480
                                                                                    -----------      -----------
                  Total liabilities and shareholders' equity                        $ 3,295,410      $ 3,460,718
                                                                                    ===========      ===========
  </TABLE>
  
          See accompanying notes to the consolidated financial statements.
  
                                         2
  <PAGE>
  
                               PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                                          Nine Months Ended
                                                                            September 30,
  (dollar amounts in thousands)                                         1999              1998
  -----------------------------------------------------------------------------------------------
  <S>                                                               <C>              <C>
  Cash flows from operating activities:
  Net income                                                        $    18,967      $    31,997
  Adjustments to reconcile net income to net cash flows used in
             operating activities:
        Depreciation and amortization                                     4,992            3,277
        Provision (benefit) for deferred income taxes                      (384)           5,836
        Net realized investment losses (gains)                            4,161          (15,362)
        Cumulative effect of accounting change                            2,759               --
        Change in:
             Premiums receivable and unearned premiums, net              39,934             (348)
             Dividends to policyholders                                   2,100             (595)
             Reinsurance receivables                                    (30,982)         (54,165)
             Unpaid losses and loss adjustment expenses                 (38,214)         (51,690)
             Accrued investment income                                   (1,803)             144
             Deferred acquisition costs                                   1,343          (10,670)
        Other, net                                                       (9,114)          18,341
                                                                    -----------      -----------
  Net cash flows used in operating activities                            (6,241)         (73,235)
                                                                    -----------      -----------
  
  Cash flows from investing activities:
        Fixed maturity investments available for sale:
             Purchases                                               (1,021,204)      (1,377,422)
             Maturities or calls                                        106,397          108,013
             Sales                                                    1,003,836        1,175,526
        Net sales (purchases) of short-term investments                 (46,725)         162,296
        Proceeds from sale of subsidiary                                     --            2,902
        Other, net                                                       (3,036)          (2,601)
                                                                    -----------      -----------
  Net cash flows provided by investing activities                        39,268           68,714
                                                                    -----------      -----------
  
  Cash flows from financing activities:
        Dividends paid to shareholders                                   (5,782)          (6,086)
        Proceeds from exercise of stock options                           4,894            2,377
        Purchase of treasury stock                                      (19,693)         (16,323)
        Net repayments of notes receivable from officers                    348               --
                                                                    -----------      -----------
  Net cash flows used in financing activities                           (20,233)         (20,032)
                                                                    -----------      -----------
  
  Net increase (decrease) in cash                                        12,794          (24,553)
  Cash - beginning of period                                              2,562           32,148
                                                                    -----------      -----------
  Cash - end of period                                              $    15,356      $     7,595
                                                                    ===========      ===========
  
  
  Supplementary cash flow information:
        Income taxes paid (refunded)                                $     9,852      $      (616)
        Interest paid                                               $     7,443      $    11,150
  </TABLE>
  
  
          See accompanying notes to the consolidated financial statements.
  
                                         3
  <PAGE>
                               PMA Capital Corporation
               Consolidated Statements of Comprehensive Income (Loss)
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
                                                                      Three Months Ended           Nine Months Ended
                                                                          September 30,              September 30,
  (dollar amounts in thousands)                                       1999          1998          1999          1998
  ---------------------------------------------------------------------------------------------------------------------
  
  <S>                                                               <C>           <C>           <C>           <C>
  Net income                                                        $  6,512      $ 10,552      $ 18,967      $ 31,997
                                                                    --------      --------      --------      --------
  
  Other comprehensive income (loss), net of tax:
        Unrealized gains (losses) on securities:
             Holding gains (losses) arising during the period         (9,582)       22,363       (61,010)       38,761
             Less:  reclassification adjustment for (gains)
                  losses included in net income (net of tax
                  expense (benefit):  $(1,149) and $1,435 for
                  three months ended September 30, 1999
                  and 1998; $(1,456) and $5,377 for nine months
                  ended September 30, 1999 and 1998)                   2,134        (2,651)        2,705       (11,558)
                                                                    --------      --------      --------      --------
  
  Other comprehensive income (loss)                                   (7,448)       19,712       (58,305)       27,203
                                                                    --------      --------      --------      --------
  
  Comprehensive income (loss)                                       $   (936)     $ 30,264      $(39,338)     $ 59,200
                                                                    ========      ========      ========      ========
  </TABLE>
  
  
          See accompanying notes to the consolidated financial statements.
  
                                         4
  <PAGE>
                               PMA Capital Corporation
  
                   Notes to the Consolidated Financial Statements
  
  
  1.   BUSINESS DESCRIPTION
  
  The accompanying  consolidated  financial statements include the accounts of PMA
  Capital Corporation and its wholly and majority owned subsidiaries (collectively
  referred to as "PMA  Capital"  or the  "Company").  PMA Capital is an  insurance
  holding company that operates three specialty risk management businesses,  which
  are more fully described below.
  
  Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of
  PMA Reinsurance  Corporation,  a Pennsylvania domiciled insurance company, which
  emphasizes risk-exposed, excess of loss reinsurance and operates in the brokered
  market. PMA Re's business is predominantly in casualty lines of reinsurance.
  
  Workers'  Compensation and Primary Standard  Insurance -- PMA Capital's property
  and  casualty  insurance   subsidiaries  ("The  PMA  Insurance  Group")  include
  Pennsylvania   domiciled   insurance   companies  as  well  as  certain  foreign
  subsidiaries.  The PMA Insurance  Group  primarily  writes managed care workers'
  compensation, integrated disability 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 in four other states.
  
  
  2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  A. Basis of  Presentation  - The  consolidated  financial  statements  have been
  prepared in accordance with generally accepted  accounting  principles  ("GAAP")
  for interim  financial  information  and with the  instructions to Form 10-Q and
  Article 10 of Regulation S-X. It is management's  opinion that all  adjustments,
  including  normal   recurring   accruals,   considered   necessary  for  a  fair
  presentation have been included. Certain reclassifications of prior year amounts
  have been made to conform to the 1999 presentation.
  
  The  preparation of  consolidated  financial  statements in conformity with GAAP
  requires  management to make certain  estimates and assumptions  that affect the
  reported amounts of assets and liabilities,  disclosure of contingent assets and
  liabilities at the date of the financial  statements and the reported amounts of
  revenues and expenses during the period.  Due to this and certain other factors,
  such as the  seasonal  nature of portions of the  insurance  business as well as
  competitive  and other market  conditions,  operating  results for the three and
  nine months  ended  September  30, 1999 are not  necessarily  indicative  of the
  results to be expected for the full year.
  
  The  information  included in this Form 10-Q should be read in conjunction  with
  the Company's audited  consolidated  financial statements and footnotes included
  in its 1998 Annual Report to Shareholders  and  incorporated by reference in its
  Form 10-K for the year ended December 31, 1998.
  
  B. Recent  Accounting  Pronouncements  - Effective  January 1, 1999, the Company
  adopted  Statement of Position ("SOP") 97-3,  "Accounting by Insurance and Other
  Enterprises for  Insurance-Related  Assessments." SOP 97-3 provides guidance for
  determining when an insurance  company should recognize a liability for guaranty
  fund and other insurance related  assessments and how to measure that liability.
  As a result of  adopting  SOP 97-3,  the Company  recorded a  liability  of $4.3
  million  pre-tax and a resulting  charge to  earnings  of $2.8  million,  net of
  income tax benefit of $1.5  million,  which has been  reported  as a  cumulative
  effect of accounting  change.  This accounting  change impacts The PMA Insurance
  Group segment.
  
                                         5
  <PAGE>
  
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  3.   REINSURANCE
  
  In the ordinary  course of business,  PMA  Capital's  reinsurance  and insurance
  subsidiaries  assume and cede  premiums with other  insurance  companies and are
  members of various  underwriting  pools and  associations.  The  reinsurance and
  insurance  subsidiaries cede business,  primarily on an excess of loss basis, in
  order to limit the maximum net loss from large risks and limit the  accumulation
  of many smaller losses from a catastrophic  event. The reinsurance and insurance
  subsidiaries  remain  primarily  liable  to their  clients  in the  event  their
  reinsurers are unable to meet their financial obligations.
  
  The components of net premiums  earned and losses and loss  adjustment  expenses
  ("LAE") are as follows:
  
  <TABLE>
  <CAPTION>
                                           Three Months Ended                   Nine Months Ended
                                             September 30,                          September 30,
  (dollar amounts in thousands)        1999                1998               1999                 1998
  ---------------------------------------------------------------------------------------------------------
  <S>                               <C>                 <C>                 <C>                 <C>
  Earned Premiums:
        Direct .........            $  81,135           $  68,107           $ 235,262           $ 211,127
        Assumed ........              100,308              67,319             252,832             195,383
        Ceded ..........              (53,024)            (21,409)           (121,212)            (70,917)
                                    ---------           ---------           ---------           ---------
        Net ............            $ 128,419           $ 114,017           $ 366,882           $ 335,593
                                    =========           =========           =========           =========
  Losses and LAE:
        Direct .........            $  62,613           $  61,672           $ 187,642           $ 188,490
        Assumed ........               62,110              45,038             158,291             124,560
        Ceded ..........              (33,232)            (23,237)            (77,797)            (56,820)
                                    ---------           ---------           ---------           ---------
        Net ............            $  91,491           $  83,473           $ 268,136           $ 256,230
                                    =========           =========           =========           =========
  </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
  September 30, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of  approximately  $8.5 million,  primarily
  related to loans on properties in which the Company has an interest.
  
  The Company is continuously  involved in numerous lawsuits arising, for the most
  part,  in the  ordinary  course  of  business,  either  as a  liability  insurer
  defending  third-party  claims  brought  against its insureds,  or as an insurer
  defending  coverage  claims  brought  against it by its  policyholders  or other
  insurers.  While the outcome of all litigation involving the Company,  including
  insurance-related litigation,  cannot be determined,  litigation is not expected
  to result in losses that differ from recorded  reserves by amounts that would be
  material  to  results  of  operations,  liquidity  or  financial  condition.  In
  addition,  reinsurance  recoveries  related to claims in litigation,  net of the
  allowance  for  uncollectible  reinsurance,   are  not  expected  to  result  in
  recoveries  that  differ from  recorded  recoverables  by amounts  that would be
  material to the results of operations, liquidity or financial condition.
  
  
  5.   EARNINGS PER SHARE
  
  A reconciliation  of the shares used as the denominator of the basic and diluted
  earnings per share  computations is presented below. For all periods  presented,
  there were no differences in the numerator  (income before  cumulative effect of
  accounting change) for the basic and diluted earnings per share calculation:
  
  <TABLE>
  <CAPTION>
                                               Three Months Ended                  Nine Months Ended
                                                  September 30,                      September 30,
                                             1999              1998              1999             1998
  ----------------------------------------------------------------------------------------------------------
  <S>                                     <C>               <C>               <C>               <C>
  Denominator:
  Basic shares - weighted average
        common and Class A common
        shares outstanding .............  22,898,574        23,573,472        23,098,368        23,704,376
  Effect of dilutive stock options .....     809,659         1,043,105           820,388           945,028
                                          ----------        ----------        ----------        ----------
  Total diluted shares .................  23,708,233        24,616,577        23,918,756        24,649,404
                                          ==========        ==========        ==========        ==========
  </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                 Nine Months Ended
                                                              September 30,                      September 30,
  (dollar amounts in thousands)                          1999             1998              1999              1998
  ---------------------------------------------------------------------------------------------------------------------
  <S>                                                 <C>               <C>               <C>               <C>
  Revenues:
  PMA Re                                              $  83,900         $  70,118         $ 233,867         $ 198,256
  The PMA Insurance Group
        Excluding Run-off Operations                     65,254            72,761           203,229           223,807
        Run-off Operations                                1,110             1,477             3,333            12,780
                                                      ---------         ---------         ---------         ---------
        Total                                            66,364            74,238           206,562           236,587
  Caliber One                                             8,556               801            16,095             1,706
  Corporate and Other                                       497               215             1,285               689
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Total revenues                                      $ 156,034         $ 149,471         $ 453,648         $ 452,600
                                                      =========         =========         =========         =========
  
  Components of pre-tax operating
  income(1) and net income:
  PMA Re                                              $  14,674         $  11,930         $  37,790         $  34,882
  The PMA Insurance Group:
        Excluding Run-off Operations                      4,045             3,389            13,719             8,343
        Run-off Operations                                  174              (387)             (320)               41
                                                      ---------         ---------         ---------         ---------
        Total                                             4,219             3,002            13,399             8,384
  Caliber One                                               462              (247)             (839)           (1,317)
  Corporate and Other                                    (5,703)           (6,200)          (16,292)          (19,211)
                                                      ---------         ---------         ---------         ---------
  Pre-tax operating income                               13,652             8,485            34,058            22,738
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Income before income taxes and
        cumulative effect of accounting change           10,369            12,584            29,897            38,100
  Income tax expense                                      3,857             2,032             8,171             6,103
                                                      ---------         ---------         ---------         ---------
  Income before cumulative effect of
        accounting change                                 6,512            10,552            21,726            31,997
  Cumulative effect of accounting change,
        net of tax                                           --                --            (2,759)               --
                                                      ---------         ---------         ---------         ---------
  Net income                                          $   6,512         $  10,552         $  18,967         $  31,997
                                                      =========         =========         =========         =========
  </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>
  
  
  7.   DISPOSITIONS
  
  Effective  July 1, 1998,  the Company  sold PMA  Insurance,  Cayman  Ltd.  ("PMA
  Cayman"),  one of the entities  included in The PMA  Insurance  Group's  Run-off
  Operations, which reinsured claims for certain policies written by other members
  of The PMA  Insurance  Group,  to a third  party  for a  purchase  price of $1.8
  million  and  recorded  an  after-tax  loss of $1.6  million.  This  transaction
  included  the  transfer  of $231.5  million in cash and  invested  assets to the
  buyer.  At  September  30,  1999,  the Company had  recorded  $240.8  million in
  reinsurance receivables related to this transaction, all of which are secured by
  assets in trust or by letters of credit.  If the actual  claim  payments  in the
  aggregate  exceed the estimated  payments upon which the loss reserves have been
  established,  the Company has agreed to indemnify the buyer,  up to a maximum of
  $15.0  million.  If the actual claim payments in the aggregate are less than the
  estimated  payments  upon which the loss  reserves  have been  established,  the
  Company will participate in such favorable loss reserve development.
  
                                         9
  <PAGE>
  
  
  Item 2.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
  The  following  is a  discussion  of PMA  Capital's  financial  condition  as of
  September  30,  1999,  compared  with  December  31,  1998,  and its  results of
  operations for the three and nine months ended September 30, 1999, compared with
  the same periods last year. This discussion  should be read in conjunction  with
  Management's  Discussion  and  Analysis  included in PMA  Capital's  1998 Annual
  Report to  Shareholders  (pages 28 through  49), to which the reader is directed
  for additional  information.  The term "SAP" refers to the statutory  accounting
  practices prescribed or permitted by applicable state insurance  departments and
  the term "GAAP" refers to generally accepted accounting principles.
  
