Edgar Filing: PENN TREATY AMERICAN CORP

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

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/ / Soliciting Material Pursuant to Section 240.14a-12

Penn Treaty American Corporation
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 23, 2003

TO THE SHAREHOLDERS OF PENN TREATY AMERICAN CORPORATION

The Annual Meeting of Shareholders of PENN TREATY AMERICAN CORPORATION will be
held at Brookside Country Club, 901 Willow Lane, Macungie, Pennsylvania on
Friday, May 23, 2003, at 9:00 a.m. to consider and vote upon the following
proposals:

1. to elect three persons to Penn Treaty's Board of Directors as Class I
Directors to serve until the 2006 Annual Meeting of Shareholders and
until their successors are elected and have been qualified;

2. to ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants for Penn Treaty and its subsidiaries for the year
ending December 31, 2003; and

3. to transact other business that properly comes before the Annual
Meeting, or any adjournments or postponements.

Only those holders of our common stock of record at the close of business on
April 7, 2003 shall be entitled to notice of, and to vote at, the Annual
Meeting.

EACH SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE ANNUAL MEETING,
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED SELF-ADDRESSED ENVELOPE. ANY PROXY GIVEN BY A SHAREHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE SECRETARY OF PENN
TREATY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. ANY
SHAREHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL MEETING.

By Order of the Board of Directors,

/s/ SANDRA A. KOTSCH
---------------------------------
Sandra A. Kotsch, Secretary

Allentown, Pennsylvania
April 30, 2003

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2003

INTRODUCTORY STATEMENT
----------------------

Penn Treaty American Corporation is a Pennsylvania corporation with its
principal executive offices located at 3440 Lehigh Street, Allentown,
Pennsylvania 18103, telephone number (610) 965-2222. This Proxy Statement is
being furnished to our shareholders in connection with the solicitation by our
Board of Directors of proxies to be voted at the Annual Meeting of Shareholders
of Penn Treaty to be held on May 23, 2003, at Brookside Country Club, 901 Willow
Lane, Macungie, Pennsylvania at 9:00 a.m., or at any adjournment or
postponement.

This Proxy Statement and the accompanying proxy card are first being
mailed to our shareholders on or about April 30, 2003. A copy of the Annual
Report on Form 10-K, which includes financial statements for the fiscal year
ended December 31, 2002, which are hereby incorporated by reference herein, is
enclosed with this Proxy Statement.

For your information, our subsidiaries are Senior Financial Consultants
Company (the "Agency"), Penn Treaty Network America Insurance Company ("PTNA"),
American Network Insurance Company ("ANIC"), American Independent Network
Insurance Company of New York ("AINIC"), United Insurance Group Agency, Inc.
("UIG") and Network Insurance Senior Health Division, Inc. ("NISHD").

ABOUT THE ANNUAL MEETING
------------------------

WHAT IS THE PURPOSE OF THE ANNUAL MEETING?

At the Annual Meeting, shareholders will act upon the following
matters: the election of three directors of Penn Treaty, each to serve for a
three-year term expiring at the annual meeting of shareholders in 2006; the
ratification of our selection of PricewaterhouseCoopers LLP as the independent
public accountants for Penn Treaty and its subsidiaries for the year ending
December 31, 2003; and any other business that may properly be brought before
the Annual Meeting.

WHO IS ENTITLED TO VOTE?

Only shareholders of record on the record date, which was the close of
business on Monday, April 7, 2003, will be entitled

to receive notice of, and to vote at, the Annual Meeting and any adjournments or
postponements. Each share of common stock is entitled to one vote.

HOW DO I VOTE?

If you complete and properly sign the accompanying proxy card and
return it to us, it will be voted as you direct. If you are a registered
shareholder and attend the Annual Meeting, you may deliver your completed proxy
card in person or vote in person at the Annual Meeting.

WHAT CONSTITUTES A QUORUM?

The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the shares of common stock outstanding on the record
date will constitute a quorum, permitting business to be conducted at the Annual
Meeting. As of the record date, 19,907,737 shares of common stock were issued
and outstanding, held by 435 shareholders of record.

HOW DOES DISCRETIONARY VOTING AUTHORITY APPLY?

If you sign and return your proxy card, but do not make any selections,
you give discretionary authority to the persons named as proxy holders on the
proxy card, Jack D. Baum, Michael F. Grill, and Matthew W. Kaplan to vote on the
proposals and any other matters that may arise at the Annual Meeting.

WHAT ARE THE BOARD'S RECOMMENDATIONS?

Unless you give other instructions on your proxy card, the proxy
holders will vote in accordance with the recommendations of the Board of
Directors. The Board recommends a vote:

o FOR election of the three nominees for director of Penn Treaty,
William W. Hunt, Jr., Irving Levit and Domenic P. Stangherlin; and

o FOR the ratification of our selection of PricewaterhouseCoopers LLP as
the independent public accountants for Penn Treaty and its
subsidiaries for the year ending December 31, 2003.

With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the

Board or, if no recommendation is given, in their own discretion.

WHAT VOTE IS REQUIRED TO ELECT THE DIRECTORS?

The three nominees for Director receiving the highest number of votes
cast by shareholders entitled to vote for Directors (there being no cumulative
voting) will be elected to serve on the Board. Abstentions and broker non-votes
will be included in the calculation of a quorum but will have no effect on the
result of the vote.

WHAT VOTE IS REQUIRED TO RATIFY THE SELECTION OF THE INDEPENDENT PUBLIC
ACCOUNTANTS?

A majority of the votes cast is required to ratify the selection of the
independent public accountants. Abstentions and broker non-votes will be
included in the calculation of a quorum but will have no effect on the result of
the vote. If the shareholders do not ratify the selection of the independent
public accountants, the Board of Directors may, but is not required to,
reconsider the appointment.

CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?

Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised by filing with the Secretary of Penn
Treaty either a notice of revocation or a duly executed proxy bearing a date
later than the date on the proxy you submitted. The powers of the proxy holders
to vote your proxy will be suspended if you attend the Annual Meeting in person
and request to change your vote or vote in person, although attendance at the
Annual Meeting will not by itself revoke a previously granted proxy.

WHO BEARS THE COST OF SOLICITATION OF PROXIES?

We bear the cost of preparing, printing, assembling and mailing this
proxy statement and other material furnished to shareholders in connection with
the solicitation of proxies for the Annual Meeting. We have retained the
services of Georgeson Shareholder at a cost of approximately $5,500 to perform
proxy solicitation activities on our behalf.

WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE YEAR 2004 ANNUAL MEETING?

To be included in next year's proxy statement, shareholder proposals
must be submitted in writing by December 31, 2003 to: Secretary, Penn Treaty
American Corporation, 3440 Lehigh Street, Allentown, PA 18103. Shareholder
proposals submitted after December 31, 2003 will not be included in the proxy
statement but may be raised at the 2004 annual meeting. However, the persons
named in the proxy card for the 2004 annual meeting will be allowed to use their
discretionary voting authority with respect to shareholder proposals submitted
after March 16, 2004 when the proposal is raised at the 2004 annual meeting,
without any discussion of the matter in the proxy statement for that meeting.

PROPOSAL I - ELECTION OF DIRECTORS
----------------------------------

Our Board of Directors currently has nine members and is divided into
three classes, each comprised of three Directors who serve for terms of three
years and until their successors have been elected and qualified. The Board has
nominated William W. Hunt, Jr., Irving Levit and Domenic P. Stangherlin to be
elected as Class I Directors of Penn Treaty, to hold office until the 2006
annual meeting and until their successors have been elected and qualified. A. J.
Carden is not standing for re-election as a Director of Penn Treaty. The
nominees have each consented to serve if elected to the Board. If for any reason
any of the nominees becomes unable or is unwilling to serve at the time of the
Annual Meeting, the proxy holders, unless you instruct them otherwise, will vote
for a substitute nominee or nominees in their discretion. We do not anticipate
that any nominee will be unavailable for election.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
ABOVE NOMINEES FOR A FIXED TERM OF THREE YEARS.

The following table and paragraphs set forth information about the current
nominees and the other persons who will continue to serve as Directors of Penn
Treaty. The information has been furnished to Penn Treaty by each person
nominated as a Director and each person whose term of office as a Director will
continue after the Annual Meeting.

DIRECTOR
NAME AGE POSITION(S) WITH PENN TREATY SINCE
---- --- ---------------------------- -----

CLASS I: NOMINEES TO BE ELECTED FOR TERMS EXPIRING IN 2006:

William W. Hunt, Jr. 43 President, Current Nominee
Chief Operating Officer,
and Director Nominee

Irving Levit 73 Founder, Chairman of the Board of 1971
Directors, and Chief
Executive Officer

Domenic P. Stangherlin 76 Director 1971

CLASS II: DIRECTORS CONTINUING FOR TERMS EXPIRING IN 2004:

Jack D. Baum 69 Vice President of Agency Management 1987
and Director

Alexander M. Clark 69 Director 1999

Matthew W. Kaplan 44 Director 2001

CLASS III: DIRECTORS CONTINUING FOR TERMS EXPIRING IN 2005:

Francis R. Grebe 71 Director 1999

Michael F. Grill 53 Treasurer, Comptroller and 1986
Director

Gary E. Hindes 52 Director 2002

---------------

WILLIAM W. HUNT, JR. has served as President and Chief Operating Officer of
Penn Treaty and its insurance company subsidiaries since May 2002. From 2001 to
May 2002, Mr. Hunt served as Senior Vice President of Penn Treaty and its
insurance company subsidiaries. From 1999 to 2000, Mr. Hunt served as Vice
President and Chief Financial Officer of the Individual Life Insurance Unit of
Prudential Insurance Company of America ("Prudential"). He was responsible for
financial management, planning and analysis functions for Prudential's
Individual Life

Insurance profit center and its third party distribution channel. From 1997 to
1999, Mr. Hunt served as Vice President of Corporate Planning and Development
for Provident Mutual Life Insurance Company ("Provident"), where he was
responsible for the development and management of the strategic planning process
and for providing leadership in the facilitation of major corporate development
projects. Provident, which was reorganized into Nationwide Financial Services,
Inc. (NYSE:NFS) during 2002, is a multi-billion dollar diversified financial
services organization that develops and distributes fixed and variable life
insurance and annuity products, pension products and mutual funds. Prior to
joining Provident, Mr. Hunt served in financial management roles at Advanta
Corporation, Covenant Life Insurance Company and Reliance Insurance Companies.
Mr. Hunt, a Certified Public Accountant, began his career as an auditor with
Touche Ross & Co. Mr. Hunt has over 15 years experience in the insurance
business.

IRVING LEVIT has served as Chairman of the Board of Directors and Chief
Executive Officer of Penn Treaty since 1972. Mr. Levit also served as President
of Penn Treaty from 1972 to May 2002, and of PTNA, ANIC and AINIC from December
2000 to May 2002. Mr. Levit has served as the Chairman of the Board of Directors
and Chief Executive Officer of PTNA since 1989, ANIC since 1996 and of AINIC
since its inception in 1997, and as the Chairman of the Board of Directors,
President and Chief Executive Officer of the Agency since 1988. Mr. Levit also
serves as Chairman of the Board, President and Chief Executive Officer of NISHD,
and Chairman of the Board of UIG. In addition, Mr. Levit has been the sole owner
of the Irv Levit Insurance Management Corporation ("IMC"), an insurance agency,
since 1961. Mr. Levit has over 40 years experience in the insurance business.

