A.M. Best Upgrades Ratings for Penn Treaty Companies.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Feb. 19, 2002

A.M. Best Co. has upgraded the financial strength ratings to B- (Fair) from C (Weak) for the subsidiaries of Penn Treaty American Corporation (NYSE:PTA), Allentown, Pennsylvania, and removed the ratings from under review.

The affected companies are Penn Treaty Network America Insurance Company, American Network Insurance Company and American Independent Network Insurance Company of New York.

This action follows the announcement that Penn Treaty entered into a significant reinsurance agreement (100% quota share) with Centre Solutions (Bermuda) Limited, a subsidiary of the Zurich Insurance Group, and as such, substantially all of Penn Treaty's inforce long-term care risks were removed from the organization. Thus, the organization's risk-adjusted capital position greatly improved. At the same time, Penn Treaty has been given approval to resume writing new business in 23 states. Going forward, Penn Treaty is working towards a second reinsurance agreement where Centre would reinsure up to 50% of all new long-term care business written by the group. Statutory strain -- which has also been a problem for the company for many years -- would be reduced under such a new coinsurance agreement with Centre. Furthermore, as part of the initial reinsurance agreement, Centre was granted warrants for Penn Treaty convertible preferred stock at various price levels over the next six years, which if fully converted, would represent up to 15% of Penn Treaty common stock.

Even with this positive development, A.M. Best believes Penn Treaty still has many challenges ahead of it to again become a significant writer in the long-term care market. Over the past year, Penn Treaty has gone through well-publicized difficulties regarding its capitalization and reserve levels. Moreover, the organization will have to re-establish itself in the market, having voluntarily ceased new business production last year while it worked on improving its financial position. While Penn Treaty has added numerous additional long-term care products and services to its portfolio giving it some diversification, still nearly all of its future business activity will be tied to the less predictable long-term care market, which is subject to increasing regulatory and consumeristic pressures. In addition, the parent has a $75 million principal payment due on its outstanding debt at the end of 2003, which it is currently looking to refinance. Even if an additional coinsurance agreement were entered into with Centre, at some point Penn Treaty would likely need to raise additional outside capital to support future anticipated new business growth.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.