       CONSOLIDATED RESULTS OF OPERATIONS
  
  The table below  presents the major  components of revenues,  pre-tax  operating
  income and net income:
  
  <TABLE>
  <CAPTION>
                                                           Three Months Ended                 Nine Months Ended
                                                              September 30,                      September 30,
  (dollar amounts in thousands)                          1999              1998             1999              1998
  ------------------------------------------------------------------------------------------------------------------------------
  <S>                                                 <C>               <C>               <C>               <C>
  Operating revenues:
  Net premiums written                                $ 124,970         $ 120,653         $ 395,418         $ 369,134
                                                      =========         =========         =========         =========
  
  Net premiums earned                                 $ 128,419         $ 114,017         $ 366,882         $ 335,593
  Net investment income                                  28,029            28,410            82,099            92,260
  Other revenues                                          2,869             2,945             8,828             9,385
                                                      ---------         ---------         ---------         ---------
        Total operating revenues                      $ 159,317         $ 145,372         $ 457,809         $ 437,238
                                                      =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                              $  14,674         $  11,930         $  37,790         $  34,882
  The PMA Insurance Group:
        Excluding Run-off Operations                      4,045             3,389            13,719             8,343
        Run-off Operations                                  174              (387)             (320)               41
                                                      ---------         ---------         ---------         ---------
        Total                                             4,219             3,002            13,399             8,384
  Caliber One                                               462              (247)             (839)           (1,317)
  Corporate and Other                                    (5,703)           (6,200)          (16,292)          (19,211)
                                                      ---------         ---------         ---------         ---------
  Pre-tax operating income                               13,652             8,485            34,058            22,738
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Income before income taxes and
        cumulative effect of accounting change           10,369            12,584            29,897            38,100
  Income tax expense                                      3,857             2,032             8,171             6,103
                                                      ---------         ---------         ---------         ---------
  Income before cumulative effect of
        accounting change                                 6,512            10,552            21,726            31,997
  Cumulative effect of accounting change,
        net of tax                                           --                --            (2,759)               --
                                                      ---------         ---------         ---------         ---------
  Net income                                          $   6,512         $  10,552         $  18,967         $  31,997
                                                      =========         =========         =========         =========
  </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 holding company level, and such
        decisions  result in net realized gains (losses) that do not relate to the
        operations of the individual segments.
  
                                         10
  <PAGE>
  
  Pre-tax  operating income for the three and nine months ended September 30, 1999
  was $13.7 million and $34.1 million, respectively, compared to pre-tax operating
  income of $8.5 million and $22.7 million for the same periods in 1998. After-tax
  operating  income  was $8.6  million  and $24.4  million  for the three and nine
  months ended September 30, 1999,  respectively,  compared to after-tax operating
  income of $7.9  million and $22.0  million for the same  periods in 1998.  These
  increases were primarily due to improved  underwriting  results  attributable to
  The PMA Insurance  Group and PMA Re and lower interest  expense,  with after-tax
  operating income being partially offset by a higher effective tax rate in 1999.
  
  The Company  currently  expects  operating income to continue to improve in 1999
  reflecting higher operating income from The PMA Insurance Group and PMA Re. This
  expectation  may  differ  materially  from  actual  results  because of the risk
  factors noted in the "Cautionary Statements" on page 23.
  
  Net income was $6.5  million  and $19.0  million  for the three and nine  months
  ended September 30, 1999, respectively,  compared to net income of $10.6 million
  and $32.0  million  for the three and nine  months  ended  September  30,  1998,
  respectively.  Net income for the nine months ended  September 30, 1999 includes
  an  after-tax  charge of $2.8  million for the effect of adopting  Statement  of
  Position   97-3,   "Accounting   by   Insurance   and  Other   Enterprises   for
  Insurance-Related  Assessments."  See  "Recent  Accounting  Pronouncements"  for
  additional information.
  
  Net income also includes gains and losses on the sale of investments. The timing
  and  recognition  of  such  gains  and  losses  are  unpredictable  and  are not
  indicative of future operating  performance.  After-tax net realized  investment
  losses were $2.1  million and $2.7  million for the three and nine months  ended
  September 30, 1999,  compared to after-tax net realized investment gains of $2.7
  million and $10.0 million for the comparable  1998 periods.  The realized losses
  for 1999  reflect  sales of  investments  in order to invest in yield  enhancing
  investment  opportunities in an interest rate environment when rates were rising
  in contrast to the realized  gains in 1998 which  reflect  sales of  investments
  during  a  period  when  interest  rates  were  declining.  Also,  net  realized
  investment  gains for the nine months  ended  September  30, 1998 include a $2.4
  million  pre-tax loss related to the sale of PMA  Insurance,  Cayman Ltd.  ("PMA
  Cayman").  See Note 7 to the Company's  Consolidated  Financial  Statements  for
  additional information.
  
                                         11
  <PAGE>
  
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  
  <TABLE>
  <CAPTION>
                                                         Three Months Ended                Nine Months Ended
                                                            September 30,                    September 30,
  (dollar amounts in thousands)                        1999             1998             1999             1998
  ----------------------------------------------------------------------------------------------------------------
  <S>                                                <C>              <C>              <C>              <C>
  Net premiums written                               $ 45,963         $ 54,687         $182,628         $172,595
                                                     ========         ========         ========         ========
  
  Net premiums earned                                $ 68,941         $ 56,386         $191,289         $157,353
  Net investment income                                14,959           13,732           42,578           40,903
                                                     --------         --------         --------         --------
  Operating revenues                                   83,900           70,118          233,867          198,256
                                                     --------         --------         --------         --------
  
  Losses and loss adjustment expenses ("LAE")          48,456           37,633          135,699          107,311
  Acquisition and operating expenses                   20,770           20,555           60,378           56,063
                                                     --------         --------         --------         --------
  Total losses and expenses                            69,226           58,188          196,077          163,374
                                                     --------         --------         --------         --------
  
  Pre-tax operating income                           $ 14,674         $ 11,930         $ 37,790         $ 34,882
                                                     ========         ========         ========         ========
  
  GAAP loss and LAE ratio                                70.3%            66.7%            70.9%            68.2%
  GAAP combined ratio                                   100.4%           103.2%           102.5%           103.8%
  ----------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  PMA Re's pre-tax  operating  income was $14.7  million and $37.8 million for the
  three and nine months ended  September  30, 1999,  compared to $11.9 million and
  $34.9  million for the same periods in 1998.  The increase in operating  results
  for the third  quarter and first nine months of 1999 reflect an  improvement  in
  the combined ratio and higher net investment income.
  
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  
  <TABLE>
  <CAPTION>
                                     Three Months Ended              Nine Months Ended
                                        September 30,                  September 30,
  (dollar amounts in thousands)    1999            1998           1999             1998
  -----------------------------------------------------------------------------------------
  <S>                            <C>             <C>             <C>             <C>
  Gross premiums written:
        Casualty lines           $ 57,093        $ 49,857        $180,055        $152,465
        Property lines             13,514          17,066          59,647          58,379
        Other lines                   879             308           1,491             809
                                 --------        --------        --------        --------
  Total                          $ 71,486        $ 67,231        $241,193        $211,653
                                 ========        ========        ========        ========
  
  Net premiums written:
        Casualty lines           $ 39,266        $ 40,922        $137,228        $124,457
        Property lines              5,871          13,516          43,980          47,365
        Other lines                   826             249           1,420             773
                                 --------        --------        --------        --------
  Total                          $ 45,963        $ 54,687        $182,628        $172,595
                                 ========        ========        ========        ========
  -----------------------------------------------------------------------------------------
  </TABLE>
  
                                         12
  <PAGE>
  
  Net premiums  written  decreased  $8.7 million,  or 16.0%,  and increased  $10.0
  million,  or 5.8%,  for the three and nine  months  ended  September  30,  1999,
  respectively, compared to the same periods in 1998. The decrease in net premiums
  written for the three months ended  September  30, 1999,  reflects  higher ceded
  premiums,  the  cancellation  of a finite  treaty and the  effects of the highly
  competitive  conditions in the U.S.  reinsurance market,  which more than offset
  growth from expanded product offerings. The increase in net premiums written for
  the nine months ended  September  30, 1999,  primarily  reflects the  successful
  expansion of finite and financial product offerings,  expansion of relationships
  with PMA Re's  existing  clients,  and  contracts  with new  clients.  Partially
  offsetting this increase was the effect of highly competitive  conditions in the
  U.S.  reinsurance market,  which has caused PMA Re to non-renew certain accounts
  largely due to inadequate rates and/or other underwriting issues.
  
  Net premiums earned  increased $12.6 million,  or 22.3%,  and $33.9 million,  or
  21.6%,  for the three and nine months ended  September  30, 1999,  respectively,
  compared to the same periods in 1998.  Generally,  trends in net premiums earned
  follow  patterns  similar to net premiums  written,  with premiums  being earned
  principally on a pro rata basis over the terms of the contracts. PMA Re's earned
  premiums  for  the  third   quarter  and  first  nine  months  of  1999  include
  approximately  $26  million  related to a revision  of the  methodology  used in
  estimating unearned premiums on in-force contracts.
  
  Losses and Expenses
  
  The following table reflects the components of PMA Re's GAAP combined ratios:
  
  <TABLE>
  <CAPTION>
                                                            Three Months Ended           Nine Months Ended
                                                               September 30,               September 30,
                                                            1999          1998          1999          1998
  ----------------------------------------------------------------------------------------------------------
  <S>                                                     <C>           <C>           <C>           <C>
  Loss and LAE ratio                                         70.3%         66.7%         70.9%         68.2%
                                                          -------       -------       -------       -------
  Expense ratio:
        Amortization of deferred acquisition costs           25.1%         30.6%         26.3%         29.2%
        Operating expenses                                    5.0%          5.9%          5.3%          6.4%
                                                          -------       -------       -------       -------
  Total expense ratio                                        30.1%         36.5%         31.6%         35.6%
                                                          -------       -------       -------       -------
  GAAP combined ratio                                       100.4%        103.2%        102.5%        103.8%
                                                          =======       =======       =======       =======
  ----------------------------------------------------------------------------------------------------------
  </TABLE>
  
  PMA Re's loss and LAE ratio  increased  3.6  points and 2.7 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods  in 1998.  These  increases  primarily  relate  to a change  in PMA Re's
  business  mix,  with finite and financial  products  representing  an increasing
  percentage of earned premiums.  Such products  typically carry a higher loss and
  LAE ratio and a lower  acquisition  expense ratio than  traditional  reinsurance
  products.
  
  The acquisition  expense ratio decreased 5.5 points and 2.9 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods last year.  These decreases are primarily  attributable to the change in
  business  mix as  described  above  as well as  lower  acquisition  expenses  on
  traditional  business  in  1999.  In  addition,  PMA  Re  made  changes  to  its
  retrocessional  program in 1999,  resulting in higher ceding commissions,  which
  reduces the acquisition expense ratio.
  
  The operating  expense  ratio  decreased 0.9 points and 1.1 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods last year, reflecting  essentially flat operating expenses and growth in
  earned premium.
  
  Net Investment Income
  
  Net investment income was $15.0 million and $42.6 million for the three and nine
  months ended September 30, 1999, compared to $13.7 million and $40.9 million for
  the same  periods in 1998.  These  increases  primarily  reflect an  increase in
  investment yield and, to a lesser extent, higher average invested assets.
  
                                         13
  
  <PAGE>
  
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  
  <TABLE>
  <CAPTION>
                                                 Three Months Ended                 Nine Months Ended
                                                    September 30,                     September 30,
  (dollar amounts in thousands)                1999             1998             1999             1998
  ----------------------------------------------------------------------------------------------------------
  <S>                                        <C>              <C>              <C>              <C>
  Net premiums written                       $ 63,289         $ 64,504         $182,472         $194,331
                                             ========         ========         ========         ========
  
  Net premiums earned                        $ 51,691         $ 57,389         $161,416         $177,978
  Net investment income
        Excluding Run-off Operations           11,329           13,140           34,839           38,426
        Run-off Operations(1)                   1,110            1,477            3,333           12,780
                                             --------         --------         --------         --------
        Total                                  12,439           14,617           38,172           51,206
  Other revenues                                2,234            2,232            6,974            7,403
                                             --------         --------         --------         --------
  Operating revenues                           66,364           74,238          206,562          236,587
  
  Losses and LAE:
        Excluding Run-off Operations           36,297           44,326          118,425          138,010
        Run-off Operations(1)                     710            1,241            2,669           10,642
                                             --------         --------         --------         --------
             Total                             37,007           45,567          121,094          148,652
  Acquisition and operating expenses:
        Excluding Run-off Operations           19,130           19,539           55,977           63,817
        Run-off Operations(1)                     226              623              984            2,097
                                             --------         --------         --------         --------
             Total                             19,356           20,162           56,961           65,914
  Dividends to policyholders                    5,782            5,507           15,108           13,637
                                             --------         --------         --------         --------
  Total losses and expenses                    62,145           71,236          193,163          228,203
                                             --------         --------         --------         --------
  Pre-tax operating income                   $  4,219         $  3,002         $ 13,399         $  8,384
                                             ========         ========         ========         ========
  
  GAAP loss and LAE ratio                        71.6%            79.4%            75.0%            83.5%
  GAAP combined ratio(2)                        116.7%           120.4%           116.1%           124.4%
  ----------------------------------------------------------------------------------------------------------
  <FN>
  (1)  Run-off operations  ("Run-off  Operations") of The PMA Insurance Group were
       established and segregated from ongoing  operations  effective December 31,
       1996 to reinsure  certain  obligations  primarily  associated with workers'
       compensation  claims written by The PMA Insurance  Group's Pooled Companies
       for the years 1991 and prior.
  
  (2)  The combined  ratio for the nine months ended  September  30, 1999 excludes
       the impact of the  cumulative  effect of accounting  change of $4.3 million
       ($2.8 million after-tax) for insurance-related assessments.
  </FN>
  </TABLE>
  
  Operating Results
  
  Pre-tax  operating income for The PMA Insurance Group was $4.2 million and $13.4
  million for the three and nine months ended September 30, 1999, compared to $3.0
  million  and  $8.4  million  for the same  periods  in 1998.  The  increases  in
  operating  income were  primarily  due to  improved  loss  experience  and lower
  operating  expenses  resulting  from  ongoing  cost  reduction  initiatives.  In
  addition,  the improvement in operating income reflects a reduction in the level
  of net exposures  underwritten due to disciplined and focused  underwriting,  as
  well as an increase in the use of reinsurance.
  
                                         14
  <PAGE>
  
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  
  <TABLE>
  <CAPTION>
                                            Three Months Ended                 Nine Months Ended
                                               September 30,                      September 30,
  (dollar amounts in thousdands)          1999              1998             1999              1998
  -------------------------------------------------------------------------------------------------------
  <S>                                  <C>               <C>               <C>               <C>
  Workers' compensation:
        Direct premiums written        $  55,687         $  51,472         $ 161,783         $ 152,961
        Premiums assumed                     661             1,072             1,855             3,532
        Premiums ceded                    (7,095)           (3,436)          (23,923)           (8,991)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  49,253         $  49,108         $ 139,715         $ 147,502
                                       =========         =========         =========         =========
  
  Commercial Lines:
        Direct premiums written        $  22,049         $  23,254         $  66,503         $  74,617
        Premiums assumed                     249               340             1,277             1,728
        Premiums ceded                    (8,262)           (8,198)          (25,023)          (29,516)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  14,036         $  15,396         $  42,757         $  46,829
                                       =========         =========         =========         =========
  
  Total:
        Direct premiums written        $  77,736         $  74,726         $ 228,286         $ 227,578
        Premiums assumed                     910             1,412             3,132             5,260
        Premiums ceded                   (15,357)          (11,634)          (48,946)          (38,507)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  63,289         $  64,504         $ 182,472         $ 194,331
                                       =========         =========         =========         =========
  -------------------------------------------------------------------------------------------------------
  </TABLE>
  
  Direct workers' compensation premiums written increased by $4.2 million and $8.8
  million for the three and nine months ended  September  30, 1999,  respectively,
  compared to the same periods in 1998,  due to an increase in the volume of risks
  underwritten.  Manual rate reductions  averaging  approximately  2.3% in The PMA
  Insurance  Group's  principal  marketing  territories  constrained the growth in
  direct premiums  written.  In addition,  continued intense price competition and
  selected non-renewal of non-profitable accounts partially offset the increase in
  direct premiums written. Direct workers' compensation premiums written were also
  impacted by lower  additional audit premiums of $1.5 million for the nine months
  ended September 30, 1999, compared to the same period in 1998.
  
