A.M. Best Downgrades Issuer Credit Ratings of Penn Treaty American Corporation; Places Ratings Under Review.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the issuer credit ratings (ICR) to "bb" from "bb+" of the insurance subsidiaries of Penn Treaty American Corporation (Penn Treaty) (NYSE:PTA) (Allentown, PA). Penn Treaty's insurance subsidiaries include Penn Treaty Network America Insurance Company, American Network Insurance Company and American Independent Network Insurance Company of New York (New York, NY).

A.M. Best has also downgraded Penn Treaty's ICR to "b-"from "b". All ratings, including the insurance subsidiaries' financial strength rating of B (Fair), have been placed under review with negative implications. All companies are domiciled in Allentown, PA, except where specified.

These rating actions are the result of the repeated delays of the release of Penn Treaty's year-end 2005 GAAP (Generally Accepted Accounting Principals) financial statements. The company continues to await the conclusion of the audit process. A delay was first announced in March 2006. Given the length of the delay and the uncertainties associated with it, A.M. Best is increasingly concerned about what the audit may reveal. In 2005, Penn Treaty changed auditors.

In April 2006, Penn Treaty announced it would have to increase its 2005 year-end GAAP claim reserves by approximately $30 million, pre-tax, as a result of an actuarial review conducted on its claim reserve assumptions on the company's "old" block of business (written prior to December 31, 2001, which is currently reinsured by Imagine International Reinsurance, Ltd.). The charge has no statutory impact.

A.M. Best has reviewed the year-end 2005 and first quarter 2006 statutory filings of the organization, and while the Penn Treaty insurance subsidiaries continue to maintain an adequate level of risk-based capitalization, they continue to report statutory losses.

The ratings will remain under review pending A.M. Best's review of the audited year-end 2005 financials. Should the audit reveal unexpected findings that would significantly impact the organization's capitalization level, another rating downgrade will occur. A.M. Best may also elect to review Penn Treaty's first and second quarter GAAP results, which should be released fairly quickly after the year-end numbers are made public, before removing the group from the under review status.

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