DOMENIC P. STANGHERLIN has served as Director of Penn Treaty since 1971, of
the Agency since 1988, of PTNA since 1989, and of ANIC since 1996. Mr.
Stangherlin also served as Secretary of Penn Treaty from 1971 to 1999, of the
Agency from 1988 to 2000, of PTNA from 1989 to 2000, of ANIC from 1996 to 2000,
and of AINIC from 1997 to 2000. Mr. Stangherlin is the owner and manager of the
Line Tool Company, a manufacturer of micropositioners, located in Allentown,
Pennsylvania.

JACK D. BAUM has served as a Vice President of Penn Treaty since 1985, of
the Agency since 1988, of PTNA since 1989, of ANIC since 1996 and of AINIC since
its inception in 1997. Prior to joining Penn Treaty, Mr. Baum served as Vice
President of

Marketing for National Security General Insurance Company in
Lancaster, Pennsylvania from 1983 to 1985 and as a Director of Group Sales and
Marketing for Educators Mutual Life Insurance in Lancaster, Pennsylvania from
1976 to 1983. Mr. Baum has over 25 years experience in the insurance business.

ALEXANDER M. CLARK has served as Director of Penn Treaty since 1999 and of
AINIC since its inception in 1997. Mr. Clark is a Managing Director of Advest,
Inc., a position he has held since 1993. He previously served as Senior Vice
President at Gramercy Partners and McKinley Allsopp, both of New York; as
President of John Alden Life Insurance Company of New York; and as Associate
Director of Research of Dean Witter & Co. Mr. Clark is a graduate of Dartmouth
College and Harvard Business School, where he earned a M.B.A., and he pursued
further studies at Brown University. Mr. Clark has earned the Chartered
Financial Analyst designation. Mr. Clark has also served as a Director of
Pennsylvania National Insurance Group since 1989, of Great American Life
Insurance Company of New York, a subsidiary of Great American Financial
Resources, Inc., since 2001, and of Unity Financial Life Insurance Company, an
affiliate of Unity Mutual Life Insurance Company, since 2002.

MATTHEW W. KAPLAN has served as Director of Penn Treaty and AINIC since
2001. He is currently Managing Director of Oakbridge Capital Partners LLC and
Chairman of Actis Assurance Segregated Portfolio Company ("Actis Assurance
SPC"). Mr. Kaplan has served as Chairman & Chief Executive Officer of Crown
Reinsurance Company (Cayman) Limited since 1999 and as a Principal of Northstar
Consulting since 2001. Mr. Kaplan also served as Vice President of Bench
International LLC during 2001, and as President, Chief Executive Officer and
Director of U.S. Care, Inc. ("U.S. Care") from 1996 to 2000. From 1995 to 1996,
Mr. Kaplan served as Chief Marketing Officer for U.S. Care. Prior to joining
U.S. Care, he served as General Manager and Vice Chairman of the North Melbourne
Giants Basketball Pty. Ltd. and as Consultant, Strategic Planning and Evaluation
for the World Health Organization, Regional Office for Europe and for the
Commission for the European Communities. Mr. Kaplan is a member of the board of
directors of Actis Assurance SPC (Chairman), Northstar TeleFilm, Inc.
(Chairman), the American Manufacturers Warranty Association, Cancervive
(Founding Director) and a member of the Board of Trustees for the UCLA Center on
Aging. Formerly, he served as a director of Healant, Inc., U.S. Care, Inc., the
National Basketball League Pty. Ltd. and NBL Properties Limited.

FRANCIS R. GREBE has served as a Director of Penn Treaty since 1999. Mr.
Grebe is a partner at the investment counseling firm of Davidson Investment
Counselors, formerly James M. Davidson and Company. He has held this position
since 1988. Mr. Grebe has also served as an Administrative Officer of Davidson
Trust Company, formerly The Main Line Trust Company, a private fiduciary, since
1996. Mr. Grebe has over 40 years experience with leading financial institutions
in the trust and investment area, including Girard Trust Bank, Philadelphia
National Bank and U.S. Trust Company of Florida. Mr. Grebe currently serves as a
Director of the Athenaeum of Philadelphia and as a Trustee of The Guthrie
Healthcare System. He is also a Director and former President of Family Services
of Montgomery County, Pennsylvania and currently serves on The Board of Surrey
Services for Seniors. He also serves as Trustee of the Meshewa Farm Foundation
and The Sylvan Foundation. Mr. Grebe is a Phi Beta Kappa graduate of the
University of Rochester and the University of Michigan Law School, and is
admitted to practice law in Michigan, Illinois and New York.

MICHAEL F. GRILL has served as Treasurer and Comptroller of Penn Treaty
since 1981, of the Agency since 1988, of PTNA since 1989, of ANIC since 1996 and
of AINIC since its inception in 1997. Mr. Grill became a Director of the Agency
in 1988, of PTNA in 1989, of ANIC in 1996, of AINIC in 1997 and of NISHD in
2000. Prior to joining Penn Treaty, Mr. Grill served as Chief Accountant for
World Life and Health Insurance Company located in King of Prussia, Pennsylvania
from 1973 to 1981. Mr. Grill has over 25 years experience in the insurance
business.

