PHILADELPHIA CONSOLIDATED HOLDING CORP, 10-Q, 1996-08-13

PHILADELPHIA CONSOLIDATED HOLDING CORP
10-Q, 1996-08-13
FIRE, MARINE & CASUALTY INSURANCE

Previous: LEVEL ONE COMMUNICATIONS INC /CA/, 10-Q, 1996-08-13

Next: INFONAUTICS INC, 10-Q, 1996-08-13

<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 1996

COMMISSION FILE NUMBER 0-22280

PHILADELPHIA CONSOLIDATED HOLDING CORP.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 23-2202671
------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)

ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
(610) 617-7900
--------------------------------
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES X NO
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of August 9, 1996.

Preferred Stock, $.01 par value, no shares outstanding
Common Stock, no par value, 6,026,007 shares outstanding

1
<PAGE> 2

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996

Part I - Financial Information

<TABLE>
<S> <C>
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 3

Consolidated Statements of Operations - For the three and six
months ended June 30, 1996 and 1995 4

Consolidated Statements of Changes in Shareholders' Equity - For
the six months ended June 30, 1996 and year ended
December 31, 1995 5

Consolidated Statements of Cash Flows - For the six
months ended June 30, 1996 and 1995 6

Notes to Consolidated Financial Statements 7

Management's Discussion and Analysis of Results of Operations and
Financial Condition 8-10

Part II - Other Information 11-12

Signatures 13

Exhibits 14
</TABLE>

2
<PAGE> 3

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
As of
------------------------------
June 30, December 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $126,786 AND $117,740)
(including $29,491 and $30,648 in Trust Accounts).... $128,276 $121,848
EQUITY SECURITIES AT MARKET (COST $13,774 AND $9,685)
(including $101 and $118 in Trust Accounts).......... 17,909 12,558
-------- --------
TOTAL INVESTMENTS................................... 146,185 134,406

CASH AND CASH EQUIVALENTS (including $2,643 and $3,048
in Trust Accounts).................................... 4,390 5,680
ACCRUED INVESTMENT INCOME.............................. 2,304 2,172
PREMIUMS RECEIVABLE.................................... 8,860 7,898
PREPAID REINSURANCE PREMIUMS AND
REINSURANCE RECEIVABLES............................... 14,821 12,785
DEFERRED ACQUISITION COSTS............................. 6,610 5,157
PROPERTY AND EQUIPMENT................................. 5,002 3,868
GOODWILL-LESS ACCUMULATED AMORTIZATION OF
$1,154 AND $1,120..................................... 930 964
DEFERRED INCOME TAXES.................................. 603 4
OTHER ASSETS........................................... 1,657 1,214
-------- --------
TOTAL ASSETS........................................ $191,362 $174,148
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES.............. $ 85,596 $ 77,686
UNEARNED PREMIUMS..................................... 22,435 18,119
-------- --------
TOTAL POLICY LIABILITIES AND ACCRUALS............... 108,031 95,805

PREMIUMS PAYABLE....................................... 1,823 2,445
PAYABLE FOR INVESTMENT PURCHASES....................... - 1,017
OTHER LIABILITIES...................................... 6,419 6,051
INCOME TAXES PAYABLE................................... 917 514
-------- --------
TOTAL LIABILITIES................................... 117,190 105,832
-------- --------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING.......................... - -
COMMON STOCK, NO PAR VALUE, 50,000,000 SHARES
AUTHORIZED, 6,024,657 AND 5,813,851 SHARES ISSUED
AND OUTSTANDING...................................... 41,071 39,057
NOTES RECEIVABLE FROM SHAREHOLDERS.................... (1,034) -
UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION),
NET OF DEFERRED INCOME TAXES........................ 3,712 4,608
RETAINED EARNINGS..................................... 30,423 24,651
-------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... 74,172 68,316
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $191,362 $174,148
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

3
<PAGE> 4
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>

REVENUE:
GROSS EARNED PREMIUMS . . . . . . . . . . . . . . . . . $ 28,088 $ 23,716 $ 53,526 $ 45,092
CEDED EARNED PREMIUMS . . . . . . . . . . . . . . . . . (10,898) (9,556) (20,519) (17,726)
------- --------- --------- ---------
NET EARNED PREMIUMS . . . . . . . . . . . . . . . . . . 17,190 14,160 33,007 27,366
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 1,885 1,639 3,731 3,053
NET REALIZED INVESTMENT GAIN . . . . . . . . . . . . . 122 87 95 87
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . 76 80 124 166
------- --------- --------- ---------
TOTAL REVENUE . . . . . . . . . . . . . . . . . . . 19,273 15,966 36,957 30,672
------- --------- --------- ---------

LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES . . . . . . . . . . . 10,225 9,932 20,204 19,938
NET REINSURANCE RECOVERIES . . . . . . . . . . . . . . (1,136) (1,893) (2,441) (4,503)
------ --------- --------- ---------
NET LOSS AND LOSS ADJUSTMENT EXPENSES . . . . . . . . . . 9,089 8,039 17,763 15,435
ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES . . . . . . . . . . . . . . . . 5,836 4,163 10,943 8,175
OTHER OPERATING EXPENSES . . . . . . . . . . . . . . . 498 749 898 1,364
------- --------- --------- ---------
TOTAL LOSSES AND EXPENSES . . . . . . . . . . . . . 15,423 12,951 29,604 24,974
------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 3,850 3,015 7,353 5,698
------- --------- --------- ---------
INCOME TAX EXPENSE (BENEFIT):
CURRENT . . . . . . . . . . . . . . . . . . . . . . . . 880 1,298 1,719 1,937
DEFERRED . . . . . . . . . . . . . . . . . . . . . . . (87) (695) (138) (797)
------- --------- --------- ---------
TOTAL INCOME TAX EXPENSE . . . . . . . . . . . . . 793 603 1,581 1,140
------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 3,057 $ 2,412 $ 5,772 $ 4,558
======= ========= ========= =========
PER AVERAGE COMMON SHARE DATA:
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ .43 $ .36 $ .82 $ .68
======= ========= ========= =========
WEIGHTED AVERAGE SHARES AND SHARE
EQUIVALENTS USED IN COMPUTATION OF NET INCOME
PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . 7,074,412 6,750,421 7,063,707 6,729,185
========= ========= ========= =========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

4
<PAGE> 5
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION> For the Six Months For the year Ended
Ended June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
COMMON SHARES:

BALANCE AT BEGINNING OF PERIOD..................... 5,813,851 5,813,851

ISSUANCE OF SHARES
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 80,806 -
PURSUANT TO EMPLOYEE STOCK OPTION PLAN............ 130,000 -
---------- ---------
BALANCE AT END OF PERIOD........................... 6,024,657 5,813,851
========== =========

COMMON STOCK:

BALANCE AT BEGINNING OF PERIOD..................... $ 39,057 $ 39,096

ISSURANCE OF SHARES
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... 1,163 -
PURUSANT TO EMPLOYEE STOCK OPTION PLAN............ 851 -

OTHER............................................. - (39)
---------- ---------
BALANCE AT END OF PERIOD........................... 41,071 39,057
---------- ---------

NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF PERIOD..................... - -

NOTES RECEIVABLE ISSUED
PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN.......... (1,163) -

COLLECTION OF NOTES RECEIVABLE..................... 129 -
---------- ----------

BALANCE AT END OF PERIOD........................... (1,034) -
---------- ----------

UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION)
NET OF DEFERRED INCOME TAXES:

BALANCE AT BEGINNING OF PERIOD..................... 4,608 (1,317)

CHANGE IN UNREALIZED INVESTMENT APPRECIATION
(DEPRECIATION), NET OF DEFERRED INCOME TAXES...... (896) 5,925
---------- ----------
BALANCE AT END OF PERIOD........................... 3,712 4,608
---------- ----------

RETAINED EARNINGS:

BALANCE AT BEGINNING OF PERIOD..................... 24,651 14,821

NET INCOME......................................... 5,772 9,830
---------- ----------
BALANCE AT END OF PERIOD........................... 30,423 24,651
---------- ----------

TOTAL SHAREHOLDERS' EQUITY...................... $ 74,172 $ 68,316
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

5
<PAGE> 6
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
-------- --------
<S> <C> <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME.......................................... $ 5,772 $ 4,558
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
CHANGE IN PREMIUMS RECEIVABLE..................... (962) (1,258)
CHANGE IN OTHER RECEIVABLES AND PREPAIDS.......... (2,168) (2,055)
CHANGE IN DEFERRED ACQUISITION COSTS.............. (1,453) (210)
CHANGE IN OTHER ASSETS............................ (443) (174)
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT
EXPENSES......................................... 7,910 9,051
CHANGE IN UNEARNED PREMIUMS....................... 4,316 852
CHANGE IN PREMIUMS PAYABLE AND OTHER LIABILITIES.. (254) (2,460)
CHANGE IN INCOME TAXES PAYABLE.................... 403 512
NET REALIZED INVESTMENT GAIN...................... (95) (87)
DEPRECIATION AND AMORTIZATION EXPENSE............. 450 494
DEFERRED INCOME TAX BENEFIT....................... (138) (797)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 13,338 8,426
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITY
SECURITIES AVAILABLE FOR SALE...................... 2,594 6,850
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED
MATURITY SECURITIES AVAILABLE FOR SALE............. 5,921 527
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED
MATURITY SECURITIES HELD TO MATURITY............... - 915
PROCEEDS FROM MATURITY OF INVESTMENT IN FIXED
MATURITY SECURITIES HELD TO MATURITY............... - 932
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY
SECURITIES......................................... 1,352 1,042
COST OF FIXED MATURITY SECURITIES AVAILABLE FOR SALE
ACQUIRED........................................... (18,129) (24,195)
COST OF FIXED MATURITY SECURITIES HELD TO MATURITY
ACQUIRED........................................... - (301)
COST OF EQUITY SECURITIES ACQUIRED.................. (5,908) (2,082)
OTHER - NET......................................... - (3,000)
PURCHASE OF PROPERTY AND EQUIPMENT.................. (1,438) (187)
------- -------
NET CASH USED BY INVESTING ACTIVITIES........... (15,608) (19,499)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN....................... 1,163 -
PROCEEDS FROM ISSUANCE OF SHARES PURSUANT TO
EMPLOYEE STOCK OPTION PLAN......................... 851 -
NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN................................ (1,163) -
COLLECTION OF NOTES RECEIVABLE...................... 129 -
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 980 -
------- -------

NET DECREASE IN CASH AND CASH EQUIVALENTS............ (1,290) (11,073)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 5,680 16,464
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 4,390 $ 5,391
======= =======
CASH PAID DURING THE PERIOD FOR:

INCOME TAXES $ 1,305 $ 1,369
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

6
<PAGE> 7
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The consolidated financial statements as of and for the six months
ended June 30, 1996 and 1995 are unaudited, but in the opinion
of management, have been prepared on the same basis as the annual
audited consolidated financial statements and reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation of the information set forth therein. The results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of the operating results to be expected for the full year or
any other period. Certain prior year amounts have been reclassified for
comparative purposes.

