The action alleges that, during this time period, PMA represented that it had established adequate loss reserves to pay or settle losses arising from insurance claims made by PMA policy holders, and that any estimated claims were revised according to the availability of new information. Allegedly, the defendants painted this portrait of success to create favorable conditions for PMA to complete two offerings of convertible senior debentures and monthly income senior notes during the time period, valued at $75 million and $50 million, respectively. In addition, the defendants allegedly sought to obtain positive ratings from insurance industry rating agencies which would enable the company to underwrite insurance policies and negotiate reinsurance treaties, worth millions of dollars in premiums, to purchasers who relied on such ratings as a measurement of PMA's capital structure.

Unbeknownst to class members, however, PMA's seeming success was the product, allegedly, of the defendants' failure to properly account for the company's liabilities and expenses arising from insurance claims reported by policy holders for which PMA failed to establish adequate reserves. As a result, during this time period, the defendants allegedly understated PMA's liabilities and expenses, thereby artificially inflating PMA's reported results.

On November 4, 2003, before the market opened, PMA disclosed, in a press release and a concurrent SEC filing on Form 8-K, that it would record a pre-tax charge of $150 million primarily to compensate for inadequate loss reserves maintained by its subsidiary, PMA Re. The defendants stated that an internal review of the company's reserves revealed that the material charge "relates to higher than expected underwriting losses in PMA Re's reinsurance operations, primarily from casualty business written in accident years 1997 to 2000."

As a result of this charge, PMA suspended its common stock dividend and has engaged Banc of America Securities LLC to explore "strategic alternatives." On the same day, PMA announced that it was in discussions with Pennsylvania Insurance Department over the company's insurance operations. Immediately following this announcement, the price of PMA common stock plummeted $8.11, or 61.7 percent, from its previous day's trading, to close at $5.03 per share. On November 6, PMA revealed that the write-down would effectively force the company to withdraw from the reinsurance business, and that defendant John W. Smithson had resigned as President and Chief Executive Officer of PMA.