GARY E. HINDES has served as Managing Director of Deltec Asset Management,
LLC, a professional investment management firm located in New York City, since
2000. From 1996 to 2000, Mr. Hindes was a principal of PMG Capital, Inc., a
Philadelphia investment banking and brokerage concern. From 1986 to 1996, Mr.
Hindes served as Chief Executive Officer of the Delaware Bay Company, Inc. Mr.
Hindes has formerly served on the board of directors of Lancer Industries and
Intranet Corporation. Mr. Hindes has also served as the Chairman of the Board of
Trustees of Wilmington Head Start, Inc. since 1982 and served by presidential
appointment from 1993 to 2001 for the John F. Kennedy Center for the Performing
Arts. Mr. Hindes is currently a member of the Investment Oversight Committee of
the United States Holocaust Memorial Museum and is a commissioner of the
Wilmington Housing Authority.

MANAGEMENT CHANGES

On April 28, 2003, the Board of Directors approved certain changes in
the management of the Company to implement the succession plan announced last
year. Effective on the date of the Annual Meeting, Mr. Levit, our Founder,
Chairman of the Board of Directors and Chief Executive Officer, will step down
as Chairman of the Board of Directors and Chief Executive Officer but, subject
to his election by shareholders at the Annual Meeting, will continue as a member
of the Board of Directors and will assume the new position of Founding Chairman.
Mr. Hindes will become the Chairman of the Board and Mr. Hunt will become Chief
Executive Officer. In addition, Mr. Levit and Penn Treaty have entered into a
consulting agreement pursuant to which Mr. Levit will continue to provide
certain services to Penn Treaty for a period of up to two years after the date
of the Annual Meeting. Mr. Levit's consulting agreement is described in more
detail under "Change in Control, Employment and Consulting Agreements."

GENERAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------------------------------------

HOW OFTEN DID THE BOARD MEET DURING 2002?

During 2002, the Board of Directors held fourteen meetings. Each
Director attended at least 75% of the meetings of the Board and the Committees
of the Board on which he served. The average attendance of directors at Board
and Committee meetings held during 2002 was 96%.

WHAT COMMITTEES HAS THE BOARD ESTABLISHED?

To assist in the discharge of its responsibilities, the Board of Directors
has three committees - the Audit Committee, the Compensation Committee and the
Executive Committee. The Audit Committee and the Compensation Committee are
composed entirely of non-employee directors. The total combined attendance for
all Committee meetings was 100%. The Board of Directors does not have a
nominating committee.

AUDIT COMMITTEE. The members of the Audit Committee are non-employees of
Penn Treaty, and the Board of Directors has determined that each of its Audit
Committee members are independent of management under the currently applicable
standards of the New York Stock Exchange. The members of the Audit Committee are
Mr. Clark, Mr. Grebe, Mr. Hindes, Mr. Kaplan and Mr. Stangherlin.

The principal functions of the Audit Committee are to assist the Board of
Directors in the oversight of executive management's responsibilities related to
Penn Treaty's internal control process. In connection with this function, the
Audit Committee reviews various policies and practices of management related to
Penn Treaty's responsibilities to its investors, customers, employees and the
general public.

Mr. Stangherlin previously served as the Secretary to Penn Treaty and its
subsidiaries from 1971 to 2000. The Board of Directors has determined in its
business judgment that Mr. Stangherlin's membership on the Audit Committee is in
the best interests of Penn Treaty and its shareholders based upon his

substantial experience as a member of Penn Treaty's Board of Directors and
private industry management tenure. Penn Treaty believes that each member of the
Audit Committee is now independent as independence is defined in the New York
Stock Exchange listing standards. The Audit Committee has a written charter,
adopted in September 1999. The Audit Committee held two meetings during 2002.

COMPENSATION COMMITTEE. The principal functions of the Compensation
Committee are to review and evaluate, at least annually, the performance of the
chief executive officer and other senior officers of Penn Treaty and its
subsidiaries, and to set their remuneration, including incentive rewards. The
members of the Compensation Committee during 2002 were Mr. Clark, Mr. Grebe, Mr.
Hindes, Mr. Kaplan and Mr. Stangherlin. The Compensation Committee met six times
in 2002.

EXECUTIVE COMMITTEE. During the periods between Board meetings, the
Executive Committee exercises all of the powers of the Board of Directors,
except that the Executive Committee may not elect directors, change the
membership of or fill vacancies in the Executive Committee, fix the compensation
of the Directors, change the Bylaws, or take any action restricted by the
Pennsylvania Business Corporation Law or the Bylaws (including actions delegated
to another Board Committee). The members of the Executive Committee during 2002
were Mr. Levit, Mr. Carden and Mr. Stangherlin. The Executive Committee did not
meet in 2002.

HOW ARE DIRECTORS COMPENSATED?

Each Director who is not a Company employee receives as compensation for
services as a Director an annual retainer of $5,000 and a meeting fee of $1,000
for each Board Meeting attended and $500 for each Audit and Compensation
Committee meeting attended. Directors who are Company employees receive no
separate compensation for service on the Board of Directors or Committees of the
Board of Directors. These compensation policies were adopted by the Board in
August 2002.

Information with respect to the share ownership of the Directors and the
nominees is set forth below. See "Principal Shareholders."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

IMC, an insurance agency which is owned by Irving Levit, produced
approximately $43,000, $10,000 and $11,000 of new and

renewal premiums for PTNA for the years ended December 31, 2000, 2001 and 2002,
respectively, for which it received commissions of approximately $10,000, $2,000
and $2,000, respectively. While IMC has only been minimally involved in the sale
of insurance products since 1979 and IMC'S operations since that time have not
been significant, IMC continues to receive overriding commissions from Penn
Treaty of 5% on business written for PTNA by any IMC general agents who were
appointed prior to 1979 and any of their sub-agents hired prior and subsequent
to January 1979 and one agent appointed in 1981. For the years ended December
31, 2000, 2001 and 2002, these overriding commissions totaled approximately
$551,000, $544,000,and $510,000, respectively. The premium revenues on which
such overrides are paid are based on commissions which are higher than those
currently paid to independent agents.