These financial statements should be read in conjunction with
the financial statements and notes as of and for the year ended December
31, 1995 included in the Company's Annual Report on Form 10-K.

2. Investments

During 1995 implementation guidance for SFAS No. 115 was adopted.
Upon adoption, the appropriateness of the classifications for
all securities held was reassessed. This reassessment resulted in
reclassifying all securities in the Held to Maturity category to the
Available for Sale category. The aggregate market value, amortized cost
and unamortized unrealized loss on these securities was $25,601,000,
$24,690,000, and $243,000, respectively. The reclassification from this
one-time reassessment pursuant to the initial adoption of the
implementation guidance does not call into question the intent to
potentially hold other debt securities to maturity in the future.

3. Earnings Per Share

Earnings per common share has been calculated by dividing net
income for the period by the weighted average number of common shares
and common share equivalents outstanding during the period.

4. Income Taxes

The effective tax rate differs from the 34% marginal tax rate
principally as a result of interest exempt from tax, the dividend
received deduction and other differences in the recognition of revenues
and expenses for tax and financial reporting purposes.

5. Shareholders' Equity

On May 9, 1996 the Company's shareholders approved a non-qualified
Employee Stock Purchase Plan (the "Plan"). The aggregate maximum number
of shares that may be issued pursuant to the Plan is 250,000. Shares
may be purchased under the plan by eligible employees during designated
one-month offering periods established by the Compensation Committee of
the Board of Directors at a purchase price of the lesser of 85% of the
fair market value of the shares on the first business day of the
offering period or the date the shares are purchased. The purchase
price of shares may be paid by the employee over six (6) years pursuant
to the execution of a promissory note. The promissory note will be
collateralized by such shares purchased under the Plan and will be
interest free. Subscription agreements for 80,800 shares were received
by the Company as of June 30, 1996.

7
<PAGE> 8
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

GENERAL

Although the Company's financial performance is dependent upon its own specific
business characteristics, certain risk factors can affect the profitability of
the Company. These include:

- Industry factors - Historically the financial performance of the
commercial property and casualty insurance industry has tended to
fluctuate in cyclical patterns of soft markets followed by hard
markets. In the current environment, insurance industry pricing in
general continues to be soft, however the Company's strategy is to
focus on underwriting profits and accordingly the Company's marketing
organization is being directed into those niche businesses that
exhibit the greatest potential for underwriting profits.

- Competition - The Company competes in the commercial property and
casualty business with other domestic and international insurers
having greater financial and other resources than the Company.

- Regulation - The Company's insurance subsidiaries are subject to a
substantial degree of regulatory oversight, which generally is
designed to protect the interests of policyholders, as opposed to
shareholders.

- Inflation - Commercial property and casualty insurance premiums are
established before the amount of losses and loss adjustment expenses,
or the extent to which inflation may effect such amounts is known.

- Investment Risk - Substantial future increases in interest rates could
result in a decline in the market value of the Company's investment
portfolio and resulting losses and/or reduction in shareholders'
equity.

RESULTS OF OPERATIONS (SIX MONTHS ENDED JUNE 30, 1996 VS JUNE 30, 1995)

Premiums: Gross written premiums grew $12.1 million (26.5%) to
$57.8 million for the six months ended June 30, 1996 from $45.7 million for
the same period of 1995; gross earned premiums grew $8.4 million (18.6%) to
$53.5 million for the six months ended June 30, 1996 from $45.1 million for the
same period of 1995; net written premiums increased $8.5 million (30.1%) to
$36.7 million for the six months ended June 30, 1996 from $28.2 million for the
same period of 1995; and net earned premiums grew $5.6 million (20.4%) to $33.0
million in 1996 from $27.4 million in 1995. The overall growth in premiums and
the varying growth rates for gross written premiums, gross earned premiums, net
written premiums and net earned premiums are attributable to a number of
factors:

- Overall premium growth is primarily attributable to: the recent growth
in the field production underwriting organization enabling the
expansion of the Company's marketing efforts to non-profit
organizations, the health and fitness industry and selected
professional liability products; and continued favorable market
conditions for certain leasing products.

- Overall premium growth has been offset in part by a continued decrease
in premiums from certain rental products due primarily to inadequate
pricing levels which are currently being experienced as a result of
market competition. Consistent with the Company's conservative
underwriting and pricing guidelines the underwriting of these rental
products has been curtailed. The Company does not anticipate an
improvement in these market conditions in the foreseeable future.
Additionally, there have been recent consolidations in the rental
industry the effect of which, if any, are not known at this time.

Net Investment Income: Net investment income approximated $3.7
million for the six months ended June 30, 1996 and $3.1 million for the same
period of 1995. Total investments grew to $146.2 million at June 30, 1996
from $114.5 million at June 30, 1995, primarily due to cash flows provided
from operating activities.

Net Realized Investments Gain: Net realized investment gains were
$95,000 for the six months ended June 30, 1996 compared to $87,000 for the same
period for 1995.

8
<PAGE> 9
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(continued)

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $2.4 million (15.6%) to $17.8 million for the six months
ended June 30, 1996 from $15.4 million for the same period of 1995 and the
Company's statutory loss ratio decreased to 53.8% in 1996 from 56.4% in 1995.
The increase in net loss and loss adjustment expenses was due primarily to the
20.4% growth in net earned premiums. Additionally, since there was relatively
higher net earned premium growth on products with low loss experience, the
percentage increase in net loss and loss adjustment expenses (15.6%) was lower
than the 20.4% net earned premium growth.

Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $2.7 million (32.9 %), to $10.9
million for the six months ended June 30, 1996 from $8.2 million for the same
period of 1995. This increase was due primarily to the 20.4% growth in net
earned premiums and in part due to increased commission expense as a result of
the Company beginning to market its niche underwriting to preferred and program
brokers.

Other Operating Expenses: Other operating expenses decreased $466,000
(34.2%), to $898,000 for the six months ended June 30, 1996 compared to
$1,364,000 for the same period of 1995 principally due to a greater portion of
expenses being attributable to acquisition costs and other underwriting
expenses.

Income Tax Expense: The Company's effective tax rates for the six
months ended June 30, 1996 and 1995 were 21.5% and 20.0%, respectively. The
effective rates differed from the 34% statutory rate principally due to
investments in tax-exempt securities.

RESULTS OF OPERATIONS (THREE MONTHS ENDED JUNE 30, 1996 VS JUNE 30, 1995)

Premiums: Gross written premiums grew $7.2 million (31.2%) to $30.3
million for the three months ended June 30, 1996 from $23.1 million for the
same period of 1995; gross earned premiums grew $4.4 million (18.6%) to $28.1
million for the three months ended June 30, 1996 from $23.7 million for the
same period of 1995; net written premiums increased $5.3 million (38.1%) to
$19.2 million for the three months ended June 30, 1996 from $13.9 million for
the same period of 1995; and net earned premiums grew $3.0 million (21.1%) to
$17.2 million in 1996 from $14.2 million in 1995. The overall changes in
premiums for gross written, gross earned, net written and net earned are
attributable to a number of factors: '

- Overall premium growth is primarily attributable to: the growth in the
field production underwriting organization enabling the expansion of
the Company's marketing efforts to non-profit organizations, the
health and fitness industry and selected professional liability
products; and continued favorable market conditions for certain
leasing products.

Net Investment Income: Net investment income approximated $1.9
million for the three months ended June 30, 1996 and $1.6 million for the same
period of 1995. Total investments grew to $146.2 million at June 30, 1996
from $114.5 million at June 30, 1995, primarily due to cash flows provided
from operating activities.

Net Realized Investments Gain: Net realized investment gains were
$122,000 for the three months ended June 30, 1996 compared to $87,000 for the
same period for 1995.

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $1.1 million (13.8%) to $9.1 million for the three months
ended June 30, 1996 from $8.0 million for the same period of 1995 and the
Company's statutory loss ratio decreased to 52.9% in 1996 from 56.8% in 1995.
The increase in net loss and loss adjustment expenses was due primarily to the
21.1% growth in net earned premiums. Additionally, since there was relatively
higher net earned premium growth on products with low loss experience, the
percentage increase in net loss and loss adjustment expenses (13.8%) was lower
than the 21.1% net earned premium growth.

9
<PAGE> 10
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(continued)

Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $1.6 million (38.1 %), to $5.8
million for the three months ended June 30, 1996 from $4.2 million for the same
period of 1995. This increase was due primarily to the 21.1% growth in net
earned premiums and in part due to increased commission expense as a result of
the Company beginning to market its niche underwriting to preferred and program
brokers.

Other Operating Expenses: Other operating expenses decreased $251,000
(33.5%), to $498,000 for the three months ended June 30, 1996 compared to
$749,000 for the same period of 1995 principally due to a greater portion of
expenses being attributable to acquisition costs and other underwriting
expenses.

Income Tax Expense: The Company's effective tax rates for the three
months ended June 30, 1996 and 1995 were 20.6% and 20.0%, respectively. The
effective rates differed from the 34% statutory rate principally due to
investments in tax-exempt securities.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 1996 the Company's investments
classified as available for sale experienced unrealized investment depreciation
of $.9 million, net of the related deferred tax benefit of $.5 million. The
change in unrealized appreciation is primarily due to changes in market
interest rates during the period. At June 30, 1996, 100% of the Company's
fixed maturity securities consisted of U.S. Government securities or securities
rated "1" or "2" by the NAIC, 95.8% were rated "A-" or better (with no security
rated lower than "BBB-") by Standard & Poor's Corporation.

The Company produced net cash from operations of $13.3 million and
$8.4 million, respectively, for the six months ended June 30, 1996 and 1995.
Management believes that the Company has adequate ability to pay all claims and
meet all other cash needs.

Risk-based capital is designed to measure the acceptable amount of
capital an insurer should have based on the inherent specific risks of each
insurer. Insurers failing to meet this benchmark capital level may be subject
to scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently adopted, the
Company's insurance subsidiaries' capital and surplus is in excess of the
prescribed risk-based capital requirements.