  Direct   writings  of   commercial   lines  of  business   other  than  workers'
  compensation,  such as commercial auto, general liability, umbrella, multi-peril
  and commercial property lines (collectively,  "Commercial Lines"),  decreased by
  $1.2 million and $8.1 million for the three and nine months ended  September 30,
  1999,  respectively,  compared  to the same  periods  in 1998  primarily  due to
  planned  reductions in such lines as well as continued  competitive  conditions.
  Rather than lower prices to what it believes are  unacceptable  levels,  The PMA
  Insurance  Group has chosen not to renew some of its business in the  Commercial
  Lines.
  
  The increases in  reinsurance  premiums  ceded of $3.7 million and $10.4 million
  for the three and nine months ended  September  30,  1999,  compared to the same
  periods in 1998 primarily reflect higher ceded workers' compensation premiums of
  $3.7 million and $14.9 million for the three and nine months ended September 30,
  1999,  respectively,  compared  to the  same  periods  in 1998.  In 1999,  a new
  reinsurance  treaty  reduced the net  retention  level on workers'  compensation
  exposures  from $1.5 million to $150,000 per  occurrence.  Partially  offsetting
  such increase for the nine months ended September 30, 1999, compared to the same
  period in 1998 was a decrease of $4.5 million in ceded  premiums for  Commercial
  Lines.  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 $5.7 million and $16.6 million for the three and
  nine months ended September 30, 1999, respectively, compared to the same periods
  in 1998. Generally, trends in net premiums earned follow patterns similar to net
  
                                         15
  
  <PAGE>
  
  premiums written adjusted for the customary lag related to the timing of premium
  writings within the year.  Direct premiums are earned  principally on a pro rata
  basis over the terms of the policies.
  
  
  
  Losses and Expenses
  
  The  following  table  reflects  the  components  of The PMA  Insurance  Group's
  combined ratios:
  
  <TABLE>
  <CAPTION>
                                                            Three Months Ended           Nine Months Ended
                                                               September 30,               September 30,
                                                            1999          1998          1999          1998
  ------------------------------------------------------------------------------------------------------------
  <S>                                                     <C>           <C>           <C>           <C>
  Loss and LAE ratio                                         70.2%         77.2%         73.4%         77.5%
                                                          -------       -------       -------       -------
  Expense ratio:
        Amortization of deferred acquisition costs           18.5%         13.5%         16.9%         17.3%
        Operating expenses(1)(2)                             15.0%         16.8%         14.2%         14.7%
                                                          -------       -------       -------       -------
        Total expense ratio                                  33.5%         30.3%         31.1%         32.0%
  
  Policyholders' dividends                                   11.2%          9.6%          9.4%          7.7%
                                                          -------       -------       -------       -------
  
   GAAP combined ratio(1)(2)(3)(4)                          114.9%        117.1%        113.9%        117.2%
                                                          =======       =======       =======       =======
  ------------------------------------------------------------------------------------------------------------
  <FN>
  (1)  The  expense  ratio  and the  combined  ratio  for the  nine  months  ended
       September  30,  1999  exclude  the  impact  of  the  cumulative  effect  of
       accounting   change  of  $4.3  million   ($2.8   million   after-tax)   for
       insurance-related assessments.
  (2)  The expense  ratio and the  combined  ratio  exclude  $1.8 million and $5.8
       million  for  the  three  and  nine  months  ended   September   30,  1999,
       respectively,  and $2.2  million  and $6.9  million  for the three and nine
       months ended  September  30, 1998,  respectively,  for expenses  related to
       service revenues, which are not included in premiums earned.
  (3)  The  combined  ratio  computed  on a GAAP basis is equal to losses and LAE,
       plus the sum of acquisition expenses, operating expenses and policyholders'
       dividends, all divided by net premiums earned.
  (4)  The GAAP combined  ratios for The PMA Insurance Group including the Run-off
       Operations  were  116.7%  and 116.1%  for the three and nine  months  ended
       September  30,  1999,  and 120.4% and 124.4% for the three and nine  months
       ended September 30, 1998, respectively.
  </FN>
  </TABLE>
  
  For the three and nine months ended  September  30, 1999,  the GAAP loss and LAE
  ratio improved by 7.0 points and 4.1 points, respectively,  compared to the same
  periods in 1998.  These  improvements  were  primarily  due to  favorable  prior
  accident year reserve  development  and improved loss and LAE ratios in workers'
  compensation during 1999,  partially offset by a decline in the level of reserve
  discount.
  
  The PMA  Insurance  Group had  experienced  $6.7  million  and $9.2  million  of
  favorable development of prior accident year reserves ("prior year development")
  for the three and nine months ended September 30, 1999, compared to $897,000 and
  $2.3 million of favorable  prior year  development for the same periods in 1998,
  which improved the overall loss and LAE ratio.  The increases in favorable prior
  year   development   reflect   better  than   expected  loss   experience   from
  loss-sensitive and rent-a-captive workers' compensation business.  Since most of
  the favorable  development  occurred  during the third quarter of 1999, it had a
  substantially  greater impact on the loss and LAE ratio for the quarter than the
  impact on the loss and LAE ratio for the nine months ended  September  30, 1999.
  This  favorable  development  has been  substantially  offset by  policyholders'
  dividends for rent-a-captive business and premium adjustments for loss-sensitive
  business.  Rent-a-captives  are used by  customers as an  alternative  method to
  manage their loss  exposure  without  establishing  and  capitalizing  their own
  captive insurance company.
  
  In addition,  the improvement in the workers' compensation current accident year
  loss and LAE ratio has favorably impacted the overall loss and LAE ratio for the
  three and nine months ended September 30, 1999,  compared to the same periods in
  1998.
  
                                         16
  
  <PAGE>
  
  These improvements  reflect the application of stricter  underwriting  standards
  and a relatively lower risk profile of business written.
  
  The loss  and LAE  ratio is  negatively  impacted  by  accretion  of prior  year
  discounted  reserves and  favorably  impacted by setting up discount for current
  year  reserves.  The net of  these is  referred  to as net  discount  accretion.
  Accretion of prior year discounted  reserves exceeded the setting up of discount
  for the three and nine months ended  September 30, 1999,  whereas the setting up
  of discount  exceeded the  accretion of prior year  discounted  reserves for the
  same periods in 1998. This resulted in an increase in the loss and LAE ratio for
  the three and nine months ended September 30, 1999, compared to the same periods
  in 1998.  This change in net  discount  accretion  reflects a  reduction  in the
  amount of  discount  recorded on current  year's  reserves as a result of higher
  ceded loss reserves due to the new reinsurance treaty for workers' compensation.
  
  The GAAP  expense  ratio  increased  by 3.2  points for the three  months  ended
  September 30, 1999,  compared to the same period in 1998,  due to an increase in
  the acquisition  expense ratio of 5.0 points,  partially offset by a decrease in
  the operating  expense ratio of 1.8 points  compared to the same period in 1998.
  The  increase  in the  acquisition  expense  ratio is a result of an increase in
  taxes and assessments and other acquisition expenses, primarily due to increases
  in direct workers'  compensation premium, paid losses and the guaranty fund rate
  in certain states during the third quarter of 1999,  compared to the same period
  in 1998.  The decrease in the operating  expense ratio was due to continued cost
  cutting measures in the third quarter of 1999.
  
  The GAAP  expense  ratio  decreased  by 0.9  points  for the nine  months  ended
  September  30, 1999,  compared to the same period in 1998,  due to a decrease in
  the  operating  expense  ratio of 0.5 points and a decrease  in the  acquisition
  expense ratio of 0.4 points compared to the same period in 1998. The decrease in
  the operating expense ratio was primarily due to continued cost cutting measures
  in 1999.  The decrease in the  acquisition  expense  ratio was  primarily due to
  higher ceded commissions  received as a result of the new reinsurance  treaty in
  1999 and a reduction in certain state assessments.
  
  The  policyholders'  dividend  ratio  was  11.2% and 9.4% for the three and nine
  months ended September 30, 1999, respectively, compared to 9.6% and 7.7% for the
  same  periods  last year.  These  increases  are  primarily  due to selling more
  business under dividend  plans and improved loss  experience,  which resulted in
  higher dividend payouts to policyholders,  including the policyholder  dividends
  related to rent-a-captive customers.
  
       Net  Investment Income
  
  Net investment income was $11.3 million and $34.8 million for the three and nine
  months ended September 30, 1999, compared to $13.1 million and $38.4 million for
  the same periods in 1998.  The decrease  primarily  reflects a lower asset base,
  due to the paydown of loss reserves from prior accident years.
  
       Run-off Operations
  
  Effective  July 1,  1998,  the  Company  sold PMA  Cayman,  one of the  entities
  included in The PMA Insurance Group's Run-off Operations, which reinsured claims
  for certain  policies  written by other members of The PMA Insurance Group, to a
  third party for a purchase  price of $1.8 million and recorded an after-tax loss
  of  $1.6  million.  See  Note 7 to the  Consolidated  Financial  Statements  for
  additional information. This transaction included the transfer of $231.5 million
  in cash and invested assets to the buyer.
  
  Net investment income for the Run-off Operations  decreased by $367,000 and $9.4
  million in the three and nine months ended  September  30,  1999,  respectively,
  compared to the same  periods in 1998.  The  decrease in  investment  income was
  primarily due to the decrease in invested assets resulting from the sale, and to
  a lesser extent, from the paydown of losses by the remaining run-off entities.
  
  The  sale of PMA  Cayman  also  resulted  in a  reduction  in  losses  and  LAE,
  acquisition  expenses and operating  expenses of the Run-off  Operations for the
  three and nine months ended September 30, 1999,  compared to the same periods in
  1998.
  
                                         17
  <PAGE>
  
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  
  <TABLE>
  <CAPTION>
                                               Three Months Ended                 Nine Months Ended
                                                  September 30,                     September 30,
                                              1999            1998             1999             1998
  ------------------------------------------------------------------------------------------------------
  <S>                                       <C>             <C>              <C>              <C>
  Net premiums written                      $ 15,828        $  1,660         $ 30,681         $  2,577
                                            ========        ========         ========         ========
  
  Net premiums earned                       $  7,897        $    440         $ 14,540         $    631
  Net investment income                          659             361            1,555            1,075
                                            --------        --------         --------         --------
  Operating revenues                           8,556             801           16,095            1,706
                                            --------        --------         --------         --------
  
  Losses and LAE incurred                      6,028             352           11,343              505
  Acquisition and operating expenses           2,066             696            5,591            2,518
                                            --------        --------         --------         --------
  Total losses and expenses                    8,094           1,048           16,934            3,023
                                            --------        --------         --------         --------
  
  Pre-tax operating income (loss)           $    462        $   (247)        $   (839)        $ (1,317)
                                            ========        ========         ========         ========
  ------------------------------------------------------------------------------------------------------
  </TABLE>
  
  Caliber One recorded  pre-tax  operating income of $462,000 for the three months
  ended September 30, 1999,  compared to a pre-tax  operating loss of $247,000 for
  the three months ended  September 30, 1998,  reflecting the  establishment  of a
  solid premium base and  stabilization  of its expenses  relative to that premium
  base. Caliber One recorded pre-tax operating losses of $839,000 and $1.3 million
  for the nine months ended September 30, 1999 and 1998, respectively.
  
  The growth in net  premiums  written  and  earned for the three and nine  months
  ended September 30, 1999, compared to the same periods in 1998, reflects Caliber
  One's rising market acceptance and expanded  distribution  network combined with
  increased staffing levels.
  
  CORPORATE AND OTHER
  
  The  Corporate  and  Other  segment  includes  unallocated   investment  income,
  expenses,  including debt service,  and taxes, as well as the results of certain
  of the  Company's  real estate  properties.  For the three and nine months ended
  September 30, 1999,  Corporate and Other recorded  pre-tax  operating  losses of
  $5.7  million and $16.3  million,  respectively,  compared to pre-tax  operating
  losses of $6.2  million  and $19.2  million  for the same  periods in 1998.  The
  decrease in the  operating  loss is primarily due to lower  interest  expense of
  $700,000 and $2.1  million for the third  quarter and first nine months of 1999,
  respectively,  reflecting a $40.0  million  paydown in  outstanding  debt in the
  fourth quarter of 1998.
  
  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 September 30, 1999 and December 31, 1998,  the Company had $163.0  million of
  outstanding  debt under its Revolving  Credit Facility (the "Credit  Facility").
  The final expiration of the Credit Facility is December 31, 2002, and the Credit
  Facility  matures in an installment of $38.0 million in 2000 and installments of
  $62.5 million in 2001 and 2002.
  
  In addition to the Credit Facility,  the Company maintains a committed  facility
  of $50.0  million for letters of credit (the "Letter of Credit  Facility").  The
  Letter of  Credit  Facility  is  utilized  primarily  for  securing  reinsurance
  
                                         18
  
  <PAGE>
  
  obligations of the Company's insurance  subsidiaries.  As of September 30, 1999,
  the Company had $44.7 million  outstanding in letters of credit under the Letter
  of Credit Facility, compared with $46.9 million as of December 31, 1998.
  
  The  Company  paid  interest  of $1.4  million  and $7.4  million on both credit
  facilities for the three and nine months ended September 30, 1999, respectively,
  compared to $3.7 million and $11.2 million for the same periods in 1998.
  
  The Company's domestic insurance  subsidiaries'  ability to pay dividends to the
  holding company is limited by the insurance laws and regulations of Pennsylvania
  and Delaware (the laws are substantially  similar).  Under Pennsylvania laws and
  regulations,  without prior approval of the Pennsylvania  Insurance Commissioner
  (the "Commissioner"),  dividends may not be paid in excess of the greater of (i)
  10% of  policyholders'  surplus as of the end of the preceding  year or (ii) SAP
  net income for the preceding year, but in no event to exceed  unassigned  funds.
  Under this standard,  the Pooled  Companies and PMA Reinsurance  Corporation can
  pay an aggregate of $51.8 million of dividends without the prior approval of the
  Commissioner  during 1999. Caliber One Indemnity  Company, a  Delaware-domiciled
  company,  is directly  owned by PMA  Reinsurance  Corporation  and, as such, its
  dividends may not be paid directly to PMA Capital.  As stated above,  Delaware's
  insurance  laws as they  apply to  restricting  the  payment  of  dividends  are
  substantially similar to Pennsylvania's insurance laws. Under Delaware insurance
  laws,  Caliber One  Indemnity  Company can pay $2.5 million in dividends  during
  1999.  Dividends  received from subsidiaries were $8.0 million and $26.8 million
  for the three and nine months ended September 30, 1999,  respectively,  compared
  to $8.0 million and $18.0 million for the comparable 1998 periods.
  
  Net tax payments  received from subsidiaries were $7.4 million and $19.1 million
  for the three and nine months ended September 30, 1999,  respectively,  compared
  to $7.5 million and $22.3 million for the same periods in 1998.
  
