A.M. Best Downgrades Ratings of Penn Treaty American Corporation; Removes From Under Review.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to B- (Fair) from B (Fair) and the issuer credit ratings (ICR) to "bb-" from "bb" of Penn Treaty American Corporation's (Penn Treaty) (Allentown, PA) (NYSE:PTA) insurance subsidiaries. Penn Treaty's insurance subsidiaries include Penn Treaty Network America Insurance Company (Allentown, PA), American Network Insurance Company (Allentown, PA) and American Independent Network Insurance Company of New York (New York, NY). Concurrently, A.M. Best has downgraded the ICR to "ccc" from "b-" of Penn Treaty. All ratings have been removed from under review with negative implications and assigned a negative outlook.

These rating actions follow A.M. Best's review of Penn Treaty's unaudited 2006 GAAP financials. The filing confirms A.M. Best's ongoing concerns that the company's "old co" block (business written prior to 2002) continues to perform poorly. An unexpected $25 million pre-tax charge related to claim reserve strengthening was reported in the filing. The actual results were below A.M. Best's expectations. While Penn Treaty is making some progress in gaining approval for much needed rate increases on the "old co" business, the speed of which this is occurring and the fact that in a number of states Penn Treaty is not receiving the amount it has requested is delaying the rehabilitation of the problematic "old co" block. The company continues to state publicly it intends to recapture this business when it is in a financial position to do so. Furthermore, Penn Treaty continues to be reliant on one single reinsurer for financial support.

Also of concern are the ongoing delays in filing its audited GAAP financials, which have continued well beyond A.M. Best's expectations. This is the primary reason for the negative outlook. Given that it will likely take until sometime in March before Penn Treaty will be able to file its audited 2006 GAAP financials, its 2007 GAAP financials will be delayed for an undetermined period of time. GAAP financials are important in assessing the organization's overall financial condition, especially since Penn Treaty's statutory and GAAP financials reflect a different financial position based on the organization's sizeable long-term care exposure and reinsurance activities. Penn Treaty's problematic block of long-term care business, written prior to 2002 (the "old co" block) and currently reinsured by an unaffiliated carrier, is only fully reflected in its GAAP financials.

A.M. Best believes that the long delays in filing its GAAP financial statements have inhibited Penn Treaty's ability to write business in a number of states and has caused it to run at a higher than optimal expense level as it attempts to become current in its GAAP filings. Additionally, in June 2007, Florida, a key state for the organization, announced the suspension of new sales in that state for Penn Treaty for at least one year. While the company has appealed this ruling, efforts to overturn or reduce the suspension have not been successful to date.

If there are any unanticipated negative events, material charges or write-downs as Penn Treaty works to become current on its Securities and Exchange Commission filings, an additional downgrade could occur. Even if no unexpected items are found during this period, A.M. Best will not give consideration to an outlook change until Penn Treaty files audited GAAP financials on time.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.