10
<PAGE> 11
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

At the Company's annual meeting of shareholders held on May 9, 1996,
the following members were elected to the Board of Directors:

Paul J. Hertel, Jr.
Roger L. Larson
James J. Maguire
Thomas J. McHugh
Michael J. Morris
Thomas P. Nerney
J. Eustace Wolfington

4,747,717 affirmative votes were received for the election of
Directors.

The following other matters were approved at the Annual Meeting:
<TABLE>
<CAPTION>

Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
Appointment of Coopers & Lybrand L.L.P. as independent
certified public accountants for the year 1996 4,746,364 450 120

Approval of the Employee Stock Purchase Plan 4,692,452 2,220 7,065

Approval of the Cash Bonus Plan 4,646,757 5,370 14,220
</TABLE>

Item 5. Other information.

None

11
<PAGE> 12
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(Continued)

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

Exhibit No. Page No. Description
----------- -------- -----------

10.33 14 Employee Stock Purchase Plan.
10.34 27 Cash Bonus Plan
10.35 34 Executive Deferred Compensation Plan
11.00 52 Computation of Earnings Per Share.
27 Financial Data Schedule

b. The Company has not filed any reports on Form 8-K during the
quarter for which this report is filed.

12
<PAGE> 13
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PHILADELPHIA CONSOLIDATED HOLDING CORP.
------------------------------------------------
Registrant

Date August 12, 1996 /s/ James J. Maguire
--------------- ------------------------------------------------
James J. Maguire
Chairman of the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)

Date August 12, 1996 /s/ Craig P. Keller
---------------- ------------------------------------------------
Craig P. Keller
Vice President, Secretary and
Chief Financial Officer (Principal Financial
and Accounting Officer)

<PAGE> 1

PHILADELPHIA INSURANCE COMPANIES

EMPLOYEE STOCK PURCHASE PLAN

1. Purpose and Shareholder Approval.

(a) The purpose of the Philadelphia Insurance Companies Employee
Stock Purchase Plan (the "Plan") is to assist the Philadelphia Consolidated
Holding Corp., a Pennsylvania corporation (the "Company"), and its
Subsidiaries in retaining the employment of employees by offering them a
greater stake in the Company's success and a closer identity with it, and to
aid in obtaining the services of individuals whose employment would be helpful
to the Company and would contribute to its success. This is to be
accomplished by providing employees a continuing opportunity to purchase Shares
(as hereinafter defined) from the Company through periodic offerings.

(b) The Plan is intended to comply with the provisions of Section
423 of the Code (as hereinafter defined), and the Plan shall be administered,
interpreted and construed accordingly. In addition, the Plan is adopted by
the Company effective September 1, 1995, subject to the approval of the Plan
by the Company's shareholders within twelve (12) months of the date of
adoption in accordance with all applicable provisions of the corporate
charter, bylaws and applicable state law prescribing the method and degree of
shareholder approval required for the issuance of corporate stock or options.
if no such applicable state law exists, the approval must be by vote of a
majority of the votes cast at such meeting provided that a quorum representing
a majority of all outstanding voting stock of the Company is, either in
person or by proxy, present and voting on the approval of the Plan. If the
Plan is not so approved within twelve (12) months of the Plan's adoption,
the Plan shall be null and void, and all funds contributed to the Plan shall be
refunded to the contributing Eligible Employees as soon as practicable.

2. Definitions. For purposes of the Plan:

"Agent" means the person or persons appointed by the Board in
accordance with Section 3(d).

"Board" means the Board of Directors of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the committee described in Section 3.

<PAGE> 2
"Company" means Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation.

"Disability" means a condition such that an Eligible Employee
retires from employment with the Company or its Subsidiaries and qualifies
for disability benefits on account of "total disability" under the applicable
provisions of the Company's long term disability plan then in effect, or, if
no such plan is then in effect, "Disability" means a condition such that an
Eligible Employee is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can
be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months.

"Eligible Employee" means an employee of the Company or Subsidiary who
is described in Section 4.

"Employer" means the Company or Subsidiary for whom an Eligible
Employee is performing services at the time the eligible Employee becomes a
Participant.

"Fair Market Value" on any date means the closing price for Shares
as reported on the NASDAQ National Market, or as reported on such other stock
exchange, wherever the Shares may be listed, on such date as reported in the
Wall Street Journal, or if there is no closing price reported, then Fair
Market Value of a Share shall mean the average between the closing bid and
asked prices for Shares on such date as reported. If there are no sales
reports or bid or asked quotations, as the case may be, for a given date, the
closest preceding date on which there were sales reports or bid or asked
quotations shall be used. If the Committee determines, in its discretion,
that such valuation does not accurately reflect the value of the Shares or if
Shares are not publicly traded, the Fair Market Value of a Share shall be
determined by the Committee.

"Investment Account" means the account established for a Participant
pursuant to Section 8(b) to hold Shares acquired for a Participant pursuant to
the Plan.

"NASDAQ" means the National Association of Security Dealers, Inc.
Automated Quotations System.

"Offering Period" means each one month period designated at the
discretion of the Committee as an Offering Period. The first Offering Period
shall commence on September 1, 1995.

-2-

<PAGE> 3
"Participant" means an Eligible Employee who makes an election to
participate in the Plan in accordance with Section 5 as well as any former
employee to the extent such former employee has any Shares held for his or her
benefit in an Investment Account.

"Plan" means the Philadelphia Insurance Companies Employee Stock
Purchase Plan as set forth in this document, and as may be amended from time
to time.

"Plan Year" means the 12 month period commencing each September 1 and
ending on the subsequent August 31. The first Plan Year shall be the 12 month
period commencing September 1, 1995.

"Purchase Date" means the last business day of each Offering
Period; provided, however, that with respect to any Offering Period
occurring prior to the approval of the Plan by the shareholders of the
Company in accordance with Section 1(b), the "Purchase Date" shall mean the
date occurring after shareholder approval of the Plan on which Shares are
purchased pursuant to Section 8(a).

"Purchase Price" means the lesser of 85% of the Fair Market Value of
a Share on (i) the first business day of the Offering Period or (ii) the
Purchase Date.

"Restricted Period" means the two year period described in Section
6(d).

"Share" or "Shares" means a share or shares of Common Stock, no par
value, of the Company.

"Subscription Agreement" means the agreement, in a form established
by the Committee, between the Participant and the Employer pursuant to which
the Participant agrees to purchase Shares pursuant to the Plan.

"Subsidiary" means any corporation that, at the time in question, is
a subsidiary corporation of the Company, within the meaning of Section 424(f)
of the Code.

-3-

<PAGE> 4
3. Administration of the Plan. The Plan shall be administered by the
Company's compensation committee, or by such other committee as may be
designated by the Board, or by the Board itself, as determined from time to
time at the discretion of the Board. The compensation committee of the
Company or any other committee designated to administer the Plan by the Board,
or the Board in its capacity as administrator of the Plan are all referred to
herein as the "Committee." Subject to the express provisions of the Plan,
the Committee shall have full discretionary authority to interpret the Plan,
to issue rules for administering the Plan, to change, alter, amend or
rescind such rules, and to make all other determinations necessary or
appropriate for the administration of the Plan. All determinations,
interpretations and constructions made by the Committee with respect to the
Plan shall be final and conclusive.

(a) Meetings. The Committee shall hold meetings at such times
and places as it may determine, shall keep minutes of its meetings, and shall
adopt, amend and revoke such rules or procedures as it may deem proper;
provided, however, that it may take action only upon the agreement of a
majority of the whole Committee. Any action which the Committee shall take
through a written instrument signed by a majority of its members shall be as
effective as though it had been taken at a meeting duly called and held. The
Committee shall report all actions taken by it to the Board of Directors.

(b) Exculpation. No member of the Committee shall be personally
liable for monetary damages as such for any action taken or any failure to
take any action in connection with the administration of the Plan unless (i)
the member of the Committee has breached or failed to perform the duties of
his office under Subchapter B of Chapter 17 of the Pennsylvania Business
Corporation Law of 1988, as amended, and (ii) the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness;
provided, however, that the provisions of this Section 3(b) shall not apply
to the responsibility or liability of a member of the Committee pursuant
to any criminal statute or to the liability of a member of the Committee for
the payment of taxes pursuant to local, state or federal law.

(c) Indemnification. Service on the Committee shall
constitute, for purposes of rights to indemnification from the Company,
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled, without further act on his part, to indemnity
from the Company and limitation of liability to the fullest extent provided
by applicable law and by the Company's Articles of Incorporation and/or
bylaws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan

-4-
<PAGE> 5

in which he or she may be involved by reason of his or her being or having
been a member of the Committee, whether or not he or she continues to be such
member of the Committee at the time of the action, suit or proceeding.

(d) Agent. The Committee may engage an Agent to purchase Shares
on each Purchase Date and to perform custodial and recordkeeping functions for
the Plan, such as holding record title to the Participants' Share
certificates, maintaining an individual Investment Account for each such
Participant and providing periodic status reports to such Participants.

(e) Delegation. The Committee shall have full discretionary
authority to delegate ministerial functions to management of the Company.

4. Eligibility. All employees of the Company, and of such of its
Subsidiaries as may be designated for such purpose from time to time by the
Committee, shall be eligible to participate in the Plan as of the first day of
an Offering Period, provided each of such employees:

(a) has been employed by the Company or any of its Subsidiaries
for at least six consecutive months;

(b) is customarily employed for more than 20 hours per week;

(d) does not own stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or a
Subsidiary. In determining stock ownership for purposes of the preceding
sentence, the rules of Section 424(d) of the Code shall apply and stock which
the employee may purchase under outstanding options, including rights to
purchase stock under the Plan, shall be treated as stock owned by the
employee.

For purposes of this Section 4, "employment" shall be interpreted
in accordance with the provisions of Section 1.421-7(h) of the Treasury
Regulations (or any successor regulations).

5. Election to Participate.

(a) Initial Subscription Agreements. Each Eligible Employee may
become a Participant by filing with the

-5-
<PAGE> 6
Committee a Subscription Agreement specifying the number of Shares to be
purchased during an Offering Period.

(b) Subsequent Subscription Agreements. In order to
participate in the Plan for any subsequent Offering Period, an Eligible
Employee must file with the Committee a new Subscription Agreement specifying
the number of Shares to be purchased during such Offering Period.

6. Conditions and Terms of Purchases of Shares.

(a) The number of Shares that are to be purchased under a
Subscription Agreement shall not exceed the statutory limitations set forth
in Section 7.