  PMA Capital's  dividends to shareholders  are restricted by its debt agreements.
  Based upon the terms of the Credit  Facility and the Letter of Credit  Facility,
  under the most  restrictive  debt  covenant,  PMA  Capital  would be able to pay
  dividends of approximately  $15.6 million in 1999. The Company paid dividends to
  shareholders  of $1.9  million  and $5.8  million  for the three and nine months
  ended  September  30,  1999,  respectively,  compared  to $2.0  million and $6.1
  million for the three and nine months ended September 30, 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries totaling $4.1 million for the nine months ended September 30, 1999.
  No cash capital  contributions were made to subsidiaries during the three months
  ended September 30, 1999 or 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 nine months of 1999, the Company repurchased 999,000 shares at a total
  cost of $19.7 million (average per share price was $19.71).  Since the inception
  of its share repurchase  program in February 1998, PMA Capital has repurchased a
  total of 2.0 million shares at a total cost of $38.5 million  (average per share
  price was  $19.32).  On  November  3, 1999,  the  Company's  Board of  Directors
  approved an additional $30.0 million of share repurchase authority, which brings
  PMA  Capital's  remaining  share  repurchase  authorization  to  $36.5  million.
  Decisions  regarding  share  repurchases  are subject to the costs and  benefits
  associated with alternative uses of capital and prevailing market conditions.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet its short-term and long-term obligations.
  
                                         19
  <PAGE>
  
  Capital Resources
  
  The Company's total assets  decreased to $3,295.4 million at September 30, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $273.9  million to $2,051.5  million at  September  30,  1999.  The  decrease in
  investments is primarily  attributable to declines in market value due to rising
  interest  rates as well as a decrease of $136.1  million in  securities  on loan
  under the Company's securities lending program.
  
  Presently,   management   believes  that  the  existing  capital   structure  is
  appropriate.  However,  management continually monitors the capital structure in
  light of developments in the business,  and the present  assessment could change
  as management becomes aware of new opportunities and challenges in the Company's
  business.
  
  OTHER MATTERS
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written to provide coverage  unanticipated by the Company. The
  eventual effect on the Company of the changing  environment in which it operates
  remains uncertain.
  
  Year 2000 Issue
  
  As a consequence of the programming  convention which utilized a two-digit field
  rather than a four-digit field,  certain  information  technology ("IT") systems
  and non-IT  systems,  such as equipment with embedded chips or  microprocessors,
  require  reprogramming  or replacement to enable them to perform  correctly date
  operations involving year 2000 or later ("Year 2000 Issue").
  
  With the assistance of outside  consulting  groups, the Company began evaluating
  and  reprogramming  its IT systems to address  the Year 2000 Issue in late 1995.
  The  Company's  Year  2000  systems'  program  consists  of  four  phases:   (i)
  identifying  systems requiring  remediation;  (ii) assessing the requirements to
  remediate those systems;  (iii) remediating those systems to make them Year 2000
  ready by either  modifying or replacing  them;  and (iv) testing the systems for
  Year 2000 readiness,  including, where applicable,  that they properly interface
  with third parties.  The Company has completed the identification and assessment
  phases  with  respect  to  its IT  systems  that  are  critical  to  maintaining
  operations  or the  failure  of  which  would  result  in  significant  costs or
  disruption  of  operations   ("mission  critical  systems").   The  Company  has
  remediated  and tested all of its mission  critical  systems.  In addition,  the
  Company will continue testing its mission critical systems under varying testing
  scenarios throughout the remainder of 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.
  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  September  30, 1999 has been  approximately  $5.4
  million.  No  material  costs were  incurred in the third  quarter of 1999.  The
  Company  does not expect to incur  material  costs  through  the rest of 1999 in
  connection with the Year 2000 Issue.
  
  The Company also is continuing to evaluate its relationships  with certain third
  parties  with  which the  Company  has a direct  and  material  relationship  to
  determine whether they are Year 2000 ready, such as banks, brokers,  reinsurers,
  third party service  providers,  software and other service vendors,  and agents
  and other  intermediaries.  As of October 31, 1999, the responses  received from
  such third  parties to inquiries  made by the Company  indicate that these third
  parties either are or expect to be Year 2000 ready by December 31, 1999.
  
                                         20
  <PAGE>
  
  Even assuming that all material  third parties  provide a timely  representation
  concerning their Year 2000 readiness, it is not possible to state with certainty
  that  such  representations  will turn out to have  been  accurate,  or that the
  operations  of such third  parties  will not be  materially  impacted in turn by
  other parties with whom they  themselves have a material  relationship,  and who
  fail to timely become Year 2000 ready. Consequently,  the effect, if any, on the
  Company's  results of  operations  from the failure of such third  parties to be
  Year 2000 ready is not reasonably estimable. However, the failure of one or more
  third parties with whom the Company has a material  relationship to be Year 2000
  ready  could  cause  significant  disruptions  in the  Company's  ability to pay
  claims,  receive  and  deposit  funds and make  investments,  which could have a
  material  adverse  effect on the  Company's  financial  condition and results of
  operations.  The  Company's  contingency  plans in the event of  failure of such
  third  parties  to be  Year  2000  ready  include  replacing  the  third  party,
  performing  directly  the  services  performed by the third party such as direct
  billing of any  customers  whose  agent's or broker's  accounts  current  system
  fails, and maintaining liquidity under the Company's Credit Facility.
  
  Although the Company  believes that Year 2000 Issues related to its hardware and
  internal  software  programs  are not likely to result in any  material  adverse
  disruptions in the Company's computer systems or its other business  operations,
  it has analyzed 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.  Based on this analysis,  the Company has developed
  contingency  plans to provide for the resumption of its computer systems and its
  other  business  operations  in the event  such Year 2000  problems  occur.  The
  contingency plans include reallocation of existing resources and employees,  use
  of alternate processes and procedures,  such as manual  workarounds,  and use of
  outside service providers to supplement internal resources.  The Company intends
  throughout  the  remainder of 1999 to review and refine such plans on an ongoing
  basis,  as needed,  when 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
  coverage could ultimately be found to exist by courts in various  jurisdictions,
  or, if found,  the effect  thereof on the  Company.  In  addition,  even if such
  coverage  were  found not to exist,  which  cannot  be  predicted,  the costs of
  litigation  could be material.  In the absence of any claims  experience at this
  time, such losses and costs are not currently reasonably estimable.
  
  Comparison of SAP and GAAP Results
  
  Results  presented  in  accordance  with  GAAP  vary in  certain  respects  from
  statutory  accounting  practices  prescribed  or permitted  by the  Pennsylvania
  Insurance  Department  and  the  Delaware  Insurance  Department  (collectively,
  "SAP").   Prescribed   SAP  includes   state  laws,   regulations   and  general
  administrative  rules, as well as a variety of National Association of Insurance
  Commissioners  ("NAIC")  publications.  Permitted SAP encompasses all accounting
  practices that are not prescribed. In 1998, the NAIC adopted the Codification of
  Statutory Accounting Principles  ("Codification")  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.
  
  
                                         21
  
  <PAGE>
  
  Recent Accounting Pronouncements
  
  Effective  January 1, 1999, the Company  adopted  Statement of Position  ("SOP")
  97-3,  "Accounting  by Insurance  and Other  Enterprises  for  Insurance-Related
  Assessments."  SOP 97-3  provides  guidance  for  determining  when an insurance
  company  should  recognize a liability  for  guaranty  fund and other  insurance
  related  assessments and how to measure that liability.  As a result of adopting
  SOP 97-3,  the  Company  recorded a  liability  of $4.3  million  pre-tax  and a
  resulting charge to earnings of $2.8 million,  net of income tax benefit of $1.5
  million,  which has been reported as a cumulative  effect of accounting  change.
  This accounting change impacts The PMA Insurance Group segment.
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  
                                         22
  <PAGE>
  
  CAUTIONARY STATEMENTS
  
  Except for historical  information provided in this Management's  Discussion and
  Analysis and otherwise in this report,  statements  made  throughout this report
  are forward-looking  and contain  information about financial results,  economic
  conditions, trends and known uncertainties. These forward-looking statements are
  based on currently  available  financial,  competitive and economic data and the
  Company's current operating plans based on assumptions  regarding future events.
  The Company's actual results could differ  materially from those expected by the
  Company's  management.  The  factors  that could  cause  actual  results to vary
  materially,  some of which are described  with the  forward-looking  statements,
  include,  but are not  limited  to,  changes  in  general  economic  conditions,
  including the performance of financial markets and interest rates; regulatory or
  tax  changes,  including  changes  in  risk-based  capital  or other  regulatory
  standards  that  affect the  ability of the  Company  to conduct  its  business;
  competitive  or  regulatory  changes  that  affect the cost of or demand for the
  Company's products; the Company's ability to meet its marketing objectives;  the
  effect of changes in workers'  compensation  statutes and their  administration;
  the  Company's  ability to predict  and  effectively  manage  claims  related to
  insurance and  reinsurance  policies;  reliance on key  management;  adequacy of
  reserves for claim  liabilities;  adverse property and casualty loss development
  for events the Company insured in prior years;  adequacy and  collectibility  of
  reinsurance  purchased by the Company;  severity of natural  disasters and other
  catastrophes;  and other factors disclosed from time to time in reports filed by
  the Company with the Securities and Exchange  Commission.  Investors  should not
  place undue reliance on any such forward-looking statements.
  
                                         23
  <PAGE>
  
  
  Part II. Other Information
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  The Exhibits are listed in the Index to Exhibits on page 26.
  
  (b)  Reports on Form 8-K filed during the quarter ended September 30, 1999:
  
       During the quarterly period ended September 30, 1999, the Company filed the
       following Report on Form 8-K:
  
       -    dated August 4, 1999, Item 5 - containing a news release regarding its
            second quarter 1999 results.
  
                                         24
  <PAGE>
  
                                     Signatures
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
  has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
  thereunto duly authorized.
  
  
                                        PMA CAPITAL CORPORATION
  
  
  Date:    11/12/99                     By:  /s/ Francis W. McDonnell
           --------                          ------------------------------
                                             Francis W. McDonnell,
                                             Senior Vice  President,
                                             Chief Financial Officer and Treasurer
                                             (Principal Financial Officer)
  
                                         25
  <PAGE>
                                    Exhibit Index
  
  
  Exhibit No.  Description of Exhibit                             Method of Filing
  -----------  ----------------------                             ----------------
  
  (10)         Amendment No. 4, dated as of September 27,          Filed herewith
               1999, to First Amended and Restated Letter of
               Credit Agreement, dated March 14, 1997
  
  (12)         Computation of Ratio of Earnings to Fixed
               Charges                                             Filed herewith
  
  (27)         Financial Data Schedule                             Filed herewith
                                                                   (EDGAR version
                                                                    only)
  
                                         26
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 105121}]
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": "333-45949", "film-number": "99749336"}, "business-address": {"street1": "1735 MARKET STREET SUITE 2800", "street2": "380 SENTRY PKWY", "city": "PHILADELPHIA", "state": "PA", "zip": "19103-7590", "phone": "2156655046"}, "mail-address": {"street1": "1735 MARKET STREET SUITE 2800", "street2": "380 SENTRY PARKWAY", "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 SEPTEMBER 30, 1999
  
                                         OR
  
  /  /       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
  FOR THE TRANSITION PERIOD FROM __________ TO __________
  
                          Commission File Number 000-22761
  
                               PMA Capital Corporation
               ------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
                Pennsylvania                                    23-2217932
      -------------------------------                      -------------------
      (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                      Identification No.)
  
    Mellon Bank Center, Suite 2800
          1735 Market Street
       Philadelphia, Pennsylvania                              19103-7590
  ----------------------------------------                     ----------
  (Address of principal executive offices)                     (Zip Code)
  
                                   (215) 665-5046
                ----------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                   Not applicable
                ----------------------------------------------------
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days. YES /X/ NO / /
  
  There were 12,669,378  shares  outstanding of the registrant's  Common Stock, $5
  par value per share, and 10,081,009 shares outstanding of the registrant's Class
  A Common Stock,  $5 par value per share,  as of the close of business on October
  31, 1999.
  INDEX
  
  --------------------------------------------------------------------------------
  
                                                                              Page
  
  Part I.    Financial Information
  
  Item 1.    Financial statements
  
             Consolidated statements of operations for the three
             and nine months ended September 30, 1999 and 1998
             (unaudited)                                                       1
  
             Consolidated balance sheets as of September 30, 1999
             (unaudited) and December 31, 1998                                 2
  
             Consolidated statements of cash flows for the nine
             months ended September 30, 1999 and 1998 (unaudited)              3
  
             Consolidated statements of comprehensive income (loss)
             for the three and nine months ended September 30, 1999
             and 1998 (unaudited)                                              4
  
             Notes to the consolidated financial statements                    5
  
  Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              10
  
  Part II.   Other Information
  
  Item 6.    Exhibits and reports on Form 8-K                                 24
  PMA Capital Corporation
                        Consolidated Statements of Operations
                                     (Unaudited)
  Three Months Ended            Nine Months Ended
                                                                September 30,                 September 30,
  (dollar amounts in thousands, except per share data)      1999           1998           1999           1998
  --------------------------------------------------------------------------------------------------------------
  Revenues:
         Net premiums written                            $ 124,970      $ 120,653      $ 395,418      $ 369,134
         Change in net unearned premiums                     3,449         (6,636)       (28,536)       (33,541)
                                                         ---------      ---------      ---------      ---------
              Net premiums earned                          128,419        114,017        366,882        335,593
         Net investment income                              28,029         28,410         82,099         92,260
         Net realized investment gains (losses)             (3,283)         4,099         (4,161)        15,362
         Other revenues                                      2,869          2,945          8,828          9,385
                                                         ---------      ---------      ---------      ---------
              Total revenues                               156,034        149,471        453,648        452,600
                                                         ---------      ---------      ---------      ---------
  
  Losses and expenses:
         Losses and loss adjustment expenses                91,491         83,473        268,136        256,230
         Acquisition expenses                               27,986         25,985         80,487         77,748
         Operating expenses                                 17,354         18,154         50,886         55,654
         Dividends to policyholders                          5,782          5,507         15,108         13,637
         Interest expense                                    3,052          3,768          9,134         11,231
                                                         ---------      ---------      ---------      ---------
              Total losses and expenses                    145,665        136,887        423,751        414,500
                                                         ---------      ---------      ---------      ---------
  
         Income before income taxes and cumulative
              effect of accounting change                   10,369         12,584         29,897         38,100
  
  Income tax expense (benefit):
         Current                                             2,770           (424)         8,555            267
         Deferred                                            1,087          2,456           (384)         5,836
                                                         ---------      ---------      ---------      ---------
              Total                                          3,857          2,032          8,171          6,103
                                                         ---------      ---------      ---------      ---------
  
  Income before cumulative effect of accounting
         change                                              6,512         10,552         21,726         31,997
  
  Cumulative effect of accounting change (net of
         income tax benefit of $1,458)                          --             --         (2,759)            --
                                                         ---------      ---------      ---------      ---------
  Net income                                             $   6,512      $  10,552      $  18,967      $  31,997
                                                         =========      =========      =========      =========
  
  Earnings per share:
         Basic:
              Income before cumulative effect of
                   accounting change                     $    0.28      $    0.45      $    0.94      $    1.35
              Cumulative effect of accounting change            --             --          (0.12)            --
                                                         ---------      ---------      ---------      ---------
              Net income                                 $    0.28      $    0.45      $    0.82      $    1.35
                                                         =========      =========      =========      =========
  
         Diluted:
              Income before cumulative effect of
                   accounting change                     $    0.27      $    0.43      $    0.90      $    1.30
              Cumulative effect of accounting change            --             --          (0.11)            --
                                                         ---------      ---------      ---------      ---------
              Net income                                 $    0.27      $    0.43      $    0.79      $    1.30
                                                         =========      =========      =========      =========
  See accompanying notes to the consolidated financial statements.
  
