A.M. Best Upgrades Penn Treaty American Corporation's Subsidiaries; Assigns Issuer Credit Ratings

Business Wire, Dec 19, 2005

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating (FSR) to B (Fair) from B- (Fair) and assigned issuer credit ratings (ICR) of "bb " to the subsidiaries of Penn Treaty American Corporation (Penn Treaty) (NYSE: PTA). Penn Treaty is comprised of: Penn Treaty Network America Insurance Company, American Network Insurance Company and American Independent Network Insurance Company of New York (Elmira, NY). Additionally, A.M. Best has assigned an ICR of "b" to Penn Treaty. All companies are located in Allentown, PA, except where noted. All ratings have a stable outlook.

The upgrade reflects Penn Treaty's commutation of Centre Solution's reinsurance treaty and entering into new reinsurance programs with Imagine International (Imagine). In May 2005, Penn Treaty exited its reinsurance treaty with Centre Solutions, which most notably eliminated the substantial commutation and income statement risk associated with the Centre notional experience account. The initial Imagine treaty reinsured all long-term care inforce as of December 31, 2001, on a 100% quota share basis, and more recently, Imagine entered into a treaty reinsuring all policies issued after October 1, 2005, on a 75% quota share basis. A.M. Best believes reinsurance for Penn Treaty's new business is a key component in maintaining appropriate surplus levels at its insurance entities to support future premium growth. In addition, during November 2005, the company converted all of its remaining 6.25% notes, due 2008, into common stock. Consequently, the organization has no long-term debt. Being debt free and having a new, stronger reinsurance partner gives Penn Treaty improved financial flexibility.

Even with these positive developments, A.M. Best believes there are still challenges ahead for it to again become a significant writer in the long-term care market. Penn Treaty will need to grow its statutory surplus level considerably through the statutory profits of its reinsurance business or other means in order to safely commute the Imagine agreement on its old block of business in a few years, as it has planned. Nearly all of its business activity continues to be tied to the less predictable long-term care market, which is subject to considerable regulatory and consumer pressures. Additionally, while Penn Treaty is producing GAAP (Generally Accepted Accounting Principles) operating earnings, the company has had difficulty producing statutory profits historically.

An ICR of "b" has been assigned with a stable outlook to Penn Treaty American Corporation.

The FSR has been upgraded to B (Fair) from B- (Fair) and an ICR of "bb " has been assigned to the following subsidiaries of Penn Treaty American Corporation:

--Penn Treaty Network America Insurance Company

--American Network Insurance Company

--American Independent Network Insurance Company of New York

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.> 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.