(b) (i) Except as otherwise provided in the Plan, any
Eligible Employee purchasing Shares under the Plan shall, at the time of such
purchase, sign a note to the order of the Company in such form as the
Committee may approve, for the Purchase Price of such Shares. The terms of
the note shall provide for payment of fifty percent (50%) of the Purchase
Price by means of equal, regular payroll deductions over a period of 36
months (without interest), commencing as of the first day of the month
following the end of the Offering Period, with the remaining fifty percent
(50%) of the Purchase Price due and payable, without interest, as of the end
of such 36 month period; provided however that, in the event the Eligible
Employee terminates his or her employment with the Company or a Subsidiary at
any time prior to the payment in full of the Purchase Price, the entire
remaining amount payable under such note shall become payable in full within 30
days of the date of such termination of employment. In the event such
remaining amount is not paid in full within 30 days of such termination of
employment, the remaining amount payable shall accrue interest at the lesser
of three (3) percentage points over the Prime Rate as quoted in the Money
Rates section of the Wall Street Journal, or the highest rate permitted by
law. Notwithstanding the foregoing, at the end of the 36 month period of
regular payroll deductions, the Company, at its option, may permit the payment
of the remaining balance due under the note over a subsequent 36 month period,
subject to the same terms and conditions as were applicable under the note
to the initial 36 month payment obligation. A Participant may pay the
outstanding balance due under his or her note with respect to the Purchase
Price of Shares under the Plan at any time. In, at any time, an Eligible
Employee's compensation drops below the amount required to make any payments
required under the note, or under any subsequent extension of the note,
through regular payroll deductions (as a result of a leave of absence or any
other reason), such Eligible Employee shall be

-6-
<PAGE> 7
be personally obligated to make the monthly payments required under the note.

(ii) Notwithstanding Section 6(b)(i), no purchase of
Shares on behalf of an Eligible Employee shall be made nor shall any
Eligible Employee sign any note for any Shares subscribed for under the
Plan until after the date on which the Plan is approved by the
shareholders of the Company in accordance with Section 1(b). Regular
payroll deductions will, however, commence as of the first day of the month
following the end of the Offering Period at a rate such that fifty percent
(50%) of the Purchase Price for the Shares to be purchased would be paid
after 36 months of such payroll deductions (determined as though the Purchase
Price were equal to 85% of the Fair Market Value of a Share on the first
business day of the Offering Period). All payroll deductions made prior to
the approval of the Plan by the shareholders of the Company shall be
accumulated in non-interest bearing accounts kept on the Company's books and
records until such date as the purchase of the Shares may be made in
accordance with Section 8(a). The purchase of such Shares shall be made at
the Purchase Price provided the Eligible Employee purchasing such Shares signs
a note for the Purchase Price of such Shares, reduced by the amount
accumulated in the account kept for such Eligible Employee under this Section
6(b)(ii). The terms of the note shall be as set forth above for all other
purchases of Shares, except that the 36 month period shall be reduced by the
number of months that regular payroll deductions have been taken prior to the
date the Shares are purchased. In the event the Plan is not approved by the
shareholders of the Company as required under Section 1(b), all amounts
accumulated in accounts for Eligible Employees under this Section 6(b)(ii)
shall be returned to the contributing Eligible Employees as soon as
practicable. In the event the Eligible Employee does not sign the note
required for the purchase under this Section 6(b)(ii), all funds
accumulated in his or her account shall be returned (without interest), and his
or her Subscription Agreement shall be null and void.

(c) (i) Until such time as the Purchase Price is paid
in full, the Shares purchased under the Plan may not be sold, transferred
or otherwise disposed of and shall be pledged by the Eligible Employee and
held by the Company as collateral securing such payment obligation. In the
event an Eligible Employee fails to comply with the terms for payment of
the Purchase Price set forth in Section 6(b) above, the Company shall have
the right to take that number of Shares as is required to satisfy the
outstanding balance due with respect to the Purchase Price, and the Eligible
Employee shall have no further rights with respect to such Shares.

-7-
<PAGE> 8
(ii) In the alternative, on a termination of employment
by an Eligible Employee who has a remaining balance payable with respect to
any note for Shares purchased under the Plan, the Company shall have the
right to repurchase any Shares that are held in an Investment Account for
such Eligible Employee as follows: The Company shall repurchase Shares which
have not been held beyond the Restricted Period applicable to such Shares,
paying the lesser of Fair Market Value or the Purchase Price of such
Shares. The amount payable by the Company pursuant such repurchase shall be
retained as an offset against amounts owed to the Company under the terms of
Eligible Employee's note. If, after the repurchase of such Shares, any
amounts are still owed to the Company under the terms of such note, the
Company shall have the further right to repurchase at Fair Market Value Shares
which have been held beyond the Restricted Period applicable to such Shares.
The amounts payable by the Company pursuant to such repurchase of additional
Shares shall also be retained by the Company as an offset against the Eligible
Employee's obligations under the note. Once the Eligible Employee's payment
obligation under the note has been satisfied through such set-offs as
described above, certificates for the Shares remaining in such Eligible
Employee's Investment Account, if any, shall be distributed to such Eligible
Employee.

(d) Any Shares purchased pursuant to the Plan shall be restricted
for a period of two years, measured from the first day of the relevant Offering
Period (the "Restricted Period"). Any attempt to sell, transfer, make subject
to any lien, or otherwise dispose of such Shares prior to the end of the
Restricted Period shall be null and void, and the Eligible Employee shall
forfeit all rights to such Shares on receipt of payment from the Company of the
lesser of Fair Market Value or the Purchase Price of such Shares. All
certificates for Shares shall be legended so as to indicate the restrictions on
sales of such Shares under the Plan in the manner and to the extent required by
law.

7. Statutory Limit on Purchase of Shares.

(a) No employee may be granted a right to purchase Shares under
the Plan if immediately following such grant, such employee would have rights
to purchase equity securities under all plans of the Company and Subsidiaries
that are intended to meet the requirements of Section 423 of the Code, that
accrue at a rate which exceeds $25,000 of Fair Market Value (determined at
the time the rights are granted) for each calendar year in which such rights
to purchase Shares are outstanding at any time. For purposes of this Section
7:

-8-
<PAGE> 9
(i) The right to purchase Shares accrues when the
right (or any portion thereof) first becomes exercisable during the calendar
year;

(ii) Subject to the adjustments provided in Section 9,
each Participant accrues the right to purchase up to a number of Shares for
each Offering Period equal to $25,000 divided by the Fair Market Value of
the Shares, determined on the first day of the Offering Period; and

(iii) The limits of this Section 7 shall be interpreted by
the Committee in accordance with applicable rules and regulations issued under
Section 423 of the Code.

(b) No employee may be granted a right to purchase Shares under
the Plan if, immediately following such grant, such employee would own stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or a Subsidiary. In determining stock
ownership for purposes of the preceding sentence, the rules of Section 424(d)
of the Code shall apply and stock which the employee may purchase under
outstanding options, including rights to purchase stock under the Plan,
shall be treated as stock owned by the employee.

8. Method of Purchase and Investment Accounts.

(a) Exercise of Option for Shares. Except as otherwise provided
in the Plan, each Participant having elected to participate in the Plan
pursuant to a properly filed Subscription Agreement consistent with the
provisions of Section 5 shall be deemed, without any further action, to have
exercised on the Purchase Date applicable to such Subscription Agreement, the
option to purchase the number of Shares specified in the Subscription
Agreement consistent with the terms for such purchase set forth in the Plan.
Notwithstanding the foregoing, no purchase of Shares shall be made on behalf of
a Participant until the Plan has been approved by the shareholders of the
Company in accordance with Section 1(b). The purchase of such Shares shall
be made as soon as practicable following such shareholder approval of the Plan
in accordance with the provisions of Section 6(b).

(b) All Shares so purchased shall, until both the Restricted
Period applicable to such Shares has passed and the Participant's payment
obligation for such Shares is satisfied, be held in a separate Investment
Account established for each Participant. All Shares held in such Investment
Accounts shall be security with respect to the Participant's payment
obligation for such Shares under the terms of such Participant's
Subscription Agreement.

-9-
<PAGE> 10
(c) Dividends or Other Distributions on Shares Held in
Investment Accounts. All cash dividends or other distributions paid with
respect to Shares at any time the Participant has an unpaid payment obligation
for such Shares shall be retained by the Company and treated as additional
amounts paid with respect to such payment obligation. Cash dividends or other
distributions paid with respect to Shares after the payment obligation for
such Shares has been satisfied shall be paid to the Participant.

(d) Adjustment of Shares on Application of Aggregate Limits. If
the total number of Shares that would be purchased pursuant to properly
filed Subscription Agreements for a particular Offering Period exceeds the
number of Shares then available for purchase under the Plan, then the number
of available Shares shall be allocated among the Participants filing
Subscription Agreements for such Offering Period pro-rata on the basis of the
number of Shares set forth in each such Subscription Agreement. The payment
obligation for each such Subscription Agreement shall be deemed modified to
take into account the purchase of a number of Shares that is less than the
number specified in the Subscription Agreement.

9. Shares Subject to Plan. The aggregate maximum number of Shares that
may be issued pursuant to the Plan is two hundred fifty thousand (250,000),
subject to adjustment as provided in Section 17 of the Plan. The Shares
delivered pursuant to the Plan may, at the option of the Company, be Shares
purchased specifically for purposes of the Plan, shares otherwise held in
treasury or Shares originally issued by the Company for such purpose.

10. Distribution of Certificates. Each Participant shall receive a
certificate or certificates for those Shares held in an Investment Account
for the benefit of such Participant as soon as practicable following the
end of the Restricted Period applicable to such Shares, provided the payment
obligation with respect to such Shares has been fully satisfied.

11. Registration of Certificates. Each certificate withdrawn by a
Participant may be registered only in the name of the Participant, or, if the
Participant so indicated on the Participant's Subscription Agreement, in
the Participant's name jointly with a member of the Participant's family,
with right of survivorship. A Participant who is a resident of a
jurisdiction which does not recognize such a joint tenancy may have
certificates registered in the Participant's name as tenant in common or
as community property with a member of the Participant's family without
right of survivorship.

-10-
<PAGE> 11
12. Voting. The Agent shall vote all Shares held in an Investment Account
in accordance with the Participant's instructions.