                                         1
  PMA Capital Corporation
                             Consolidated Balance Sheets
  (Unaudited)
                                                                                       As of            As of
                                                                                   September 30,     December 31,
  (dollar amounts in thousands, except per share data)                                 1999              1998
  ---------------------------------------------------------------------------------------------------------------
  Assets:
        Investments:
        Fixed maturities available for sale, at fair value
             (amortized cost: 1999 - $1,686,311; 1998 - $1,781,188)                 $ 1,642,788      $ 1,827,354
        Equity securities, at fair value (cost: 1999 - $5; 1998 - $5)                         5               17
        Short-term investments, at amortized cost which approximates fair value         408,714          498,038
                                                                                    -----------      -----------
             Total investments                                                        2,051,507        2,325,409
  
        Cash                                                                             15,356            2,562
        Accrued investment income                                                        21,703           19,900
        Premiums receivable (net of valuation allowance:
             1999 - $20,840; 1998 - $19,874)                                            278,179          279,633
        Reinsurance receivables (net of valuation allowance:
             1999 - $2,178; 1998 - $2,178)                                              641,273          610,291
        Deferred income taxes, net                                                       97,194           63,929
        Deferred acquisition costs                                                       49,772           51,115
        Other assets                                                                    140,426          107,879
                                                                                    -----------      -----------
             Total assets                                                           $ 3,295,410      $ 3,460,718
                                                                                    ===========      ===========
  
  Liabilities:
        Unpaid losses and loss adjustment expenses                                  $ 1,902,681      $ 1,940,895
        Unearned premiums                                                               266,425          227,945
        Long-term debt                                                                  163,000          163,000
        Accounts payable and accrued expenses                                           121,532          107,952
        Funds held under reinsurance treaties                                            92,077           77,674
        Dividends to policyholders                                                       12,800           10,700
        Payable under securitites loan agreements                                       284,986          421,072
                                                                                    -----------      -----------
             Total liabilities                                                        2,843,501        2,949,238
                                                                                    -----------      -----------
  
        Commitments and contingencies (Note 4)
  
  Shareholders' Equity:
        Common stock, $5 par value (40,000,000 shares authorized;
             1999 - 13,132,795 shares issued and 12,696,788 outstanding;
             1998 - 13,956,268 shares issued and 13,520,261 outstanding)                 65,664           69,781
        Class A common stock, $5 par value (40,000,000 shares authorized;
             1999 - 11,310,150 shares issued and 10,077,760 outstanding;
             1998 - 10,486,677 shares issued and 9,837,963 outstanding)                  56,550           52,433
        Additional paid-in capital - Class A common stock                                   339              339
        Retained earnings                                                               387,577          377,601
        Accumulated other comprehensive income (loss)                                   (28,289)          30,016
        Notes receivable from officers                                                     (151)            (498)
        Treasury stock, at cost:
             Common stock (shares: 1999 - 436,007 and 1998 - 436,007)                    (5,582)          (5,582)
             Class A common stock (shares: 1999 - 1,232,390 and 1998 - 648,714)         (24,199)         (12,610)
                                                                                    -----------      -----------
                  Total shareholders' equity                                            451,909          511,480
                                                                                    -----------      -----------
                  Total liabilities and shareholders' equity                        $ 3,295,410      $ 3,460,718
                                                                                    ===========      ===========
  See accompanying notes to the consolidated financial statements.
  
                                         2
  PMA Capital Corporation
                        Consolidated Statements of Cash Flows
                                     (Unaudited)
  Nine Months Ended
                                                                            September 30,
  (dollar amounts in thousands)                                         1999              1998
  -----------------------------------------------------------------------------------------------
  Cash flows from operating activities:
  Net income                                                        $    18,967      $    31,997
  Adjustments to reconcile net income to net cash flows used in
             operating activities:
        Depreciation and amortization                                     4,992            3,277
        Provision (benefit) for deferred income taxes                      (384)           5,836
        Net realized investment losses (gains)                            4,161          (15,362)
        Cumulative effect of accounting change                            2,759               --
        Change in:
             Premiums receivable and unearned premiums, net              39,934             (348)
             Dividends to policyholders                                   2,100             (595)
             Reinsurance receivables                                    (30,982)         (54,165)
             Unpaid losses and loss adjustment expenses                 (38,214)         (51,690)
             Accrued investment income                                   (1,803)             144
             Deferred acquisition costs                                   1,343          (10,670)
        Other, net                                                       (9,114)          18,341
                                                                    -----------      -----------
  Net cash flows used in operating activities                            (6,241)         (73,235)
                                                                    -----------      -----------
  
  Cash flows from investing activities:
        Fixed maturity investments available for sale:
             Purchases                                               (1,021,204)      (1,377,422)
             Maturities or calls                                        106,397          108,013
             Sales                                                    1,003,836        1,175,526
        Net sales (purchases) of short-term investments                 (46,725)         162,296
        Proceeds from sale of subsidiary                                     --            2,902
        Other, net                                                       (3,036)          (2,601)
                                                                    -----------      -----------
  Net cash flows provided by investing activities                        39,268           68,714
                                                                    -----------      -----------
  
  Cash flows from financing activities:
        Dividends paid to shareholders                                   (5,782)          (6,086)
        Proceeds from exercise of stock options                           4,894            2,377
        Purchase of treasury stock                                      (19,693)         (16,323)
        Net repayments of notes receivable from officers                    348               --
                                                                    -----------      -----------
  Net cash flows used in financing activities                           (20,233)         (20,032)
                                                                    -----------      -----------
  
  Net increase (decrease) in cash                                        12,794          (24,553)
  Cash - beginning of period                                              2,562           32,148
                                                                    -----------      -----------
  Cash - end of period                                              $    15,356      $     7,595
                                                                    ===========      ===========
  
  Supplementary cash flow information:
        Income taxes paid (refunded)                                $     9,852      $      (616)
        Interest paid                                               $     7,443      $    11,150
  See accompanying notes to the consolidated financial statements.
  
                                         3
  PMA Capital Corporation
               Consolidated Statements of Comprehensive Income (Loss)
                                     (Unaudited)
  Three Months Ended           Nine Months Ended
                                                                          September 30,              September 30,
  (dollar amounts in thousands)                                       1999          1998          1999          1998
  ---------------------------------------------------------------------------------------------------------------------
  Net income                                                        $  6,512      $ 10,552      $ 18,967      $ 31,997
                                                                    --------      --------      --------      --------
  
  Other comprehensive income (loss), net of tax:
        Unrealized gains (losses) on securities:
             Holding gains (losses) arising during the period         (9,582)       22,363       (61,010)       38,761
             Less:  reclassification adjustment for (gains)
                  losses included in net income (net of tax
                  expense (benefit):  $(1,149) and $1,435 for
                  three months ended September 30, 1999
                  and 1998; $(1,456) and $5,377 for nine months
                  ended September 30, 1999 and 1998)                   2,134        (2,651)        2,705       (11,558)
                                                                    --------      --------      --------      --------
  
  Other comprehensive income (loss)                                   (7,448)       19,712       (58,305)       27,203
                                                                    --------      --------      --------      --------
  
  Comprehensive income (loss)                                       $   (936)     $ 30,264      $(39,338)     $ 59,200
                                                                    ========      ========      ========      ========
  See accompanying notes to the consolidated financial statements.
  
                                         4
  PMA Capital Corporation
  
                   Notes to the Consolidated Financial Statements
  
  1.   BUSINESS DESCRIPTION
  
  The accompanying  consolidated  financial statements include the accounts of PMA
  Capital Corporation and its wholly and majority owned subsidiaries (collectively
  referred to as "PMA  Capital"  or the  "Company").  PMA Capital is an  insurance
  holding company that operates three specialty risk management businesses,  which
  are more fully described below.
  
  Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of
  PMA Reinsurance  Corporation,  a Pennsylvania domiciled insurance company, which
  emphasizes risk-exposed, excess of loss reinsurance and operates in the brokered
  market. PMA Re's business is predominantly in casualty lines of reinsurance.
  
  Workers'  Compensation and Primary Standard  Insurance -- PMA Capital's property
  and  casualty  insurance   subsidiaries  ("The  PMA  Insurance  Group")  include
  Pennsylvania   domiciled   insurance   companies  as  well  as  certain  foreign
  subsidiaries.  The PMA Insurance  Group  primarily  writes managed care workers'
  compensation, integrated disability 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 in four other states.
  
  2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  A. Basis of  Presentation  - The  consolidated  financial  statements  have been
  prepared in accordance with generally accepted  accounting  principles  ("GAAP")
  for interim  financial  information  and with the  instructions to Form 10-Q and
  Article 10 of Regulation S-X. It is management's  opinion that all  adjustments,
  including  normal   recurring   accruals,   considered   necessary  for  a  fair
  presentation have been included. Certain reclassifications of prior year amounts
  have been made to conform to the 1999 presentation.
  
  The  preparation of  consolidated  financial  statements in conformity with GAAP
  requires  management to make certain  estimates and assumptions  that affect the
  reported amounts of assets and liabilities,  disclosure of contingent assets and
  liabilities at the date of the financial  statements and the reported amounts of
  revenues and expenses during the period.  Due to this and certain other factors,
  such as the  seasonal  nature of portions of the  insurance  business as well as
  competitive  and other market  conditions,  operating  results for the three and
  nine months  ended  September  30, 1999 are not  necessarily  indicative  of the
  results to be expected for the full year.
  
  The  information  included in this Form 10-Q should be read in conjunction  with
  the Company's audited  consolidated  financial statements and footnotes included
  in its 1998 Annual Report to Shareholders  and  incorporated by reference in its
  Form 10-K for the year ended December 31, 1998.
  
  B. Recent  Accounting  Pronouncements  - Effective  January 1, 1999, the Company
  adopted  Statement of Position ("SOP") 97-3,  "Accounting by Insurance and Other
  Enterprises for  Insurance-Related  Assessments." SOP 97-3 provides guidance for
  determining when an insurance  company should recognize a liability for guaranty
  fund and other insurance related  assessments and how to measure that liability.
  As a result of  adopting  SOP 97-3,  the Company  recorded a  liability  of $4.3
  million  pre-tax and a resulting  charge to  earnings  of $2.8  million,  net of
  income tax benefit of $1.5  million,  which has been  reported  as a  cumulative
  effect of accounting  change.  This accounting  change impacts The PMA Insurance
  Group segment.
  
                                         5
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
  3.   REINSURANCE
  
  In the ordinary  course of business,  PMA  Capital's  reinsurance  and insurance
  subsidiaries  assume and cede  premiums with other  insurance  companies and are
  members of various  underwriting  pools and  associations.  The  reinsurance and
  insurance  subsidiaries cede business,  primarily on an excess of loss basis, in
  order to limit the maximum net loss from large risks and limit the  accumulation
  of many smaller losses from a catastrophic  event. The reinsurance and insurance
  subsidiaries  remain  primarily  liable  to their  clients  in the  event  their
  reinsurers are unable to meet their financial obligations.
  
  The components of net premiums  earned and losses and loss  adjustment  expenses
  ("LAE") are as follows:
  Three Months Ended                   Nine Months Ended
                                             September 30,                          September 30,
  (dollar amounts in thousands)        1999                1998               1999                 1998
  ---------------------------------------------------------------------------------------------------------
  Earned Premiums:
        Direct .........            $  81,135           $  68,107           $ 235,262           $ 211,127
        Assumed ........              100,308              67,319             252,832             195,383
        Ceded ..........              (53,024)            (21,409)           (121,212)            (70,917)
                                    ---------           ---------           ---------           ---------
        Net ............            $ 128,419           $ 114,017           $ 366,882           $ 335,593
                                    =========           =========           =========           =========
  Losses and LAE:
        Direct .........            $  62,613           $  61,672           $ 187,642           $ 188,490
        Assumed ........               62,110              45,038             158,291             124,560
        Ceded ..........              (33,232)            (23,237)            (77,797)            (56,820)
                                    ---------           ---------           ---------           ---------
        Net ............            $  91,491           $  83,473           $ 268,136           $ 256,230
                                    =========           =========           =========           =========
  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
  September 30, 1999 (see Note 2-B regarding SOP 97-3).
  
  The Company has provided  guarantees of  approximately  $8.5 million,  primarily
  related to loans on properties in which the Company has an interest.
  
  The Company is continuously  involved in numerous lawsuits arising, for the most
  part,  in the  ordinary  course  of  business,  either  as a  liability  insurer
  defending  third-party  claims  brought  against its insureds,  or as an insurer
  defending  coverage  claims  brought  against it by its  policyholders  or other
  insurers.  While the outcome of all litigation involving the Company,  including
  insurance-related litigation,  cannot be determined,  litigation is not expected
  to result in losses that differ from recorded  reserves by amounts that would be
  material  to  results  of  operations,  liquidity  or  financial  condition.  In
  addition,  reinsurance  recoveries  related to claims in litigation,  net of the
  allowance  for  uncollectible  reinsurance,   are  not  expected  to  result  in
  recoveries  that  differ from  recorded  recoverables  by amounts  that would be
  material to the results of operations, liquidity or financial condition.
  
  5.   EARNINGS PER SHARE
  
  A reconciliation  of the shares used as the denominator of the basic and diluted
  earnings per share  computations is presented below. For all periods  presented,
  there were no differences in the numerator  (income before  cumulative effect of
  accounting change) for the basic and diluted earnings per share calculation:
  Three Months Ended                  Nine Months Ended
                                                  September 30,                      September 30,
                                             1999              1998              1999             1998
  ----------------------------------------------------------------------------------------------------------
  Denominator:
  Basic shares - weighted average
        common and Class A common
        shares outstanding .............  22,898,574        23,573,472        23,098,368        23,704,376
  Effect of dilutive stock options .....     809,659         1,043,105           820,388           945,028
                                          ----------        ----------        ----------        ----------
  Total diluted shares .................  23,708,233        24,616,577        23,918,756        24,649,404
                                          ==========        ==========        ==========        ==========
  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                 Nine Months Ended
                                                              September 30,                      September 30,
  (dollar amounts in thousands)                          1999             1998              1999              1998
  ---------------------------------------------------------------------------------------------------------------------
  Revenues:
  PMA Re                                              $  83,900         $  70,118         $ 233,867         $ 198,256
  The PMA Insurance Group
        Excluding Run-off Operations                     65,254            72,761           203,229           223,807
        Run-off Operations                                1,110             1,477             3,333            12,780
                                                      ---------         ---------         ---------         ---------
        Total                                            66,364            74,238           206,562           236,587
  Caliber One                                             8,556               801            16,095             1,706
  Corporate and Other                                       497               215             1,285               689
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Total revenues                                      $ 156,034         $ 149,471         $ 453,648         $ 452,600
                                                      =========         =========         =========         =========
  
  Components of pre-tax operating
  income(1) and net income:
  PMA Re                                              $  14,674         $  11,930         $  37,790         $  34,882
  The PMA Insurance Group:
        Excluding Run-off Operations                      4,045             3,389            13,719             8,343
        Run-off Operations                                  174              (387)             (320)               41
                                                      ---------         ---------         ---------         ---------
        Total                                             4,219             3,002            13,399             8,384
  Caliber One                                               462              (247)             (839)           (1,317)
  Corporate and Other                                    (5,703)           (6,200)          (16,292)          (19,211)
                                                      ---------         ---------         ---------         ---------
  Pre-tax operating income                               13,652             8,485            34,058            22,738
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Income before income taxes and
        cumulative effect of accounting change           10,369            12,584            29,897            38,100
  Income tax expense                                      3,857             2,032             8,171             6,103
                                                      ---------         ---------         ---------         ---------
  Income before cumulative effect of
        accounting change                                 6,512            10,552            21,726            31,997
  Cumulative effect of accounting change,
        net of tax                                           --                --            (2,759)               --
                                                      ---------         ---------         ---------         ---------
  Net income                                          $   6,512         $  10,552         $  18,967         $  31,997
                                                      =========         =========         =========         =========
  (1)  The Company excludes net realized investment gains (losses) from the profit
       and loss  measure it utilizes to assess the  performance  of its  operating
       segments.
  