The terms on which commissions have been paid to IMC and U.S. Care are
consistent with (i) the terms on which commissions have been paid by Penn Treaty
to comparable unaffiliated agencies in the past and are currently paid by Penn
Treaty to one unaffiliated agency performing similar services and (ii) the terms
on which commissions are paid in the industry in general, and were no less
favorable than would have been obtained from unrelated third parties. To the
extent that Penn Treaty engages in future transactions with any of its
affiliates, all such transactions will likewise be on terms no less favorable
than could be obtained from unaffiliated parties and will be approved by a
majority of Penn Treaty's disinterested directors.

Director Francis R. Grebe is a partner at the investment counseling firm of
Davidson Investment Counselors, an affiliate of Davidson Capital Management.
Davidson Capital Management manages a portion of our investment portfolio for
which it received fees of $300,000, $462,000 and $99,000 for the years ended
December 31, 2000, 2001 and 2002, respectively. Mr. Grebe is not directly
involved with any of Penn Treaty's investment matters. Mr. Grebe serves as a
financial advisor to Irving Levit on some of Mr. Levit's personal matters for
which he is compensated by Mr. Levit.

Director Alexander M. Clark is a Managing Director with Advest, Inc.
Advest, Inc. has engaged in, and may in the future engage in, investment banking
and other commercial dealings in the ordinary course of business with Penn
Treaty. Advest, Inc. has received and will receive customary fees for these
transactions. Advest, Inc. received fees of $475,000 for the year ended December
31, 2001 for its services to Penn Treaty in connection with its April 2001
rights offering and $2,000 in 2002 in connection with consulting services.

OTHER EXECUTIVE OFFICERS OF PENN TREATY

CAMERON B. WAITE (42) has served as Executive Vice President and Chief
Financial Officer of Penn Treaty since May 2002 and as Chief Financial Officer
of Penn Treaty since May 1996. Mr. Waite also serves as Director, Treasurer and
Chief Financial Officer of NISHD. From 1994 to 1996, Mr. Waite was Chief
Financial Officer and Treasurer of Blue Fish Clothing, Inc., a manufacturer,
wholesaler and retailer of women's clothing. From 1983 to 1994, Mr. Waite held
various positions with Independence Bancorp. Inc., which merged with CoreStates
Financial Corporation, his last position being Vice President of Asset Liability
Management. Mr. Waite holds a B.A. in Economics from Dickinson College and an
M.B.A. from Lehigh University.

JAMES M. HEYER (39) has served as a Senior Vice President of Penn Treaty
and its insurance company subsidiaries since May 2002. Mr. Heyer also served as
the Chief Operating Officer of Penn Treaty's insurance company subsidiaries from
January 1999 to May 2002. Mr. Heyer served as a director of Penn Treaty from May
2001 to May 2002, of ANIC since 1996, and of AINIC since 1997. From 1993 to
1998, Mr. Heyer served as the companies' Vice President of Administration. Mr.
Heyer oversees all aspects of claims, underwriting, compliance and product
development for Penn Treaty's insurance company subsidiaries. Prior to joining
Penn Treaty in 1988, Mr. Heyer was employed by The Guardian Life Insurance
Company of North America. Mr. Heyer received his B.S. in Business Administration
and Marketing from Penn State University. Mr. Heyer has over 15 years experience
in the insurance business.

BRUCE A. STAHL (45) has served as Vice President and Chief Actuary of Penn
Treaty and its insurance company subsidiaries since July 2001. From 1994 to
2001, Mr. Stahl owned BAS Actuarial Services, an actuarial consulting services
firm. Prior to 1994, Mr. Stahl served as a consulting actuary for KPMG and as
Assistant Actuary for American Integrity Insurance Company. Mr. Stahl is a
graduate of the Wharton School of the University of Pennsylvania, and is a
member of the Society of Actuaries and the American Academy of Actuaries. Mr.
Stahl has over 25 years experience in the insurance business.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The rules of the Securities and Exchange Commission require that Penn
Treaty disclose delinquent filings for reports of stock ownership (and changes
in stock ownership) by its

directors and executive officers. To the best of Penn Treaty's knowledge, all
Form 3, Form 4 and Form 5 reports were timely filed.

PROPOSAL II - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------
The Board of Directors, upon recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the independent public
accountants of Penn Treaty and its subsidiaries for the year ending December 31,
2003. In taking this action, the members of the Board and the Audit Committee
considered carefully PricewaterhouseCoopers' performance for the Company in that
capacity since 1986, its independence with respect to the services to be
performed and its general reputation for adherence to professional auditing
standards. A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting for the purpose of making a statement if he so
desires and to respond to appropriate questions. If the shareholders do not
approve this proposal, the Audit Committee and the Board of Directors will
consider the matter of the appointment of independent public accountants.

AUDIT FEES

The aggregate fees billed by PricewaterhouseCoopers for professional
services rendered for the audit of the Company's annual financial statements for
the most recent fiscal year and the reviews of the financial statements included
in the Company's Forms 10-Q for that fiscal year were approximately $1,008,400.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

No fees were billed by PricewaterhouseCoopers for financial information
systems design and implementation services for the year ended December 31, 2002.

ALL OTHER FEES

The aggregate fees billed by PricewaterhouseCoopers for additional
professional services rendered by PricewaterhouseCoopers for the year ended
December 31, 2002, other than for the services described above, were $305,017.
Prior to engaging PricewaterhouseCoopers for these additional services, the
Audit Committee considered whether the provision of these services was
compatible with maintaining PricewaterhouseCoopers' independence. These
additional services included auditing of employee benefit plans, preparation of
corporate tax returns and human resource consulting services.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS FOR PENN
TREATY AND ITS SUBSIDIARIES FOR THE YEAR ENDING DECEMBER 31, 2003.