13. Retirement, Death or Other Termination of Employment.

(a) In the event of a Participant's termination on account of
retirement, death or Disability, the Participant, or the Participant's
beneficiary, if one has been designated, or the Participant's estate, as
the case may be, shall be entitled to the Shares held in the
Participant's Investment Account provided the Participant's payment obligation
with respect to such Shares is satisfied. The Restricted Period shall cease
to be applicable to the Shares of a Participant whose termination of
employment is described in this Section 13(a). The Participant, or the
Participant's beneficiary or estate, as the case may be, shall be issued a
certificate or certificates for such Shares as soon as practicable after the
payment obligation is satisfied.

(b) In the event of a Participant's termination of employment for
any reason other than a termination of employment described in Section 13(a),
the Participant shall be entitled to the Shares which have been held beyond
the Restricted Period applicable to such Shares, provided the Participant's
payment obligation with respect to such Shares is satisfied. With respect to
those Shares for which the Restricted Period has not passed, the Company
shall have the right, but not the obligation, to repurchase any such Shares
for the lesser of Fair Market Value or the Purchase Price of such Shares. If
the Company does not so elect to repurchase such Shares, the Participant shall
be entitled to such Shares provided the Participant's payment obligation
with respect to such Shares is satisfied. The Participant shall be
issued a certificate or certificates for any Shares to which the
Participant is entitled as soon as practicable after the payment
obligation is satisfied.

(c) In the event the Participant, or the Participant's
beneficiary or estate, as the case may be, fails to satisfy the remaining
payment obligation with respect to any Shares, such payment obligation shall
be satisfied by the Company by means of the repurchase of Shares held in the
Participant's Investment Account consistent with the provisions for
repurchase of Shares set forth in Section 6(c)(ii) above, provided, however,
that in the case of a repurchase of Shares following the retirement,
death or Disability of a Participant, all such repurchases shall be at Fair
Market Value.

14. Rights Not Transferable. Except as permitted under Section 13, rights
under the Plan are not transferable by a

-11-
<PAGE> 12
Participant and are exercisable during the Participant's lifetime only by the
Participant.

15. No Right to Continued Employment. Neither the Plan nor any right
granted under the Plan shall confer upon any Participant any right to
continuance of employment with the Company or any Subsidiary, or interfere in
any way with the right of the Company or Subsidiary to terminate the
employment of such Participant.

16. Application of Funds. All funds received or held by the Company under
this Plan may be used for any corporate purpose.

17. Adjustments in Case of Changes Affecting Shares. In the event of a
subdivision or split of outstanding Shares, or the payment of a stock
dividend, the Share limit set forth in Section 9 shall be adjusted
proportionately, and such other adjustments shall be made as may be deemed
equitable by the Committee. In the event of any other change affecting Shares
(including any event described in Section 424(a) of the Code), such adjustment,
if any, shall be made as may be deemed equitable by the Committee to give
proper effect to such event, subject to the limitations of Section 424 of the
Code.

18. Amendment of the Plan. The Board of Directors of the Company may at
any time or from time to time, amend the Plan in such manner as it may deem
advisable. Nevertheless, the Board of Directors of the Company may not (i)
increase the maximum number of shares that may be issued pursuant to the Plan
(ii) materially increase the benefits accruing to Participants under the
Plan, or (iii) modify the requirements as to eligibility for participation
in the Plan without obtaining approval, within twelve months before or after
such action, of the shareholders in accordance with all applicable provisions
of the corporate charter, bylaws and applicable State law prescribing the
method and degree of shareholder approval required for the issuance of
corporate stock or options, provided, that if no such applicable State law
exists, the approval must be by vote of a majority of the votes cast at a
duly held meeting of the shareholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person
or by proxy, present and voting on the matter or by a method and in a
degree that would be treated as adequate under applicable State law in the case
of an action requiring shareholder approval.

19. Termination of the Plan. The Plan and all rights of Eligible
Employees under any offering hereunder shall terminate at such time as the
Board of Directors, at its discretion, determines to terminate the Plan. Upon
termination

-12-
<PAGE> 13
of this Plan, any Shares held in Investment Accounts for Participants shall
be carried forward into the Participant's Investment Account under a successor
plan, if any, or, if there is no successor plan, certificates for such
Shares shall be forwarded to the Participant upon satisfaction of all
payment obligations for such Shares.

20. Governmental Regulations.

(a) Anything contained in this Plan to the contrary
notwithstanding, the Company shall not be obligated to sell or deliver any
Shares certificates under this Plan unless and until the Company is
satisfied that such sale or delivery complies with (i) all applicable
requirements of the governing body of the principal market in which such
Shares are traded, (ii) all applicable provisions of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations thereunder and
(iii) all other laws or regulations by which the Company is bound or to which
the Company is subject.

(b) The Company (or a Subsidiary) may make such provisions as it
may deem appropriate for the withholding of any taxes or payment of any taxes
which it determines it may be required to withhold or pay in connection with
any Shares. The obligation of the Company to deliver certificates under this
Plan is conditioned upon the satisfaction of the provisions set forth in the
preceding sentence.

21. Section 16 Restrictions for Officers and Directors. Notwithstanding
any other provision of the Plan, each officer (for purposes of Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
and director of the Company shall be subject to such restrictions as are
required so that transactions under the Plan by such officer or director shall
be exempt from Section 16(b) of the Exchange Act.

22. Repurchase of Shares. The Company shall not be required to
repurchase from any Participant any Shares which such Participant acquires
under the Plan.

-13-

<PAGE> 1
EXHIBIT B

PHILADELPHIA INSURANCE COMPANIES

CASH BONUS PLAN

1. PURPOSE

The purpose of the Plan as established by the Committee and adopted by
the Board of Directors, subject to shareholder approval, is to provide
performance-based cash bonus compensation for James J. Maguire in accordance
with a formula that is based on the financial success of the Philadelphia
Consolidated Holding Corp., a Pennsylvania corporation, and its wholly owned
subsidiaries, as part of an integrated compensation program which is intended
to assist the Company (as hereinafter defined) in motivating and retaining
employees of superior ability, industry and loyalty,

2. DEFINITIONS

The following words and phrases as used herein shall have the
following meanings, unless a different meaning is plainly required by the
context:

"Board of Directors" shall mean the Board of Directors of the Company.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Committee" shall mean the committee appointed by the Board of
Directors consisting of two or more Outside Directors to act as the Committee
with respect to the Plan.

"Company" shall mean the Philadelphia Consolidated Holding Corp., a
Pennsylvania corporation, any wholly owned subsidiary thereof, and any
successor thereto.

"Designated Beneficiary" shall mean the person, if any, specified in
writing by the Participant to receive any payments due to the Participant in
the event of the Participant's death. In the event no person is specified by
the Participant, the Participant's estate shall be deemed to be the Designated
Beneficiary.

"Earned Percentage" shall mean the percentage determined by reference
to the schedule established for each Plan Year by the Committee.

"Outside Director" shall mean a member of the Board of Directors who
is treated as an "outside director" for purposes of Code Section 162(m).

"Participant" shall mean James J. Maguire.
<PAGE> 2
"Plan" shall mean the Philadelphia Insurance Companies Cash Bonus
Plan.

"Plan Year" shall mean the calendar year, The first Plan Year shall be
the 1996 calendar year.

3. PARTICIPATION

James J. Maguire is the sole participant in the Plan.

4. TERM OF PLAN

Subject to approval of the Plan by the shareholders of the Company,
the Plan shall be in effect as of January 1, 1996, and shall continue until
terminated by the Board of Directors.

5. BONUS ENTITLEMENT

The Participant shall be entitled to receive a bonus in accordance
with the provisions of Section 6 of the Plan only after certification by the
Committee that the performance goals set forth in Section 6 have been
satisfied. The bonus payment with respect to a Plan Year shall be payable to
the Participant in the next Plan Year on or before January 15 of such Plan
Year, unless the Participant elects to defer all or a part of such payment
under the terms of any non-qualified deferred compensation plan of the Company
in accordance with the provisions of such Ian. Notwithstanding anything to the
contrary contained herein, no bonus shall be payable under the Plan without the
prior disclosure of the terms of the Plan to the shareholders of the Company
and the approval of the Plan by such shareholders.

6. AMOUNT OF PERFORMANCE-BASED Compensation BONUS

(a) Determination of Amount Where Participant is Employed
by the Company as of the Last Day of the Plan Year. If the Participant is
employed on the last day of a Plan Year, the Participant or his Designated
Beneficiary shall be entitled to a bonus with respect to such Plan Year that
is equal to the "Earned Percentage,' of five hundred thousand dollars
($500,000). The Earned Percentage is the percentage derived from the schedule
attached hereto (the "Earned Percentage Schedule") which specifies a percentage
between 0% and 100% on the basis of the Company's earnings per share of its
common stock (determined without regard to capital gains and losses) as
determined by the Company's accountants. An Earned Percentage Schedule shall
be established in writing with respect to each Plan Year by the Committee no
later than 90 days after the beginning of the Plan Year, provided that the
achievement of the levels of earnings per share specified in such schedule is
substantially uncertain at the time the Earned Percentage Schedule is actually
established. In the event no Earned Percentage Schedule is established for a
Plan Year, the Earned Percentage Schedule for the prior Plan Year, increased by
15%, shall be treated as the Earned Percentage Schedule for the current Plan
Year.

2
<PAGE> 3
(b) Determination of Amount Where Participant is Not
Employed by the Company as of the Last Day of the Plan Year. If the Participant
is not employed on the last day of a Plan Year, the Participant or his
Designated Beneficiary shall be entitled to a bonus with respect to such Plan
Year that is equal to the amount determined under Section 6(a) above multiplied
by a fraction, the numerator of which is the number of days from the beginning
of the Plan Year through the date of the Participant's termination of
employment, and the denominator of which is the number of days in the Plan
Year.

7. COMMITTEE

(a) Powers. The Committee shall have the power and duty
to do all things necessary or convenient to effect the intent and purposes of
the Plan and not inconsistent with any of the provisions hereof, whether or not
such powers and duties are specifically set forth herein, and, by way of
amplification and not limitation of the foregoing, the Committee shall have the
power to:

(i) provide rules and regulations for the
management, operation and administration of the Plan, and, from time to time,
to amend or supplement such rules and regulations;

(ii) construe the Plan, which construction, as
long as made in good faith, shall be final and conclusive upon all parties
hereto; and

(iii) correct any defect, supply any omission, or
reconcile any inconsistency in the Plan in such manner and to such extent as it
shall deem expedient to carry the same into effect, and it shall be the sole
and final judge of when such action shall be appropriate.

The resolution of any questions with respect to payments and entitlements
pursuant to the provisions of the Plan shall be determined by the Committee,
and all such determinations shall be final and conclusive.