                                         8
  7.   DISPOSITIONS
  
  Effective  July 1, 1998,  the Company  sold PMA  Insurance,  Cayman  Ltd.  ("PMA
  Cayman"),  one of the entities  included in The PMA  Insurance  Group's  Run-off
  Operations, which reinsured claims for certain policies written by other members
  of The PMA  Insurance  Group,  to a third  party  for a  purchase  price of $1.8
  million  and  recorded  an  after-tax  loss of $1.6  million.  This  transaction
  included  the  transfer  of $231.5  million in cash and  invested  assets to the
  buyer.  At  September  30,  1999,  the Company had  recorded  $240.8  million in
  reinsurance receivables related to this transaction, all of which are secured by
  assets in trust or by letters of credit.  If the actual  claim  payments  in the
  aggregate  exceed the estimated  payments upon which the loss reserves have been
  established,  the Company has agreed to indemnify the buyer,  up to a maximum of
  $15.0  million.  If the actual claim payments in the aggregate are less than the
  estimated  payments  upon which the loss  reserves  have been  established,  the
  Company will participate in such favorable loss reserve development.
  
                                         9
  Item 2.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations
  
  The  following  is a  discussion  of PMA  Capital's  financial  condition  as of
  September  30,  1999,  compared  with  December  31,  1998,  and its  results of
  operations for the three and nine months ended September 30, 1999, compared with
  the same periods last year. This discussion  should be read in conjunction  with
  Management's  Discussion  and  Analysis  included in PMA  Capital's  1998 Annual
  Report to  Shareholders  (pages 28 through  49), to which the reader is directed
  for additional  information.  The term "SAP" refers to the statutory  accounting
  practices prescribed or permitted by applicable state insurance  departments and
  the term "GAAP" refers to generally accepted accounting principles.
  
       CONSOLIDATED RESULTS OF OPERATIONS
  
  The table below  presents the major  components of revenues,  pre-tax  operating
  income and net income:
  Three Months Ended                 Nine Months Ended
                                                              September 30,                      September 30,
  (dollar amounts in thousands)                          1999              1998             1999              1998
  ------------------------------------------------------------------------------------------------------------------------------
  Operating revenues:
  Net premiums written                                $ 124,970         $ 120,653         $ 395,418         $ 369,134
                                                      =========         =========         =========         =========
  
  Net premiums earned                                 $ 128,419         $ 114,017         $ 366,882         $ 335,593
  Net investment income                                  28,029            28,410            82,099            92,260
  Other revenues                                          2,869             2,945             8,828             9,385
                                                      ---------         ---------         ---------         ---------
        Total operating revenues                      $ 159,317         $ 145,372         $ 457,809         $ 437,238
                                                      =========         =========         =========         =========
  
  Components of pre-tax operating
  income (1) and net income:
  PMA Re                                              $  14,674         $  11,930         $  37,790         $  34,882
  The PMA Insurance Group:
        Excluding Run-off Operations                      4,045             3,389            13,719             8,343
        Run-off Operations                                  174              (387)             (320)               41
                                                      ---------         ---------         ---------         ---------
        Total                                             4,219             3,002            13,399             8,384
  Caliber One                                               462              (247)             (839)           (1,317)
  Corporate and Other                                    (5,703)           (6,200)          (16,292)          (19,211)
                                                      ---------         ---------         ---------         ---------
  Pre-tax operating income                               13,652             8,485            34,058            22,738
  Net realized investment gains (losses)                 (3,283)            4,099            (4,161)           15,362
                                                      ---------         ---------         ---------         ---------
  Income before income taxes and
        cumulative effect of accounting change           10,369            12,584            29,897            38,100
  Income tax expense                                      3,857             2,032             8,171             6,103
                                                      ---------         ---------         ---------         ---------
  Income before cumulative effect of
        accounting change                                 6,512            10,552            21,726            31,997
  Cumulative effect of accounting change,
        net of tax                                           --                --            (2,759)               --
                                                      ---------         ---------         ---------         ---------
  Net income                                          $   6,512         $  10,552         $  18,967         $  31,997
                                                      =========         =========         =========         =========
  (1)   Pre-tax  operating income is defined as income from continuing  operations
        before income taxes, excluding net realized investment gains (losses). The
        Company  excludes net realized  investment  gains (losses) from the profit
        and  loss  measurement  it  utilizes  to  assess  the  performance  of its
        operating segments because (i) net realized  investment gains (losses) are
        unpredictable   and  not  necessarily   indicative  of  current  operating
        fundamentals or future  performance and (ii) in many instances,  decisions
        to buy and sell securities are made at the holding company level, and such
        decisions  result in net realized gains (losses) that do not relate to the
        operations of the individual segments.
  
                                         10
  Pre-tax  operating income for the three and nine months ended September 30, 1999
  was $13.7 million and $34.1 million, respectively, compared to pre-tax operating
  income of $8.5 million and $22.7 million for the same periods in 1998. After-tax
  operating  income  was $8.6  million  and $24.4  million  for the three and nine
  months ended September 30, 1999,  respectively,  compared to after-tax operating
  income of $7.9  million and $22.0  million for the same  periods in 1998.  These
  increases were primarily due to improved  underwriting  results  attributable to
  The PMA Insurance  Group and PMA Re and lower interest  expense,  with after-tax
  operating income being partially offset by a higher effective tax rate in 1999.
  
  The Company  currently  expects  operating income to continue to improve in 1999
  reflecting higher operating income from The PMA Insurance Group and PMA Re. This
  expectation  may  differ  materially  from  actual  results  because of the risk
  factors noted in the "Cautionary Statements" on page 23.
  
  Net income was $6.5  million  and $19.0  million  for the three and nine  months
  ended September 30, 1999, respectively,  compared to net income of $10.6 million
  and $32.0  million  for the three and nine  months  ended  September  30,  1998,
  respectively.  Net income for the nine months ended  September 30, 1999 includes
  an  after-tax  charge of $2.8  million for the effect of adopting  Statement  of
  Position   97-3,   "Accounting   by   Insurance   and  Other   Enterprises   for
  Insurance-Related  Assessments."  See  "Recent  Accounting  Pronouncements"  for
  additional information.
  
  Net income also includes gains and losses on the sale of investments. The timing
  and  recognition  of  such  gains  and  losses  are  unpredictable  and  are not
  indicative of future operating  performance.  After-tax net realized  investment
  losses were $2.1  million and $2.7  million for the three and nine months  ended
  September 30, 1999,  compared to after-tax net realized investment gains of $2.7
  million and $10.0 million for the comparable  1998 periods.  The realized losses
  for 1999  reflect  sales of  investments  in order to invest in yield  enhancing
  investment  opportunities in an interest rate environment when rates were rising
  in contrast to the realized  gains in 1998 which  reflect  sales of  investments
  during  a  period  when  interest  rates  were  declining.  Also,  net  realized
  investment  gains for the nine months  ended  September  30, 1998 include a $2.4
  million  pre-tax loss related to the sale of PMA  Insurance,  Cayman Ltd.  ("PMA
  Cayman").  See Note 7 to the Company's  Consolidated  Financial  Statements  for
  additional information.
  
                                         11
  PMA RE
  
  Summarized financial results of PMA Re are as follows:
  Three Months Ended                Nine Months Ended
                                                            September 30,                    September 30,
  (dollar amounts in thousands)                        1999             1998             1999             1998
  ----------------------------------------------------------------------------------------------------------------
  Net premiums written                               $ 45,963         $ 54,687         $182,628         $172,595
                                                     ========         ========         ========         ========
  
  Net premiums earned                                $ 68,941         $ 56,386         $191,289         $157,353
  Net investment income                                14,959           13,732           42,578           40,903
                                                     --------         --------         --------         --------
  Operating revenues                                   83,900           70,118          233,867          198,256
                                                     --------         --------         --------         --------
  
  Losses and loss adjustment expenses ("LAE")          48,456           37,633          135,699          107,311
  Acquisition and operating expenses                   20,770           20,555           60,378           56,063
                                                     --------         --------         --------         --------
  Total losses and expenses                            69,226           58,188          196,077          163,374
                                                     --------         --------         --------         --------
  
  Pre-tax operating income                           $ 14,674         $ 11,930         $ 37,790         $ 34,882
                                                     ========         ========         ========         ========
  
  GAAP loss and LAE ratio                                70.3%            66.7%            70.9%            68.2%
  GAAP combined ratio                                   100.4%           103.2%           102.5%           103.8%
  ----------------------------------------------------------------------------------------------------------------
  PMA Re's pre-tax  operating  income was $14.7  million and $37.8 million for the
  three and nine months ended  September  30, 1999,  compared to $11.9 million and
  $34.9  million for the same periods in 1998.  The increase in operating  results
  for the third  quarter and first nine months of 1999 reflect an  improvement  in
  the combined ratio and higher net investment income.
  
  Premiums
  
  The following table  indicates PMA Re's gross and net premiums  written by major
  category of business:
  Three Months Ended              Nine Months Ended
                                        September 30,                  September 30,
  (dollar amounts in thousands)    1999            1998           1999             1998
  -----------------------------------------------------------------------------------------
  Gross premiums written:
        Casualty lines           $ 57,093        $ 49,857        $180,055        $152,465
        Property lines             13,514          17,066          59,647          58,379
        Other lines                   879             308           1,491             809
                                 --------        --------        --------        --------
  Total                          $ 71,486        $ 67,231        $241,193        $211,653
                                 ========        ========        ========        ========
  
  Net premiums written:
        Casualty lines           $ 39,266        $ 40,922        $137,228        $124,457
        Property lines              5,871          13,516          43,980          47,365
        Other lines                   826             249           1,420             773
                                 --------        --------        --------        --------
  Total                          $ 45,963        $ 54,687        $182,628        $172,595
                                 ========        ========        ========        ========
  -----------------------------------------------------------------------------------------
  12
  Net premiums  written  decreased  $8.7 million,  or 16.0%,  and increased  $10.0
  million,  or 5.8%,  for the three and nine  months  ended  September  30,  1999,
  respectively, compared to the same periods in 1998. The decrease in net premiums
  written for the three months ended  September  30, 1999,  reflects  higher ceded
  premiums,  the  cancellation  of a finite  treaty and the  effects of the highly
  competitive  conditions in the U.S.  reinsurance market,  which more than offset
  growth from expanded product offerings. The increase in net premiums written for
  the nine months ended  September  30, 1999,  primarily  reflects the  successful
  expansion of finite and financial product offerings,  expansion of relationships
  with PMA Re's  existing  clients,  and  contracts  with new  clients.  Partially
  offsetting this increase was the effect of highly competitive  conditions in the
  U.S.  reinsurance market,  which has caused PMA Re to non-renew certain accounts
  largely due to inadequate rates and/or other underwriting issues.
  
  Net premiums earned  increased $12.6 million,  or 22.3%,  and $33.9 million,  or
  21.6%,  for the three and nine months ended  September  30, 1999,  respectively,
  compared to the same periods in 1998.  Generally,  trends in net premiums earned
  follow  patterns  similar to net premiums  written,  with premiums  being earned
  principally on a pro rata basis over the terms of the contracts. PMA Re's earned
  premiums  for  the  third   quarter  and  first  nine  months  of  1999  include
  approximately  $26  million  related to a revision  of the  methodology  used in
  estimating unearned premiums on in-force contracts.
  
  Losses and Expenses
  
  The following table reflects the components of PMA Re's GAAP combined ratios:
  Three Months Ended           Nine Months Ended
                                                               September 30,               September 30,
                                                            1999          1998          1999          1998
  ----------------------------------------------------------------------------------------------------------
  Loss and LAE ratio                                         70.3%         66.7%         70.9%         68.2%
                                                          -------       -------       -------       -------
  Expense ratio:
        Amortization of deferred acquisition costs           25.1%         30.6%         26.3%         29.2%
        Operating expenses                                    5.0%          5.9%          5.3%          6.4%
                                                          -------       -------       -------       -------
  Total expense ratio                                        30.1%         36.5%         31.6%         35.6%
                                                          -------       -------       -------       -------
  GAAP combined ratio                                       100.4%        103.2%        102.5%        103.8%
                                                          =======       =======       =======       =======
  ----------------------------------------------------------------------------------------------------------
  PMA Re's loss and LAE ratio  increased  3.6  points and 2.7 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods  in 1998.  These  increases  primarily  relate  to a change  in PMA Re's
  business  mix,  with finite and financial  products  representing  an increasing
  percentage of earned premiums.  Such products  typically carry a higher loss and
  LAE ratio and a lower  acquisition  expense ratio than  traditional  reinsurance
  products.
  
  The acquisition  expense ratio decreased 5.5 points and 2.9 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods last year.  These decreases are primarily  attributable to the change in
  business  mix as  described  above  as well as  lower  acquisition  expenses  on
  traditional  business  in  1999.  In  addition,  PMA  Re  made  changes  to  its
  retrocessional  program in 1999,  resulting in higher ceding commissions,  which
  reduces the acquisition expense ratio.
  
  The operating  expense  ratio  decreased 0.9 points and 1.1 points for the three
  and nine months ended  September  30, 1999,  respectively,  compared to the same
  periods last year, reflecting  essentially flat operating expenses and growth in
  earned premium.
  
  Net Investment Income
  
  Net investment income was $15.0 million and $42.6 million for the three and nine
  months ended September 30, 1999, compared to $13.7 million and $40.9 million for
  the same  periods in 1998.  These  increases  primarily  reflect an  increase in
  investment yield and, to a lesser extent, higher average invested assets.
  
                                         13
  THE PMA INSURANCE GROUP
  
  Summarized financial results of The PMA Insurance Group are as follows:
  Three Months Ended                 Nine Months Ended
                                                    September 30,                     September 30,
  (dollar amounts in thousands)                1999             1998             1999             1998
  ----------------------------------------------------------------------------------------------------------
  Net premiums written                       $ 63,289         $ 64,504         $182,472         $194,331
                                             ========         ========         ========         ========
  
  Net premiums earned                        $ 51,691         $ 57,389         $161,416         $177,978
  Net investment income
        Excluding Run-off Operations           11,329           13,140           34,839           38,426
        Run-off Operations(1)                   1,110            1,477            3,333           12,780
                                             --------         --------         --------         --------
        Total                                  12,439           14,617           38,172           51,206
  Other revenues                                2,234            2,232            6,974            7,403
                                             --------         --------         --------         --------
  Operating revenues                           66,364           74,238          206,562          236,587
  
  Losses and LAE:
        Excluding Run-off Operations           36,297           44,326          118,425          138,010
        Run-off Operations(1)                     710            1,241            2,669           10,642
                                             --------         --------         --------         --------
             Total                             37,007           45,567          121,094          148,652
  Acquisition and operating expenses:
        Excluding Run-off Operations           19,130           19,539           55,977           63,817
        Run-off Operations(1)                     226              623              984            2,097
                                             --------         --------         --------         --------
             Total                             19,356           20,162           56,961           65,914
  Dividends to policyholders                    5,782            5,507           15,108           13,637
                                             --------         --------         --------         --------
  Total losses and expenses                    62,145           71,236          193,163          228,203
                                             --------         --------         --------         --------
  Pre-tax operating income                   $  4,219         $  3,002         $ 13,399         $  8,384
                                             ========         ========         ========         ========
  
  GAAP loss and LAE ratio                        71.6%            79.4%            75.0%            83.5%
  GAAP combined ratio(2)                        116.7%           120.4%           116.1%           124.4%
  ----------------------------------------------------------------------------------------------------------
  (1)  Run-off operations  ("Run-off  Operations") of The PMA Insurance Group were
       established and segregated from ongoing  operations  effective December 31,
       1996 to reinsure  certain  obligations  primarily  associated with workers'
       compensation  claims written by The PMA Insurance  Group's Pooled Companies
       for the years 1991 and prior.
  