EXECUTIVE COMPENSATION AND OTHER MATTERS

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to Penn Treaty for the
fiscal years ended December 31, 2000, 2001 and 2002 for the Chief Executive
Officer and the four other most highly compensated individuals who were
Executive Officers at December 31, 2002.

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ---------------------
SECURITIES ALL OTHER
NAME AND SALARY BONUS OTHER UNDERLYING OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($) (2)
---------------------------------- ---- --- --- ------ --- -------

IRVING LEVIT 2002 520,000 0 1,600 0 8,850(3)
Chairman and 2001 545,000 85,000 3,200 241,455 7,875(3)
Chief Executive Officer 2000 500,000 80,000 1,600 40,000 7,875(3)

WILLIAM W. HUNT, JR.(4) 2002 197,500 0 0 0 6,525
President and Chief 2001 93,462 5,000 0 30,000 0
Operating Officer

CAMERON B. WAITE 2002 182,500 0 800 0 6,075
Executive Vice President 2001 146,250 15,000 3,200 8,000 4,838
and Chief Financial Officer 2000 129,000 11,000 1,600 6,000 4,200

BRUCE A. STAHL (5) 2002 157,500 0 0 0 4,725
Vice President and Chief Actuary 2001 70,827 0 0 0 0

JAMES M. HEYER 2002 147,500 0 1,200 0 4,425
Senior Vice President 2001 127,500 12,000 2,400 37,500 4,185
2000 114,000 11,000 1,600 12,000 3,750

----------------------

(1) Represents Directors' fees of $400 for each regular board meeting and
board meeting of the insurance company subsidiaries attended between
January 1, 2002 and August 15, 2002.

(2) Represents company contributions to Penn Treaty's 401(k) Plan on behalf
of each of the named individuals and certain allowances for automobile
expenses and reimbursements.
(3) Excludes cash overriding commissions and direct commissions totaling
approximately $551,000,$544,000 and $510,000 paid to IMC by Penn Treaty
in 2000, 2001 and 2002, respectively, in connection with policies
written for Penn Treaty. See "Certain Relationships and Related
Transactions."
(4) Mr. Hunt began his employment with Penn Treaty on May 14, 2001.
(5) Mr. Stahl began his employment with Penn Treaty on June 30, 2001.

OPTION GRANTS IN LAST FISCAL YEAR

No grants of stock options were made during the fiscal year ended December
31, 2002 to any of the Company's executive officers named in the Summary
Compensation Table.

AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 2002 by Penn
Treaty's executive officers named in the Summary Compensation Table. The table
also sets forth the number of shares covered by exercisable and unexercisable
options held by such executives on December 31, 2002 and the aggregate gains
that would have been realized had these options been exercised on December 31,
2002, even though these options were not exercised, and the unexercisable
options could not have been exercised, on December 31, 2002.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(2)
ACQUIRED ON REALIZED ------------------------------- -----------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------ ------------- -------------- ----------- -------------

Irving Levit 0 0 241,455 0 0 0
William W. Hunt 0 0 30,000 0 0 0
Cameron B. Waite 0 0 8,000 0 0 0
Bruce A Stahl 0 0 0 0 0 0
James M. Heyer 0 0 37,500 0 0 0

-----------------

(1) The value realized represents the difference between the fair market
value per share of our common stock on the date of exercise and the per
share exercise price, multiplied by the applicable number of options.
(2) These values represent the difference between the closing price per share
on The New York Stock Exchange on December 31, 2002 ($1.99) and the per
share exercise price of the option.

401(K) PLAN

On August 1, 1996, Penn Treaty adopted a 401(k)retirement plan, covering
substantially all employees with one year of service. Under the plan,
participating employees may contribute up to 15% of their annual salary on a
pre-tax basis, and Penn Treaty equally matches employee contributions up to the
first 3% of the employee's salary. The Penn Treaty and employee portions of the
plan vest immediately. Penn Treaty's expense in 2002 under the plan was
$239,000. Penn Treaty may elect to make a discretionary contribution to the
plan, which will be contributed proportionately to each eligible employee. Penn
Treaty did not make a discretionary contribution in 2002.

INCENTIVE STOCK OPTION PLANS

The shareholders of Penn Treaty adopted an Incentive Stock Option Plan (the
"Plan") in March 1987. The Plan, as amended by shareholder action on May 25,
1990, May 28, 1993, and May 23, 1997, provided for the granting of options to
purchase up to 1,200,000 shares of our common stock. The Plan was replaced by
the 1998 Employee Non-Qualified Incentive Stock Option Plan (the "1998 Plan")
and all options under the Plan were forfeited and replaced under the 1998 Plan
in 2001. No new options may be granted under the Plan. The shareholders of Penn
Treaty adopted the 2002 Employee Incentive Stock Option Plan in May 2002 (the
"2002 Plan"). The 2002 Plan does not replace the 1998 Plan, which continues in
effect.

The 2002 Plan authorizes Penn Treaty to grant "incentive stock options"
under Section 422 of the Internal Revenue Code, and non-qualified stock options,
covering up to an aggregate of 2,000,000 shares of our common stock. The purpose
of the 2002 Plan is to enable Penn Treaty to offer officers, directors and
employees of Penn Treaty and its subsidiaries options to acquire equity
interests in Penn Treaty, thereby attracting, retaining and rewarding such
persons, and strengthening the mutuality of interests between such persons and
our shareholders. The maximum allowable term of each option granted under the
2002 Plan is ten years (five years in the case of holders of more than 10% of
the combined voting power of all classes of outstanding stock), and the options
become exercisable in varying equal, annual installments commencing one year
from the option grant date.