(b) Indemnity. No member of the Committee shall be
directly or indirectly responsible or under any liability by reason of any
action or default by him as a member of the Committee, or the exercise of or
failure to exercise any power or discretion as such member. No member of the
Committee shall be liable in any way for the acts or defaults of any other
member of the Committee, or any of its advisors, agents or representatives.
The Company shall indemnify and save harmless each member of the Committee
against any and all expenses and liabilities arising out of his own membership
on the Committee.

(c) Compensation and Expenses. Members of the Committee
shall receive no separate compensation for services other than compensation for
their services as members of the Board of Directors, which compensation can
include compensation for services at any committee meeting attended in their
capacity as members of the Board of Directors.

3
<PAGE> 4
Members of the Committee shall be entitled to receive their reasonable expenses
incurred in administering the Plan. Any such expenses, as well as
extraordinary expenses authorized by the Company, shall be paid by the Company.

(d) Participant Information. The Company shall furnish
to the Committee in writing all information the Company deems appropriate for
the Committee to exercise its powers and duties in administration of the Plan.
Such information shall be conclusive for all purposes of the Plan and the
Committee shall be entitled to rely thereon without any investigation thereof;
provided, however, that the Committee may correct any errors discovered in any
such information.

(e) Inspection of Documents. The Committee shall make
available to each Participant and his Designated Beneficiary, for examination
at the principal office of the Company (or at such other location as may be
determined by the Committee), a copy of the Plan and such of its records, or
copies thereof, as may pertain to any benefits of such Participant and
beneficiary under the Plan.

8. EFFECTIVE DATE, TERMINATION AND AMENDMENT

(a) Effective Date of Participation in Plan. Subject to
shareholder and Committee approval of the Plan, participation in this Plan
shall be effective as of January 1, 1996 and shall continue thereafter until
the Plan is terminated.

(b) Amendment and Termination of the Plan. The Plan may
be terminated or revoked by the Company at any time and amended by the Company
from time to time, provided that neither the termination, revocation or
amendment of the Plan may, without the written approval of the Participant,
reduce the amount of a bonus payment that is due, but has not yet been paid,
and provided further that no changes that would increase the amount of bonuses
determined under the formula contained in Section 6(a) of the Plan shall be
effective without approval by the Committee and without disclosure to and
approval by the shareholders of the Company in a separate vote prior to payment
of such bonuses. In addition, the Plan may be modified or amended by the
Committee, as it deems appropriate, in order to comply with any rules,
regulations or other guidance promulgated by the Internal Revenue Service with
respect to applicable provisions of the Code, as they relate to the exemption
for "performance-based compensation" under the limitations on the deductibility
of compensation imposed under Code Section 162(m).

9. MISCELLANEOUS PROVISIONS

(a) Unsecured Creditor Status. A Participant entitled
to a bonus payment hereunder, shall rely solely upon the unsecured promise of
the Company, as set forth herein, for the payment thereof, and nothing herein
contained shall be construed to give to or vest in a Participant or any other
person now or at any time in the future, any right, title, interest, or claim
in or to any specific asset, fund, reserve, account, insurance or annuity
policy or

4
<PAGE> 5
contract, or other property of any kind whatever owned by the Company, or in
which the Company may have any right, title, or interest, now or at any time in
the future.

(b) Other Company Plans. It is agreed and understood
that any benefits under this Plan are in addition to any and all benefits to
which a Participant may otherwise be entitled under any other contract,
arrangement or voluntary pension, profit sharing or other compensation plan of
the Company, whether funded or unfunded, and that this Plan shall not affect or
impair the rights or obligations of the Company or a Participant under any
other such contract, arrangement, or voluntary pension, profit sharing or other
compensation plan.

(c) Separability. If any term or condition of the Plan
shall be invalid or unenforceable to any extent or in any application, then the
remainder of the Plan, with the exception of such invalid or unenforceable
provision, shall not be affected thereby, and shall continue in effect and
application to its fullest extent.

(d) Continued Employment. Neither the establishment of
the Plan, any provisions of the Plan, nor any action of the Committee shall be
held or construed to confer upon any Participant the right to a continuation of
employment by the Company. The Company reserves the right to dismiss any
employee (including a Participant), or otherwise deal with any employee
(including a Participant) to the same extent as though the Plan had not been
adopted.

(e) Incapacity. If the Committee determines that a
Participant or Beneficiary is unable to care for his affairs because of illness
or accident, or is a minor, any benefit due such Participant or Beneficiary
under the Plan may be paid to his spouse, child, parent, or any other person
deemed by the Committee to have incurred expense for such Participant or
Beneficiary (including a duly appointed guardian, committee, or other legal
representative), and any such payment shall be a complete discharge of the
Company's obligation hereunder.

(f) Jurisdiction. The Plan shall be construed,
administered, and enforced according to the laws of the Commonwealth of
Pennsylvania, except to the extent that such laws are preempted by the Federal
laws of the United States of America.

(g) Claims. If, pursuant to the provisions of the Plan,
the Committee denies the claim of a Participant for benefits under the Plan,
the Committee shall provide written notice, within 60 days after receipt of the
claim, setting forth in a manner calculated to be understood by the claimant:

(i) the specific reasons for such denial;

(ii) the specific reference to the Plan provisions
on which the denial is based;

(iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why such
material or information is needed; and

5
<PAGE> 6
(iv) an explanation of the Plan's claim review
procedure and the time limitations of this subsection applicable thereto.

A Participant whose claim for benefits has been denied may request review by
the Committee of the denied claim by notifying the Committee in writing within
60 days after receipt of the notification of claim denial. As part of said
review procedure, the claimant or his authorized representative may review
pertinent documents and submit issues and comments to the Committee in writing.
The Committee shall render its decision to the claimant in writing in a manner
calculated to be understood by the claimant not later than 60 days after
receipt of the request for review, unless special circumstances require an
extension of time, in which case decision shall be rendered as soon after the
sixty-day period as possible, but not later than 120 days after receipt of the
request for review. The decision on review shall state the specific reasons
therefor and the specific Plan references on which it is based.

(h) Withholding. The Participant or the Designated
Beneficiary shall make appropriate arrangements with the Company for
satisfaction of any federal, state or local income tax withholding requirements
and Social Security or other tax requirements applicable to the accrual or
payment of benefits under the Plan. If no other arrangements are made, the
Company may provide, at its discretion, for any withholding and tax payments as
may be required.

(i) Interpretation. The Plan is intended to pay
compensation only on the attainment of the performance goals set forth above in
a manner that will exempt such compensation from the limitations on the
deduction of certain compensation payments under Code Section 162(m). To the
extent that any provision of the Plan would cause a conflict with the
conditions required for such an exemption or would cause the administration of
the Plan to fail to satisfy the applicable requirements for the
performance-based compensation exemption under Code Section 162(m), such
provision shall be deemed null and void to the extent permitted by applicable
law.

6
<PAGE> 7
1996 EARNED PERCENTAGE SCHEDULE

<TABLE>
<CAPTION>
Earnings per Share Earned Percentage
------------------ -----------------
<S> <C>
$1.70 or above 100%
1.65-1.69 90%
1.61-1.64 80%
1.56-1.60 70%
1.50-1.55 40%
under 1.50 0%
</TABLE>

<PAGE> 1
EXHIBIT A

PHILADELPHIA INSURANCE COMPANIES

EXECUTIVE DEFERRED COMPENSATION PLAN
(Effective April 1, 1996)

1. PURPOSE

The purpose of the Plan is to provide for supplemental
retirement and related benefits for a select group of management and highly
compensated employees of Philadelphia Consolidated Holding Corp, or any of its
wholly owned subsidiaries (collectively, the "Company") as part of an
integrated compensation program which is intended to assist the Company in
attracting, motivating and retaining employees of superior ability, industry
and loyalty.

2. DEFINITIONS

The following words and phrases as used herein shall have the
following meanings, unless a different meaning is plainly required by the
context:

"Board of Directors" shall mean the Board of Directors of the
Company.

"Change of Control" shall have the meaning set forth in
Section 11 of the Plan.

"Committee" shall mean the Board of Directors of the Company
or such person or persons as the Board of Directors of the Company shall from
time to time designate to act as the Committee with respect to the Plan.

1
<PAGE> 2
"Company" shall mean Philadelphia Consolidated Holding Corp.,
a Pennsylvania Corporation, any of its wholly owned subsidiaries and any
successors thereto.

"Compensation" shall mean the Participant's base salary and
bonus from the Company, and shall exclude all other types of compensation,
including, but not limited to severance pay and contributions to the Company's
tax qualified retirement plans.

"Default" shall mean a material breach by the Company under
any of its material loan agreements.

"Designated Beneficiary" shall mean the beneficiary designated
by a Participant to receive any benefits payable under the Plan upon his or her
death. In the absence of a beneficiary designation, the Participant's
"Designated Beneficiary" shall be his or her spouse and if none, his or her
estate.

"Gain or Loss Adjustment" shall mean the adjustment to such
Participant's Plan Deferral Account in accordance with the provisions of
Section 7.

"Participant" shall mean those employees of the Company who
are eligible to participate in the Plan in accordance with Section 3 and who
elect to defer income by executing a Participation Agreement.

"Participation Agreement" shall mean a written agreement
executed by an employee eligible to participate in the Plan specifying the
amount of income to be deferred in accordance with the provisions of the Plan.

"Permissible Investments" are those investment options made
available for investment choices by Participants. Under the rules established
by the Committee, a limited number of investment options may be made available
for Participant investment choices;

2
<PAGE> 3
provided, however, that the Committee shall, at a minimum, make available at
least four different investment options, each of which must be a mutual fund
(i.e., an open end management investment company as defined in the Investment
Company Act of 1940).

"Plan" shall mean the Philadelphia Insurance Companies
Executive Deferred Compensation Plan.

"Plan Deferral Account" shall mean the amount credited for the
benefit of a Participant under Section 7 on the basis of income deferred in
accordance with such Participant's Participation Agreement adjusted by such
Participant's Gain or Loss Adjustment with respect to such Participant's Plan
Deferral Account.

"Plan Year" shall mean the calendar year, except that the
first Plan Yearshall be the period from April I through December 31, 1996.

"Rabbi Trust" shall mean a grantor trust in which assets may
be segregated for use by the Company to pay liabilities to a participant in the
Plan; provided, however, that any such trust shall be established and
maintained in a manner that is consistent with the treatment of its assets as
assets of the Company for federal income tax purposes and that such assets
shall be held in the trust subject to the claims of the Company's creditors in
the event of Company's bankruptcy or insolvency.