  (2)  The combined  ratio for the nine months ended  September  30, 1999 excludes
       the impact of the  cumulative  effect of accounting  change of $4.3 million
       ($2.8 million after-tax) for insurance-related assessments.
  Operating Results
  
  Pre-tax  operating income for The PMA Insurance Group was $4.2 million and $13.4
  million for the three and nine months ended September 30, 1999, compared to $3.0
  million  and  $8.4  million  for the same  periods  in 1998.  The  increases  in
  operating  income were  primarily  due to  improved  loss  experience  and lower
  operating  expenses  resulting  from  ongoing  cost  reduction  initiatives.  In
  addition,  the improvement in operating income reflects a reduction in the level
  of net exposures  underwritten due to disciplined and focused  underwriting,  as
  well as an increase in the use of reinsurance.
  
                                         14
  The PMA Insurance Group Excluding Run-off Operations
  
  Premiums
  Three Months Ended                 Nine Months Ended
                                               September 30,                      September 30,
  (dollar amounts in thousdands)          1999              1998             1999              1998
  -------------------------------------------------------------------------------------------------------
  Workers' compensation:
        Direct premiums written        $  55,687         $  51,472         $ 161,783         $ 152,961
        Premiums assumed                     661             1,072             1,855             3,532
        Premiums ceded                    (7,095)           (3,436)          (23,923)           (8,991)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  49,253         $  49,108         $ 139,715         $ 147,502
                                       =========         =========         =========         =========
  
  Commercial Lines:
        Direct premiums written        $  22,049         $  23,254         $  66,503         $  74,617
        Premiums assumed                     249               340             1,277             1,728
        Premiums ceded                    (8,262)           (8,198)          (25,023)          (29,516)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  14,036         $  15,396         $  42,757         $  46,829
                                       =========         =========         =========         =========
  
  Total:
        Direct premiums written        $  77,736         $  74,726         $ 228,286         $ 227,578
        Premiums assumed                     910             1,412             3,132             5,260
        Premiums ceded                   (15,357)          (11,634)          (48,946)          (38,507)
                                       ---------         ---------         ---------         ---------
        Net premiums written           $  63,289         $  64,504         $ 182,472         $ 194,331
                                       =========         =========         =========         =========
  -------------------------------------------------------------------------------------------------------
  Direct workers' compensation premiums written increased by $4.2 million and $8.8
  million for the three and nine months ended  September  30, 1999,  respectively,
  compared to the same periods in 1998,  due to an increase in the volume of risks
  underwritten.  Manual rate reductions  averaging  approximately  2.3% in The PMA
  Insurance  Group's  principal  marketing  territories  constrained the growth in
  direct premiums  written.  In addition,  continued intense price competition and
  selected non-renewal of non-profitable accounts partially offset the increase in
  direct premiums written. Direct workers' compensation premiums written were also
  impacted by lower  additional audit premiums of $1.5 million for the nine months
  ended September 30, 1999, compared to the same period in 1998.
  
  Direct   writings  of   commercial   lines  of  business   other  than  workers'
  compensation,  such as commercial auto, general liability, umbrella, multi-peril
  and commercial property lines (collectively,  "Commercial Lines"),  decreased by
  $1.2 million and $8.1 million for the three and nine months ended  September 30,
  1999,  respectively,  compared  to the same  periods  in 1998  primarily  due to
  planned  reductions in such lines as well as continued  competitive  conditions.
  Rather than lower prices to what it believes are  unacceptable  levels,  The PMA
  Insurance  Group has chosen not to renew some of its business in the  Commercial
  Lines.
  
  The increases in  reinsurance  premiums  ceded of $3.7 million and $10.4 million
  for the three and nine months ended  September  30,  1999,  compared to the same
  periods in 1998 primarily reflect higher ceded workers' compensation premiums of
  $3.7 million and $14.9 million for the three and nine months ended September 30,
  1999,  respectively,  compared  to the  same  periods  in 1998.  In 1999,  a new
  reinsurance  treaty  reduced the net  retention  level on workers'  compensation
  exposures  from $1.5 million to $150,000 per  occurrence.  Partially  offsetting
  such increase for the nine months ended September 30, 1999, compared to the same
  period in 1998 was a decrease of $4.5 million in ceded  premiums for  Commercial
  Lines.  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 $5.7 million and $16.6 million for the three and
  nine months ended September 30, 1999, respectively, compared to the same periods
  in 1998. Generally, trends in net premiums earned follow patterns similar to net
  
                                         15
  premiums written adjusted for the customary lag related to the timing of premium
  writings within the year.  Direct premiums are earned  principally on a pro rata
  basis over the terms of the policies.
  
  Losses and Expenses
  
  The  following  table  reflects  the  components  of The PMA  Insurance  Group's
  combined ratios:
  Three Months Ended           Nine Months Ended
                                                               September 30,               September 30,
                                                            1999          1998          1999          1998
  ------------------------------------------------------------------------------------------------------------
  Loss and LAE ratio                                         70.2%         77.2%         73.4%         77.5%
                                                          -------       -------       -------       -------
  Expense ratio:
        Amortization of deferred acquisition costs           18.5%         13.5%         16.9%         17.3%
        Operating expenses(1)(2)                             15.0%         16.8%         14.2%         14.7%
                                                          -------       -------       -------       -------
        Total expense ratio                                  33.5%         30.3%         31.1%         32.0%
  
  Policyholders' dividends                                   11.2%          9.6%          9.4%          7.7%
                                                          -------       -------       -------       -------
  
   GAAP combined ratio(1)(2)(3)(4)                          114.9%        117.1%        113.9%        117.2%
                                                          =======       =======       =======       =======
  ------------------------------------------------------------------------------------------------------------
  (1)  The  expense  ratio  and the  combined  ratio  for the  nine  months  ended
       September  30,  1999  exclude  the  impact  of  the  cumulative  effect  of
       accounting   change  of  $4.3  million   ($2.8   million   after-tax)   for
       insurance-related assessments.
  (2)  The expense  ratio and the  combined  ratio  exclude  $1.8 million and $5.8
       million  for  the  three  and  nine  months  ended   September   30,  1999,
       respectively,  and $2.2  million  and $6.9  million  for the three and nine
       months ended  September  30, 1998,  respectively,  for expenses  related to
       service revenues, which are not included in premiums earned.
  (3)  The  combined  ratio  computed  on a GAAP basis is equal to losses and LAE,
       plus the sum of acquisition expenses, operating expenses and policyholders'
       dividends, all divided by net premiums earned.
  (4)  The GAAP combined  ratios for The PMA Insurance Group including the Run-off
       Operations  were  116.7%  and 116.1%  for the three and nine  months  ended
       September  30,  1999,  and 120.4% and 124.4% for the three and nine  months
       ended September 30, 1998, respectively.
  For the three and nine months ended  September  30, 1999,  the GAAP loss and LAE
  ratio improved by 7.0 points and 4.1 points, respectively,  compared to the same
  periods in 1998.  These  improvements  were  primarily  due to  favorable  prior
  accident year reserve  development  and improved loss and LAE ratios in workers'
  compensation during 1999,  partially offset by a decline in the level of reserve
  discount.
  
  The PMA  Insurance  Group had  experienced  $6.7  million  and $9.2  million  of
  favorable development of prior accident year reserves ("prior year development")
  for the three and nine months ended September 30, 1999, compared to $897,000 and
  $2.3 million of favorable  prior year  development for the same periods in 1998,
  which improved the overall loss and LAE ratio.  The increases in favorable prior
  year   development   reflect   better  than   expected  loss   experience   from
  loss-sensitive and rent-a-captive workers' compensation business.  Since most of
  the favorable  development  occurred  during the third quarter of 1999, it had a
  substantially  greater impact on the loss and LAE ratio for the quarter than the
  impact on the loss and LAE ratio for the nine months ended  September  30, 1999.
  This  favorable  development  has been  substantially  offset by  policyholders'
  dividends for rent-a-captive business and premium adjustments for loss-sensitive
  business.  Rent-a-captives  are used by  customers as an  alternative  method to
  manage their loss  exposure  without  establishing  and  capitalizing  their own
  captive insurance company.
  
  In addition,  the improvement in the workers' compensation current accident year
  loss and LAE ratio has favorably impacted the overall loss and LAE ratio for the
  three and nine months ended September 30, 1999,  compared to the same periods in
  1998.
  
                                         16
  These improvements  reflect the application of stricter  underwriting  standards
  and a relatively lower risk profile of business written.
  
  The loss  and LAE  ratio is  negatively  impacted  by  accretion  of prior  year
  discounted  reserves and  favorably  impacted by setting up discount for current
  year  reserves.  The net of  these is  referred  to as net  discount  accretion.
  Accretion of prior year discounted  reserves exceeded the setting up of discount
  for the three and nine months ended  September 30, 1999,  whereas the setting up
  of discount  exceeded the  accretion of prior year  discounted  reserves for the
  same periods in 1998. This resulted in an increase in the loss and LAE ratio for
  the three and nine months ended September 30, 1999, compared to the same periods
  in 1998.  This change in net  discount  accretion  reflects a  reduction  in the
  amount of  discount  recorded on current  year's  reserves as a result of higher
  ceded loss reserves due to the new reinsurance treaty for workers' compensation.
  
  The GAAP  expense  ratio  increased  by 3.2  points for the three  months  ended
  September 30, 1999,  compared to the same period in 1998,  due to an increase in
  the acquisition  expense ratio of 5.0 points,  partially offset by a decrease in
  the operating  expense ratio of 1.8 points  compared to the same period in 1998.
  The  increase  in the  acquisition  expense  ratio is a result of an increase in
  taxes and assessments and other acquisition expenses, primarily due to increases
  in direct workers'  compensation premium, paid losses and the guaranty fund rate
  in certain states during the third quarter of 1999,  compared to the same period
  in 1998.  The decrease in the operating  expense ratio was due to continued cost
  cutting measures in the third quarter of 1999.
  
  The GAAP  expense  ratio  decreased  by 0.9  points  for the nine  months  ended
  September  30, 1999,  compared to the same period in 1998,  due to a decrease in
  the  operating  expense  ratio of 0.5 points and a decrease  in the  acquisition
  expense ratio of 0.4 points compared to the same period in 1998. The decrease in
  the operating expense ratio was primarily due to continued cost cutting measures
  in 1999.  The decrease in the  acquisition  expense  ratio was  primarily due to
  higher ceded commissions  received as a result of the new reinsurance  treaty in
  1999 and a reduction in certain state assessments.
  
  The  policyholders'  dividend  ratio  was  11.2% and 9.4% for the three and nine
  months ended September 30, 1999, respectively, compared to 9.6% and 7.7% for the
  same  periods  last year.  These  increases  are  primarily  due to selling more
  business under dividend  plans and improved loss  experience,  which resulted in
  higher dividend payouts to policyholders,  including the policyholder  dividends
  related to rent-a-captive customers.
  
       Net  Investment Income
  
  Net investment income was $11.3 million and $34.8 million for the three and nine
  months ended September 30, 1999, compared to $13.1 million and $38.4 million for
  the same periods in 1998.  The decrease  primarily  reflects a lower asset base,
  due to the paydown of loss reserves from prior accident years.
  
       Run-off Operations
  
  Effective  July 1,  1998,  the  Company  sold PMA  Cayman,  one of the  entities
  included in The PMA Insurance Group's Run-off Operations, which reinsured claims
  for certain  policies  written by other members of The PMA Insurance Group, to a
  third party for a purchase  price of $1.8 million and recorded an after-tax loss
  of  $1.6  million.  See  Note 7 to the  Consolidated  Financial  Statements  for
  additional information. This transaction included the transfer of $231.5 million
  in cash and invested assets to the buyer.
  
  Net investment income for the Run-off Operations  decreased by $367,000 and $9.4
  million in the three and nine months ended  September  30,  1999,  respectively,
  compared to the same  periods in 1998.  The  decrease in  investment  income was
  primarily due to the decrease in invested assets resulting from the sale, and to
  a lesser extent, from the paydown of losses by the remaining run-off entities.
  
  The  sale of PMA  Cayman  also  resulted  in a  reduction  in  losses  and  LAE,
  acquisition  expenses and operating  expenses of the Run-off  Operations for the
  three and nine months ended September 30, 1999,  compared to the same periods in
  1998.
  
                                         17
  CALIBER ONE
  
  Summarized financial results of Caliber One are as follows:
  Three Months Ended                 Nine Months Ended
                                                  September 30,                     September 30,
                                              1999            1998             1999             1998
  ------------------------------------------------------------------------------------------------------
  Net premiums written                      $ 15,828        $  1,660         $ 30,681         $  2,577
                                            ========        ========         ========         ========
  
  Net premiums earned                       $  7,897        $    440         $ 14,540         $    631
  Net investment income                          659             361            1,555            1,075
                                            --------        --------         --------         --------
  Operating revenues                           8,556             801           16,095            1,706
                                            --------        --------         --------         --------
  
  Losses and LAE incurred                      6,028             352           11,343              505
  Acquisition and operating expenses           2,066             696            5,591            2,518
                                            --------        --------         --------         --------
  Total losses and expenses                    8,094           1,048           16,934            3,023
                                            --------        --------         --------         --------
  
  Pre-tax operating income (loss)           $    462        $   (247)        $   (839)        $ (1,317)
                                            ========        ========         ========         ========
  ------------------------------------------------------------------------------------------------------
  Caliber One recorded  pre-tax  operating income of $462,000 for the three months
  ended September 30, 1999,  compared to a pre-tax  operating loss of $247,000 for
  the three months ended  September 30, 1998,  reflecting the  establishment  of a
  solid premium base and  stabilization  of its expenses  relative to that premium
  base. Caliber One recorded pre-tax operating losses of $839,000 and $1.3 million
  for the nine months ended September 30, 1999 and 1998, respectively.
  
  The growth in net  premiums  written  and  earned for the three and nine  months
  ended September 30, 1999, compared to the same periods in 1998, reflects Caliber
  One's rising market acceptance and expanded  distribution  network combined with
  increased staffing levels.
  
  CORPORATE AND OTHER
  
  The  Corporate  and  Other  segment  includes  unallocated   investment  income,
  expenses,  including debt service,  and taxes, as well as the results of certain
  of the  Company's  real estate  properties.  For the three and nine months ended
  September 30, 1999,  Corporate and Other recorded  pre-tax  operating  losses of
  $5.7  million and $16.3  million,  respectively,  compared to pre-tax  operating
  losses of $6.2  million  and $19.2  million  for the same  periods in 1998.  The
  decrease in the  operating  loss is primarily due to lower  interest  expense of
  $700,000 and $2.1  million for the third  quarter and first nine months of 1999,
  respectively,  reflecting a $40.0  million  paydown in  outstanding  debt in the
  fourth quarter of 1998.
  