As of April 22, 2003, 252,500 stock options under the 2002 Plan have been
granted and are outstanding at prices ranging from

$1.58-$4.40. No stock options under the 2002 Plan have been canceled and no
stock options have been exercised.

AGENT STOCK OPTION PLAN

In October 1994, the Board of Directors of Penn Treaty authorized a
stock option plan for its agents (the "Agent Plan"). The Agent Plan, adopted by
the Board of Directors in May 1995, provides for the grant of options to
purchase up to 300,000 shares of common stock and is designed to reward Penn
Treaty's agents by providing for the grant of options to purchase common stock
to agents who attain certain sales objectives determined by the Board of
Directors. The exercise price of all options granted under the Agent Plan may
not be less than the fair market value of the shares on the date of grant. The
maximum allowable term of each option is ten years, and the options become
exercisable in four equal annual installments commencing one year from the
option grant date. Under the Agent Plan, stock options have been granted and are
outstanding to date with respect to 59,700 shares. Prices of these options range
from $12.63 to $32.25 per share. No options were granted under the Agent Plan
during 2000, 2001, or 2002.

EQUITY COMPENSATION PLAN INFORMATION

NUMBER OF SECURITIES
NUMBER OF SECURITIES WEIGHTED-AVERAGE REMAINING AVAILABLE
TO BE ISSUED UPON EXERCISE PRICE OF FOR ISSUANCE UNDER
EXERCISE OF OUTSTANDING OPTIONS, EQUITY COMPENSATION
OUTSTANDING OPTIONS, REFLECTED IN (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS THE FIRST COLUMN)
------------ -------------------- --------------------- -----------------------

Equity compensation
plans approved by
security holders:

o Stock Options (1) 852,700 $5.49 3,022,582
o Warrants (2) 40,641,876 $4.00 0

Total.......... 41,494,576 $4.03 3,022,582

Equity compensation
Plans not approved by
security holders(3): 47,900 $25.55 240,500

Total.......... 41,542,476 $4.05 3,263,082

---------------

(1) Includes options to purchase shares of Penn Treaty common stock under the
following shareholder-approved plans: the 1998 Employee Non-Qualified Incentive
Stock Option Plan and the 2002 Employee Incentive Stock Option Plan.

(2) Reflects the conversion of all warrants (pursuant to the terms of the
Reinsurance Agreement with Centre Solutions (Bermuda), Limited) to purchase
shares of non-voting convertible preferred stock, and assumes the conversion of
each share of preferred stock into three shares of common stock, pursuant to the
terms of the Reinsurance Agreement.

(3) Includes options to purchase shares of Penn Treaty common stock under the
Agent Stock Option Plan, which is described more fully above.

CHANGE IN CONTROL, EMPLOYMENT AND CONSULTING AGREEMENTS

Penn Treaty has entered into Change in Control Agreements with each of
the executive officers named in the Summary Compensation Table. Under these
agreements, if Penn Treaty merges into another entity or ownership of the voting
control of Penn Treaty otherwise changes and, as a result of such change in
control, any of the named executive officers are terminated or their positions
or work locations are materially changed at any time during the three year
period (five years in the case of the Company's current Chief Executive Officer)
after the change in control, they will be entitled to receive a lump sum payment
of their base salary through the end of the three-year period (or five-year
period in the case of the Company's current Chief Executive Officer) and they
shall be entitled to continue to receive certain other insurance and retirement
benefits for the remainder of the three-year period (or five-year period in the
case of the Company's current Chief Executive Officer).

The Company and William W. Hunt, Jr. entered into an Employment
Agreement on June 1, 2001 under which it was agreed that Mr. Hunt will serve in
an executive capacity for the Company on an at-will basis for an unspecified
term. Pursuant to the Agreement, Mr. Hunt's salary is determined at the
discretion of the Board of Directors and Mr. Hunt is eligible to participate in
the various employee benefit plans that cover Penn Treaty's salaried employees
and executives, including insurance benefits, stock option grants, and bonus
programs. The Agreement provided for an initial grant to Mr. Hunt of 30,000
stock options at an exercise price of $3.40 with 10,000 options vesting on the
initial grant date and the remaining options vesting on July 31, 2002. If Penn
Treaty terminates the Agreement for a reason other than cause, or if Mr. Hunt
terminates the Agreement for good reason as defined in the Agreement, Penn
Treaty shall pay Mr. Hunt a severance payment in an amount equal to twelve
months of Mr. Hunt's most current base salary rate.

On April 28, 2003, the Company executed a Consulting Agreement with
its former Chief Executive Officer, Irving Levit.

Mr. Levit's Consulting Agreement provides that he is to serve as the
Founding Chairman of the Company for up to two years. Under the terms of the
Consulting Agreement, beginning on the date of the Annual Meeting and
continuing until the end of the consulting arrangement, Mr. Levit will
provide certain services to the Company, in exchange for which the Company
will pay him an annual retainer of $100,000 and provide him with other
standard Company benefits. Additionally, the Company has agreed to pay Mr.
Levit or his spouse, beginning on the date of the Annual Meeting and
continuing until the later of Mr. Levit's death or the death of his spouse, a
retirement benefit of $100,000 per year. If Penn Treaty merges into another
entity or ownership of the voting control of Penn Treaty otherwise changes,
the consulting arrangement between Penn Treaty and Mr. Levit will terminate
automatically. Upon such termination, Mr. Levit will receive what he would
have received under his Change of Control Agreement if he had been employed
by Penn Treaty at the time of a change of control at a base salary equal to
the amount of his annual retainer under the Consulting Agreement. Penn Treaty
also will make a single lump sum payment to Mr. Levit equal to the actuarial
present value of the remaining retirement annual payments. Penn Treaty has
also agreed to provide Mr. Levit with health and welfare benefits comparable
to those the Company offers to its executives from time to time until the
later of Mr. Levit's death or the death of his spouse.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of the Board of Directors during
2001 were Mr. Clark, Mr. Grebe, Mr. Hindes, Mr. Kaplan and Mr. Stangherlin, who
are non-employee directors. Mr. Stangherlin also served as the Secretary of Penn
Treaty until 1999 and of the Agency, PTNA, ANIC and AINIC until 2000.