"Valuation Date" shall mean the last day of each Plan Year or,
with respect to a specific Participant, the date of a payment under the Plan of
the amount of such Participant's Plan Deferral Account

3
<PAGE> 4
3. PARTICIPATION

The employees of the Company who are eligible to participate
in the Plan shall be those management and highly compensated executives
designated by the Board of Directors as eligible. Any employee so designated
who executes a Participation Agreement shall be a Participant in the Plan. The
Participation Agreement for each Participant shall specify the amount, stated
as a percentage or dollar amount, of a Participant's Compensation to be
deferred from the subsequent Plan Year and whether or not the Participant
elects to receive payment of his benefits under the Plan in the event there is
a Change of Control. Each employee who is eligible to participate in the Plan
may elect to defer all or a portion of (i) the bonus or bonuses which may be
paid to such Participant after the election and (ii) the Compensation otherwise
payable to the Participant as salary to the extent such Compensation has not
yet become payable as of the date of such election. A Participant shall be
permitted to defer any portion of his or her Compensation (salary and/or bonus)
from the Company, stated as either a percentage or specified dollar amount, or
by means of such other formula as the Committee may approve. Except as
otherwise provided in this Plan or in the Participant's Participation
Agreement, a Participant's election to defer Compensation shall remain in
effect from one Plan Year to the next, unless otherwise changed by the
Participant.

4. TERM OF PLAN

The Plan shall be in effect as of April 1, 1996, and shall
continue until all obligations of the Company pursuant to the Plan have been
paid, unless sooner terminated at the discretion of the Company.

4
<PAGE> 5
5. VESTING

A Participant's interest in his or her Plan Deferral Account
shall be fully vested at all times.

6. BENEFIT ENTITLEMENT

(a) Benefits. Except as otherwise provided herein, a
Participant's benefit under the Plan shall be the amount of such Participant's
Plan Deferral Account.

(b) Payment of Benefits. Except as otherwise provided
under the Plan, the benefit of a Participant shall be paid to the Participant
or the Participant's Designated Beneficiary in a lump sum on the earlier of
such Participant's termination of employment with the Company (for any reason),
termination of the Plan, or such time as the Participant specifies in the
Participant's Participation Agreement.

(c) Early Payment of Benefits. In the event that a
Participant elects to receive benefits under the Plan at any time prior to the
time payment of benefits would be made under Section 6(b) of the Plan, the
Participant shall file such election with the Committee and shall, as soon as
practicable after receipt of such election by the Committee, be paid ninety
percent (90%) of such Participant's Plan Deferral Account, and such Participant
shall not thereafter be entitled to any further benefits under the Plan and
shall cease to be a participant thereunder. Notwithstanding the foregoing, in
the event there is a Change of Control of the Company, any Participant who
elected in his or her Participation Agreement to receive a payment of Ms
benefit under the Plan on the occurrence of a Change of Control shall receive
the full amount of his Plan Deferral Account as of the date of a Change of
Control within thirty (30)

5
<PAGE> 6
days of such Change of Control. Notwithstanding the foregoing, in the event a
Default occurs, the Participant shall receive the full amount of his Plan
Deferral Account as of the date of the Default within thirty (30) days of such
Default.

(d) Hardship. A Participant may petition the Board of
Directors of the Company for a distribution of all or a portion of his Plan
Deferral Account (without reduction as set forth in Section 6(c) above) on
account of an unforeseeable emergency. If the Board of Directors of the
Company determines that there is such an unforeseeable emergency, and that
there are insufficient resources available from other sources to pay the
expenses associated with such unforeseeable emergency, the Participant shall
receive a payment in an amount not to exceed the lesser of the Participant's
Plan Deferral Account or the amount required to meet the financial needs
arising from the unforeseeable emergency (increased to take into account any
tax liability on such benefit payment and decreased to take into account
amounts available from other sources, including reimbursement through insurance
or otherwise, the liquidation of other assets of the Participant to the extent
such liquidation does not cause severe financial hardship, or by cessation of
deferrals under the Plan). For purposes of this Section 6(d), an unforeseeable
emergency is any severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or a dependent of
the Participant, loss of property of the Participant due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.

(e) Compensation in Excess of Section 162(m) Limitations.
Notwithstanding anything to the contrary contained herein, in the event a
Participant is a "covered employee" as that term is used for purposes of Code
Section 162(m), payment of

6
<PAGE> 7
benefits under the Plan shall not be made to such a Participant to the extent
that the amount paid is subject to the limitations on deductibility under such
Code Section or is reasonably likely to cause other payments to such
Participant to be subject to such limitations on deductibility. In the event a
payment is not made by reason of this Section 6(e), the payment will be made as
soon as the payment can be made without the causing the limitations on
deductibility under Code Section 162(m) to be applicable. For purposes of this
6(e), a payment is subject to Code Section 162(m) to the extent that it exceeds
the limits on deductible compensation payments and is not otherwise exempt from
the application of that Code Section (e.g., on account of the exception for
performance-based compensation).

7. PLAN DEFERRAL ACCOUNTS AND GAIN OR LOSS ADJUSTMENT

(a) Deferred Compensation. Each person who is eligible
to participate in the Plan and who executes a Participation Agreement shall be
a Participant and shall have a Plan Deferral Account which shall be credited
with the amount of such Participant's Compensation that is deferred under such
Participation Agreement, subject to adjustment for gain or loss as set forth
below.

(b) Gain or Loss Adjustment. Each Participant's Plan
Deferral Account shall be adjusted at the end of each Plan Year (or on the date
of distribution) (either such date being referred to herein as the "Valuation
Date") to take into account the Gain or Loss Adjustment for such period
applicable to such account. For purposes of the Plan, the Gain or

7
<PAGE> 8
Loss Adjustment applicable to a Participant's Plan Deferral Account shall be
determined as follows:

(i) Each Participant shall be permitted to
specify an investment or investments from among Permissible Investments which
shall be the basis for determining the Gain or Loss Adjustment applicable to
such Participant's Plan Deferral Account in accordance with such rules as may
be established by the Committee. The Participant shall be permitted to change
such specifications at such times as the Committee may specify in its rules;
provided, however, that the Participant shall be permitted to make such changes
at least once each calendar quarter.

(ii) On each Valuation Date, each Participant's
Plan Deferral Account shall be adjusted to reflect the gain or loss that would
have been recognized if an amount equal to the Participant's Plan Deferral
Account balance as of the prior Valuation Date, along with any additional
amounts added to the Participant's Plan Deferral Account on account of amounts
deferred under the Participant's Participation Agreement in effect during the
period prior to the Valuation Date (but subsequent to any prior Valuation
Date), had been invested in accordance with the investment specifications of
the Participant. For purposes of the determination of the Gain or Loss
Adjustment, such adjustment shall be calculated by taking into account any
brokerage fees or other transactional costs that would have been incurred in
actually carrying out the investment specifications of the Participant, whether
or not such costs were actually incurred by the Company.

(iii) For purposes of calculating the Gain or Loss
Adjustment applicable to a Participant's Plan Deferral Account, the balance in
such Plan Deferral Account at

8
<PAGE> 9
the beginning of the Plan Year shall be treated as having been invested for the
full Plan Year or until the Participant is paid a benefit equal to his or her
Plan Deferral Account balance in accordance with the provisions of the Plan, if
sooner, while the amounts deferred under the Participant's Participation
Agreement shall be treated as having been invested as of the date the amount of
the Participant's deferred Compensation would otherwise have been payable to
the Participant in the absence of a Participation Agreement.

(iv) Notwithstanding anything to the contrary
contained herein, including those provisions giving a Participant the right of
designating investments from among Permissible Investments for the purposes of
determining the benefit paid under the Plan, the Company reserves the right to
invest its assets, including any assets that may have been set aside for the
purpose of funding the benefits to be provided under the Plan, at its own
discretion, and such assets shall remain the property of the Company, subject
to the claims of its general creditors, and no Participant shall have any right
to any portion of such assets other than as an unsecured general creditor of
the Company.

(c) Performance-Based Compensation Bonuses. In the event
any amounts deferred under the Plan are attributable to performance-based
compensation bonuses payable under a plan of the Company that would be exempt
from the limitations imposed on the deductibility of certain compensation
payments by Section 162(m) of the Code, such deferred amounts shall be subject
to the terms of the Plan but shall be accounted for separately from other
deferred compensation.

9
<PAGE> 10
8. FUNDING OF LIABILITIES

The Plan is intended to be an unfunded, non-qualified plan maintained
by the Company for the purpose of providing deferred compensation for a select
group of management and highly compensated employees. However, benefits under
the Plan may be provided through a "rabbi trust." A contribution to such
trust in any year shall not create any obligation of the Company to make
contributions to such trust thereafter. The Plan shall be administered and
construed so as to effectuate this intent. Any liability of the Company to any
person with respect to benefits payable under the Plan shall be based solely
upon such contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Company. No
such liability shall be deemed to be secured by any pledge or any other
encumbrance on any specified property of the Company. To the extent any
benefits payable under the Plan are paid through a "rabbi trust," the Company's
contractual obligations, if any, shall be reduced accordingly.

9. COMMITTEE

(a) Quorum. A majority of the members of the Committee
shall constitute a quorum for any meeting held with respect to the Plan, and
the acts of a majority of the members present at any meeting at which a quorum
is present, or the acts unanimously approved in writing by all members of the
Committee, shall be valid acts of the Committee. No member of the Committee
may act or vote with respect to a decision of the Committee specifically
relating to his or her benefits, if any, under the Plan. The Committee may be
made up of a single individual at the discretion of the Company.

10
<PAGE> 11
(b) Powers. The Committee shall have the power and duty
to do all things necessary or convenient to effect the intent and purposes of
the Plan and not inconsistent with any of the provisions hereof, whether or not
such powers and duties are specifically set forth herein, and, by way of
amplification and not limitation of the foregoing, the Committee shall have the
power to:

(i) provide rules and regulations for the
management, operation and administration of the Plan, and, from time to time,
to amend of supplement such rules and regulations;

(ii) construe the Plan, which construction, as
long as made in good faith, shall be final and conclusive upon all parties
hereto; and

The acts and determinations of the Committee, including determinations with
respect to claims of a Participant or Designated Beneficiary made in accordance
with Section 12(h) hereof, shall be final and conclusive.

(c) Indemnity. No member of the Committee shall be
directly or indirectly responsible or under any liability by reason of any
action or default by him as a member of the Committee, or the exercise of or
failure to exercise any power or discretion as such member. No member of the
Committee shall be liable in any way for the acts or defaults of any other
member of the Committee, or any of its advisors, agents or representatives.
The

11
<PAGE> 12
Company shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of his own membership on the
Committee.