  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 September 30, 1999 and December 31, 1998,  the Company had $163.0  million of
  outstanding  debt under its Revolving  Credit Facility (the "Credit  Facility").
  The final expiration of the Credit Facility is December 31, 2002, and the Credit
  Facility  matures in an installment of $38.0 million in 2000 and installments of
  $62.5 million in 2001 and 2002.
  
  In addition to the Credit Facility,  the Company maintains a committed  facility
  of $50.0  million for letters of credit (the "Letter of Credit  Facility").  The
  Letter of  Credit  Facility  is  utilized  primarily  for  securing  reinsurance
  
                                         18
  obligations of the Company's insurance  subsidiaries.  As of September 30, 1999,
  the Company had $44.7 million  outstanding in letters of credit under the Letter
  of Credit Facility, compared with $46.9 million as of December 31, 1998.
  
  The  Company  paid  interest  of $1.4  million  and $7.4  million on both credit
  facilities for the three and nine months ended September 30, 1999, respectively,
  compared to $3.7 million and $11.2 million for the same periods in 1998.
  
  The Company's domestic insurance  subsidiaries'  ability to pay dividends to the
  holding company is limited by the insurance laws and regulations of Pennsylvania
  and Delaware (the laws are substantially  similar).  Under Pennsylvania laws and
  regulations,  without prior approval of the Pennsylvania  Insurance Commissioner
  (the "Commissioner"),  dividends may not be paid in excess of the greater of (i)
  10% of  policyholders'  surplus as of the end of the preceding  year or (ii) SAP
  net income for the preceding year, but in no event to exceed  unassigned  funds.
  Under this standard,  the Pooled  Companies and PMA Reinsurance  Corporation can
  pay an aggregate of $51.8 million of dividends without the prior approval of the
  Commissioner  during 1999. Caliber One Indemnity  Company, a  Delaware-domiciled
  company,  is directly  owned by PMA  Reinsurance  Corporation  and, as such, its
  dividends may not be paid directly to PMA Capital.  As stated above,  Delaware's
  insurance  laws as they  apply to  restricting  the  payment  of  dividends  are
  substantially similar to Pennsylvania's insurance laws. Under Delaware insurance
  laws,  Caliber One  Indemnity  Company can pay $2.5 million in dividends  during
  1999.  Dividends  received from subsidiaries were $8.0 million and $26.8 million
  for the three and nine months ended September 30, 1999,  respectively,  compared
  to $8.0 million and $18.0 million for the comparable 1998 periods.
  
  Net tax payments  received from subsidiaries were $7.4 million and $19.1 million
  for the three and nine months ended September 30, 1999,  respectively,  compared
  to $7.5 million and $22.3 million for the same periods in 1998.
  
  PMA Capital's  dividends to shareholders  are restricted by its debt agreements.
  Based upon the terms of the Credit  Facility and the Letter of Credit  Facility,
  under the most  restrictive  debt  covenant,  PMA  Capital  would be able to pay
  dividends of approximately  $15.6 million in 1999. The Company paid dividends to
  shareholders  of $1.9  million  and $5.8  million  for the three and nine months
  ended  September  30,  1999,  respectively,  compared  to $2.0  million and $6.1
  million for the three and nine months ended September 30, 1998, respectively.
  
  PMA  Capital  also  made  capital  contributions  in the  form  of  cash  to its
  subsidiaries totaling $4.1 million for the nine months ended September 30, 1999.
  No cash capital  contributions were made to subsidiaries during the three months
  ended September 30, 1999 or 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 nine months of 1999, the Company repurchased 999,000 shares at a total
  cost of $19.7 million (average per share price was $19.71).  Since the inception
  of its share repurchase  program in February 1998, PMA Capital has repurchased a
  total of 2.0 million shares at a total cost of $38.5 million  (average per share
  price was  $19.32).  On  November  3, 1999,  the  Company's  Board of  Directors
  approved an additional $30.0 million of share repurchase authority, which brings
  PMA  Capital's  remaining  share  repurchase  authorization  to  $36.5  million.
  Decisions  regarding  share  repurchases  are subject to the costs and  benefits
  associated with alternative uses of capital and prevailing market conditions.
  
  Management  believes that the Company's sources of funds will provide sufficient
  liquidity to meet its short-term and long-term obligations.
  
                                         19
  Capital Resources
  
  The Company's total assets  decreased to $3,295.4 million at September 30, 1999,
  compared to $3,460.7 million at December 31, 1998. Total  investments  decreased
  $273.9  million to $2,051.5  million at  September  30,  1999.  The  decrease in
  investments is primarily  attributable to declines in market value due to rising
  interest  rates as well as a decrease of $136.1  million in  securities  on loan
  under the Company's securities lending program.
  
  Presently,   management   believes  that  the  existing  capital   structure  is
  appropriate.  However,  management continually monitors the capital structure in
  light of developments in the business,  and the present  assessment could change
  as management becomes aware of new opportunities and challenges in the Company's
  business.
  
  OTHER MATTERS
  
  The Company's  businesses  are subject to a changing  social,  economic,  legal,
  legislative  and  regulatory  environment  that could affect  them.  Some of the
  changes include initiatives to restrict insurance pricing and the application of
  underwriting  standards and  reinterpretation  of insurance contracts long after
  the policies were written to provide coverage  unanticipated by the Company. The
  eventual effect on the Company of the changing  environment in which it operates
  remains uncertain.
  
  Year 2000 Issue
  
  As a consequence of the programming  convention which utilized a two-digit field
  rather than a four-digit field,  certain  information  technology ("IT") systems
  and non-IT  systems,  such as equipment with embedded chips or  microprocessors,
  require  reprogramming  or replacement to enable them to perform  correctly date
  operations involving year 2000 or later ("Year 2000 Issue").
  
  With the assistance of outside  consulting  groups, the Company began evaluating
  and  reprogramming  its IT systems to address  the Year 2000 Issue in late 1995.
  The  Company's  Year  2000  systems'  program  consists  of  four  phases:   (i)
  identifying  systems requiring  remediation;  (ii) assessing the requirements to
  remediate those systems;  (iii) remediating those systems to make them Year 2000
  ready by either  modifying or replacing  them;  and (iv) testing the systems for
  Year 2000 readiness,  including, where applicable,  that they properly interface
  with third parties.  The Company has completed the identification and assessment
  phases  with  respect  to  its IT  systems  that  are  critical  to  maintaining
  operations  or the  failure  of  which  would  result  in  significant  costs or
  disruption  of  operations   ("mission  critical  systems").   The  Company  has
  remediated  and tested all of its mission  critical  systems.  In addition,  the
  Company will continue testing its mission critical systems under varying testing
  scenarios throughout the remainder of 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.
  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  September  30, 1999 has been  approximately  $5.4
  million.  No  material  costs were  incurred in the third  quarter of 1999.  The
  Company  does not expect to incur  material  costs  through  the rest of 1999 in
  connection with the Year 2000 Issue.
  
  The Company also is continuing to evaluate its relationships  with certain third
  parties  with  which the  Company  has a direct  and  material  relationship  to
  determine whether they are Year 2000 ready, such as banks, brokers,  reinsurers,
  third party service  providers,  software and other service vendors,  and agents
  and other  intermediaries.  As of October 31, 1999, the responses  received from
  such third  parties to inquiries  made by the Company  indicate that these third
  parties either are or expect to be Year 2000 ready by December 31, 1999.
  
                                         20
  Even assuming that all material  third parties  provide a timely  representation
  concerning their Year 2000 readiness, it is not possible to state with certainty
  that  such  representations  will turn out to have  been  accurate,  or that the
  operations  of such third  parties  will not be  materially  impacted in turn by
  other parties with whom they  themselves have a material  relationship,  and who
  fail to timely become Year 2000 ready. Consequently,  the effect, if any, on the
  Company's  results of  operations  from the failure of such third  parties to be
  Year 2000 ready is not reasonably estimable. However, the failure of one or more
  third parties with whom the Company has a material  relationship to be Year 2000
  ready  could  cause  significant  disruptions  in the  Company's  ability to pay
  claims,  receive  and  deposit  funds and make  investments,  which could have a
  material  adverse  effect on the  Company's  financial  condition and results of
  operations.  The  Company's  contingency  plans in the event of  failure of such
  third  parties  to be  Year  2000  ready  include  replacing  the  third  party,
  performing  directly  the  services  performed by the third party such as direct
  billing of any  customers  whose  agent's or broker's  accounts  current  system
  fails, and maintaining liquidity under the Company's Credit Facility.
  
  Although the Company  believes that Year 2000 Issues related to its hardware and
  internal  software  programs  are not likely to result in any  material  adverse
  disruptions in the Company's computer systems or its other business  operations,
  it has analyzed 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.  Based on this analysis,  the Company has developed
  contingency  plans to provide for the resumption of its computer systems and its
  other  business  operations  in the event  such Year 2000  problems  occur.  The
  contingency plans include reallocation of existing resources and employees,  use
  of alternate processes and procedures,  such as manual  workarounds,  and use of
  outside service providers to supplement internal resources.  The Company intends
  throughout  the  remainder of 1999 to review and refine such plans on an ongoing
  basis,  as needed,  when 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
  coverage could ultimately be found to exist by courts in various  jurisdictions,
  or, if found,  the effect  thereof on the  Company.  In  addition,  even if such
  coverage  were  found not to exist,  which  cannot  be  predicted,  the costs of
  litigation  could be material.  In the absence of any claims  experience at this
  time, such losses and costs are not currently reasonably estimable.
  
  Comparison of SAP and GAAP Results
  
  Results  presented  in  accordance  with  GAAP  vary in  certain  respects  from
  statutory  accounting  practices  prescribed  or permitted  by the  Pennsylvania
  Insurance  Department  and  the  Delaware  Insurance  Department  (collectively,
  "SAP").   Prescribed   SAP  includes   state  laws,   regulations   and  general
  administrative  rules, as well as a variety of National Association of Insurance
  Commissioners  ("NAIC")  publications.  Permitted SAP encompasses all accounting
  practices that are not prescribed. In 1998, the NAIC adopted the Codification of
  Statutory Accounting Principles  ("Codification")  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.
  
                                         21
  Recent Accounting Pronouncements
  
  Effective  January 1, 1999, the Company  adopted  Statement of Position  ("SOP")
  97-3,  "Accounting  by Insurance  and Other  Enterprises  for  Insurance-Related
  Assessments."  SOP 97-3  provides  guidance  for  determining  when an insurance
  company  should  recognize a liability  for  guaranty  fund and other  insurance
  related  assessments and how to measure that liability.  As a result of adopting
  SOP 97-3,  the  Company  recorded a  liability  of $4.3  million  pre-tax  and a
  resulting charge to earnings of $2.8 million,  net of income tax benefit of $1.5
  million,  which has been reported as a cumulative  effect of accounting  change.
  This accounting change impacts The PMA Insurance Group segment.
  
  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
  of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
  Instruments and Hedging Activities," which establishes  accounting and reporting
  standards for derivative  instruments,  including certain derivative instruments
  embedded in other contracts  (collectively referred to as "derivatives") and for
  hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
  as either  assets or  liabilities  in the  statement of  financial  position and
  measure those  instruments at fair value. The accounting for changes in the fair
  value of a derivative (that is, gains and losses) depends on the intended use of
  the derivative and the resulting designation. In June 1999, the FASB issued SFAS
  No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
  of the  Effective  Date of FASB  Statement  No. 133," which defers the effective
  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.  While the
  Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS
  No. 133 is not  expected to have a material  impact on the  Company's  financial
  condition, results of operations or liquidity.
  
  In October 1998, the Accounting  Standards  Executive  Committee of the American
  Institute of Certified Public Accountants issued SOP 98-7, "Deposit  Accounting:
  Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
  Insurance Risk." This statement identifies several methods of deposit accounting
  and  provides  guidance  on the  application  of  each  method.  This  statement
  classifies  insurance and reinsurance  contracts for which the deposit method is
  appropriate as contracts that (i) transfer only  significant  timing risk,  (ii)
  transfer only significant  underwriting risk, (iii) transfer neither significant
  timing nor underwriting  risk and (iv) have an  indeterminate  risk. SOP 98-7 is
  effective for financial  statements  for fiscal years  beginning  after June 15,
  1999.  While the Company is  presently  evaluating  the impact of SOP 98-7,  the
  adoption of SOP 98-7 is not expected to have a material  impact on the Company's
  financial condition, results of operations or liquidity.
  
                                         22
  CAUTIONARY STATEMENTS
  
  Except for historical  information provided in this Management's  Discussion and
  Analysis and otherwise in this report,  statements  made  throughout this report
  are forward-looking  and contain  information about financial results,  economic
  conditions, trends and known uncertainties. These forward-looking statements are
  based on currently  available  financial,  competitive and economic data and the
  Company's current operating plans based on assumptions  regarding future events.
  The Company's actual results could differ  materially from those expected by the
  Company's  management.  The  factors  that could  cause  actual  results to vary
  materially,  some of which are described  with the  forward-looking  statements,
  include,  but are not  limited  to,  changes  in  general  economic  conditions,
  including the performance of financial markets and interest rates; regulatory or
  tax  changes,  including  changes  in  risk-based  capital  or other  regulatory
  standards  that  affect the  ability of the  Company  to conduct  its  business;
  competitive  or  regulatory  changes  that  affect the cost of or demand for the
  Company's products; the Company's ability to meet its marketing objectives;  the
  effect of changes in workers'  compensation  statutes and their  administration;
  the  Company's  ability to predict  and  effectively  manage  claims  related to
  insurance and  reinsurance  policies;  reliance on key  management;  adequacy of
  reserves for claim  liabilities;  adverse property and casualty loss development
  for events the Company insured in prior years;  adequacy and  collectibility  of
  reinsurance  purchased by the Company;  severity of natural  disasters and other
  catastrophes;  and other factors disclosed from time to time in reports filed by
  the Company with the Securities and Exchange  Commission.  Investors  should not
  place undue reliance on any such forward-looking statements.
  
                                         23
  Part II. Other Information
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a)  Exhibits
  
  The Exhibits are listed in the Index to Exhibits on page 26.
  
  (b)  Reports on Form 8-K filed during the quarter ended September 30, 1999:
  
       During the quarterly period ended September 30, 1999, the Company filed the
       following Report on Form 8-K:
  
       -    dated August 4, 1999, Item 5 - containing a news release regarding its
            second quarter 1999 results.
  
                                         24
  Signatures
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
  has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
  thereunto duly authorized.
  
                                        PMA CAPITAL CORPORATION
  
  Date:    11/12/99                     By:  /s/ Francis W. McDonnell
           --------                          ------------------------------
                                             Francis W. McDonnell,
                                             Senior Vice  President,
                                             Chief Financial Officer and Treasurer
                                             (Principal Financial Officer)
  
                                         25
  Exhibit Index
  
  Exhibit No.  Description of Exhibit                             Method of Filing
  -----------  ----------------------                             ----------------
  
  (10)         Amendment No. 4, dated as of September 27,          Filed herewith
               1999, to First Amended and Restated Letter of
               Credit Agreement, dated March 14, 1997
  
  (12)         Computation of Ratio of Earnings to Fixed
               Charges                                             Filed herewith
  
  (27)         Financial Data Schedule                             Filed herewith
                                                                   (EDGAR version
                                                                    only)
  
                                         26