(d) Compensation and Expenses. Members of the Committee
who are employees of the Company shall receive no compensation for their
services rendered as members of the Committee. Any other members of the
Committee who are not employees of the Company shall receive such reasonable
compensation for their services as may be authorized from time to time by the
Company and, except as otherwise provided by this section, members of the
Committee shall be entitled to receive their reasonable expenses incurred in
administering the Plan. Any such compensation and expenses, as well as
extraordinary expenses authorized by the Company, shall be paid by the Company.

(e) Participant Information. The Company shall furnish
to the Committee in writing all information the Company deems appropriate for
the Committee to exercise its powers and duties in administration of the Plan.
Such information may include, but shall not be limited to, the names of all
Participants, the date each became a Participant, his or her Compensation and
date of birth, employment, termination of employment, retirement or death. Such
information shall be conclusive for all purposes of the Plan and the Committee
shall be entitled to rely thereon without any investigation thereof, provided,
however, that the Committee may correct any errors discovered in any such
information.

(f) Inspection of Documents. The Committee shall make
available to each Participant and his Designated Beneficiary, for examination
at the principal office of the Company (or at such other location as may be
determined by the Committee), a copy of the Plan

12
<PAGE> 13
and such of its records, or copies thereof, as may pertain to any benefits of
such Participant and beneficiary under the Plan.

10. EFFECTIVE DATE, TERMINATION AND AMENDMENT

(a) Effective Date of Participation in Plan.
Participants already participating in the Plan shall continue to participate
under the terms of their current Participation Agreements. For all other
Participants, participation shall commence as of the first day of the month
coincident with or following receipt by the Committee of the executed
Participation Agreement evidencing the Participant's participation, A
Participation Agreement shall continue in effect until such time as the
Participation Agreement is revoked, deferrals are terminated in accordance with
the terms of the Plan, or the Plan is terminated.

(b) Amendment and Termination of the Plan or
Participation Agreement. This Plan or the Participation Agreement of a
Participant may be terminated or revoked by the Company at any time and amended
by the Company from time to time, provided that neither the termination,
revocation or amendment of the Plan or a Participation Agreement may, without
the written approval of the Participant, reduce the Plan Deferral Account or
benefit payable to a Participant calculated as of the time of such termination
or amendment.

11. CHANGE OF CONTROL

For purposes of the Plan, a Change of Control shall be deemed
to have occurred upon the earliest to occur of the following events (i) the
date the shareholders of the Company (or the Board of Directors, if shareholder
action is not required) approve a plan or

13
<PAGE> 14
other arrangement pursuant to which the Company will be dissolved or
liquidated, or (ii) the date the shareholders of the Company (or the Board of
Directors, if shareholder action is not required) approve a definitive
agreement to sell or otherwise dispose of substantially all of the assets of
the Company, or (iii) the date the shareholders of the Company (or the Board of
Directors, if shareholder action is not required) and the shareholders of the
other constituent corporation (or its board of directors if shareholder action
is not required) have approved a definitive agreement to merge or consolidate
the Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the
Company's Common stock immediately prior to the merger or consolidation will
have at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and, if applicable, voting securities) is to be held in the same
proportion as such holders' ownership of Common stock of the Company
immediately before the merger or consolidation, or (iv) the date any entity,
person or "group" (as that term is used in Regulation 13D-G under the
Securities Exchange Act of 1934, as amended) (other than James J. Maguire or
any person who is his spouse, lineal ascendant or descendant or spouse of such
lineal ascendants or descendants, or any trust for the benefit of any such
persons) acquires voting control over 50% or more of the outstanding shares of
the Company's common stock.

12. MISCELLANEOUS PROVISIONS

14
<PAGE> 15
(a) Anti-alienation. No benefit payable under the Plan
shall be subject to any manner of anticipation, alienation, sale, transfer,
assignment, pledge, attachment or encumbrance except by the Company; and any
attempt to anticipate, alienate, sell, transfer, assign, pledge, attach or
encumber such benefit, except by the Company, shall be void.

(b) Unsecured Creditor Status. Any Participant who may
have or claim any interest in or tight to any compensation, payment, or benefit
payable hereunder, shall rely solely upon the unsecured promise of the Company,
as set forth herein, for the payment thereof, and nothing herein contained
shall be construed to give to or vest in a Participant or any other person now
or at any time in the future, any right, title, interest, or claim in or to any
specific asset, fund, reserve, account, insurance or annuity policy or
contract, or other property of any kind whatever owned by the Company, or in
which the Company may have any right, title, or interest, nor or at any time in
the future. Any insurance policy or other assets acquired by the Company to
fund, in whole or in part, the Company's liabilities under the Plan shall not
be deemed to be held as security for the performance of the obligations of the
Company hereunder but shall be, and remain, a general asset of the Company
subject to the claims of its creditors.

(c) Other Company Plans. It is agreed and understood
that any benefits under this Plan are in addition to any and all employee
benefits to which a Participant may otherwise be entitled under any other
contract, arrangement, or voluntary pension, profit sharing or other
compensation plan of the Company, whether funded or unfunded, and that this
Plan shall not affect or impair the rights or obligations of the Company or a
Participant under any other such contract, arrangement, or voluntary pension,
profit sharing or other compensation plan.

15
<PAGE> 16
(d) Separability. If any term or condition of the Plan
shall be invalid or unenforceable to any extent or in any application, then the
remainder of the Plan, with the exception of such invalid or unenforceable
provision, shall not be affected thereby, and shall continue in effect and
application to its fullest extent.

(e) Continued Employment. Neither the establishment of
the Plan, any provisions of the Plan, nor any action of the Committee shall be
held or construed to confer upon any Participant the right to a continuation of
employment by the Company. The Company reserves the right to dismiss any
employee (including a Participant), or otherwise deal with any employee
(including a Participant) to the same extent as though the Plan had not been
adopted.

(f) Incapacity. If the Committee determines that a
Participant,or Beneficiary is unable to care for his affairs because of illness
or accident, or is a minor, any benefit due such Participant or Beneficiary
under the Plan may be paid to his spouse, child, parent, or any other person
deemed by the Committee to have incurred expense for such Participant or
Beneficiary (including a duly appointed guardian, committee, or other legal
representative), and any such payment shall be a complete discharge of the
Company's obligation hereunder.

(g) Jurisdiction. The Plan shall be construed,
administered, and enforced according to the laws of the Commonwealth of
Pennsylvania, except to the extent that such laws are preempted by the Federal
laws of the United States of America.

(h) Claims. If, pursuant to the provisions of the Plan,
the Committee denies the claim of a Participant or Designated Beneficiary for
benefits under the Plan, the

16
<PAGE> 17
Committee shall provide written notice, within 60 days after receipt of the
claim, setting forth in a manner calculated to be understood by the claimant:

(i) the specific reasons for such denial;

(ii) the specific reference to the Plan
provisions on which the denial is based;

(iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why such
material or information is needed, and

(iv) an explanation of the Plan's claim review
procedure and the time limitations of this subsection applicable thereto.

A Participant or Designated Beneficiary whose claim for
benefits has been denied may request review by the Committee of the denied
claim by notifying the Committee in writing within 60 days after receipt of the
notification of claim denial. As part of said review procedure, the claimant
or his authorized representative may review pertinent documents and submit
issues and comments to the Committee in writing, The Committee shall render its
decision to the claimant in writing in a manner calculated to be understood by
the claimant not later than 60 days after receipt of the request for review,
unless special circumstances require an extension of time, in which case a
decision shall be rendered as soon after the sixty-day period as possible, but
not later than 120 days after receipt of the request for review. The decision
on review shall state the specific reasons therefor and the specific Plan
references on which it is based.

17
<PAGE> 18
(i) Withholding. The Participant or the Designated
Beneficiary shall make appropriate arrangements with the Company for
satisfaction of any federal, state or local income tax withholding requirements
and Social Security or other tax requirements applicable to the accrual or
payment of benefits under the Plan. If no other arrangements are made, the
Company may provide, at its discretion, for any withholding and tax payments as
may be required.

IN WITNESS WHEREOF, Philadelphia Insurance Companies has caused this
Plan to be adopted as of April 1, 1996.

Philadelphia Consolidated Holding Corp.

By: /s/ CRAIG P. KELLER
--------------------------------
Craig P. Keller, Secretary

<PAGE> 1

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars and Share Data in Thousands, except Per Share Data)
(Unaudited)

<TABLE>
<CAPTION>
As of and for the As of and for the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding 5,877 5,814 5,846 5,814

Weighted Average Stock Options Outstanding 1,818 1,602 1,849 1,597
Assumed Shares Repurchased (621) (666) (631) (682)
----- ------ ------ -------

Weighted Average Shares and Share
Equivalents Outstanding 7,074 6,750 7,064 6,729
===== ====== ====== =======

Net Income $3,057 $2,412 $5,772 $ 4,558
====== ====== ====== =======

Net Income per Share $ 0.43 $ 0.36 $ 0.82 $ 0.68
====== ====== ====== =======
</TABLE>

<ARTICLE> 7

<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 128,276
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 17,909
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 146,185
<CASH> 4,390
<RECOVER-REINSURE> 1,027
<DEFERRED-ACQUISITION> 6,610
<TOTAL-ASSETS> 191,362
<POLICY-LOSSES> 85,596
<UNEARNED-PREMIUMS> 22,435
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 41,071
<OTHER-SE> 33,101
<TOTAL-LIABILITY-AND-EQUITY> 191,362
33,007
<INVESTMENT-INCOME> 3,731
<INVESTMENT-GAINS> 95
<OTHER-INCOME> 124
<BENEFITS> 17,763
<UNDERWRITING-AMORTIZATION> 10,943
<UNDERWRITING-OTHER> 898
<INCOME-PRETAX> 7,353
<INCOME-TAX> 1,581
<INCOME-CONTINUING> 5,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,772
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
<RESERVE-OPEN> 68,246<F1>
<PROVISION-CURRENT> 17,763
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 2,464
<PAYMENTS-PRIOR> 8,469
<RESERVE-CLOSE> 75,076<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES DIFFER FROM THE AMOUNTS REPORTED IN
THE CONSOLIDATED FINANCIAL STATEMENTS BECAUSE OF THE INCLUSION HEREIN OF
REINSURANCE RECEIVABLES OF $10,519 AND $9,440 AT JUNE 30, 1996 AND DECEMBER 31,
1995.
</FN>

</TABLE>