Director Francis R. Grebe is a partner at the investment counseling firm of
Davidson Investment Counselors, an affiliate of Davidson Capital Management.
Davidson Capital Management manages a portion of our investment portfolio for
which it received fees of $300,000, $462,000, and $99,000 for the years ended
December 31, 2000, 2001 and 2002, respectively. Mr. Grebe is not directly
involved with any of Penn Treaty's investment matters. Mr. Grebe serves as a
financial advisor to Irving Levit on some of Mr. Levit's personal matters for
which he is compensated by Mr. Levit.

AUDIT COMMITTEE REPORT

With respect to the audited financial statements of Penn Treaty and its
subsidiaries for the year ended December 31, 2002, the Audit Committee:

o has reviewed and discussed the audited financial statements with
management of Penn Treaty;

o has discussed with Penn Treaty's independent accountants matters such
as the quality (in addition to acceptability), clarity, consistency
and completeness of Penn Treaty's financial reporting, as required by
Statement on Auditing Standards No. 61, Communication with Audit
Committee; and

o has received the written disclosures and the letter from the
independent accountants concerning the independent accountants'
independence from Penn Treaty, as required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees,
and has discussed with Penn Treaty's independent accountants the
independent accountants' independence.

Based on the review and discussions described above, the Audit Committee has
recommended the inclusion by the Board of Directors of the audited financial
statements in Penn Treaty's Annual Report on Form 10-K for the year ended
December 31, 2002 for filing with the SEC.
Alexander M. Clark
Francis R. Grebe
Gary E. Hindes
Matthew W. Kaplan
Domenic P. Stangherlin

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Penn Treaty's Executive Compensation Program is administered by the
Compensation Committee (the "Committee"), a committee of the Board of Directors
consisting of independent non-employee directors. The primary functions of the
Committee are to review and evaluate the performance and leadership of the Chief
Executive Officer and all other executive officers and to recommend compensation
amounts to the Board of Directors. In 2002, the Committee compared all executive
compensation with industry and regional executive compensation levels and
believes that Penn Treaty's compensation levels compare conservatively to other
comparable executive positions and, as a result, increased certain executive
salary levels to the 25th percentile of comparable industry data provided to the
Compensation Committee by an

independent consultant. The Board of Directors accepted and adopted all of the
Committee's recommendations concerning executive compensation amounts during
2002.

The Committee seeks to:

o provide compensation that is closely linked to Company and individual
performance;

o align the interests of Penn Treaty's executives with those of its
shareholders through award opportunities that can result in ownership
of common stock; and

o ensure that compensation is sufficiently competitive to attract and
retain high quality executive talent.

Consistent with these objectives, the Committee employs a system of
quantitative measures and qualitative assessments in evaluating and measuring
executive officer performance. Quantitative measures include earnings
performance, return on assets and growth of revenues. Qualitative assessments
include the quality and measured progress of the operations of Penn Treaty and
the success of strategic actions taken.

In addition to company-wide measures of performance, the Committee
considers performance factors particular to each executive officer, such as the
performance of the departments for which such officer had management
responsibility, individual managerial accomplishments and contribution to the
achievement of corporate goals.

CEO COMPENSATION

In accordance with the Committee's general practice and Penn Treaty's
compensation policies, Mr. Levit's compensation for the 2002 fiscal year was
based principally upon Penn Treaty's performance and Mr. Levit's ongoing
contribution to that performance. Mr. Levit's salary was determined in the
Committee's sole discretion after its consideration of competitive data, the
Board's assessment and recognition of Mr. Levit's performance during 2002.

Alexander M. Clark
Francis R. Grebe
Gary E. Hindes
Matthew W. Kaplan
Domenic P. Stangherlin

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of April 22, 2003, information with
respect to the beneficial ownership of our Common Stock by (i) each person known
to Penn Treaty to own 5% or more of the outstanding shares of Common Stock, (ii)
each Director, the Chief Executive Officer and the four most highly compensated
Executive Officers and (iv) all Directors and Executive Officers as a group:

SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS(1) OWNED(2) OWNERSHIP(3)
---------------- ------------------------- ------------

(i) CERTAIN BENEFICIAL OWNERS(4):
Conus Partners, Inc. (5)............................................... 7,053,575 26.2%
WLR Recovery Fund II, L.P. (6)......................................... 10,698,286 34.95%

(ii) DIRECTORS AND EXECUTIVE OFFICERS:
Irving Levit (7)....................................................... 2,479,625 11.0%
Jack D. Baum (8)....................................................... 50,658 *
A.J. Carden (9)........................................................ 50,000 *
Alexander M. Clark..................................................... 5,000 *
Francis R. Grebe....................................................... 1,000 *
Michael F. Grill (9)................................................... 49,919 *
James Heyer (10)....................................................... 37,694 *
Gary E. Hindes (11).................................................... 60,100 *
William W. Hunt, Jr. (12).............................................. 60,000 *
Matthew W. Kaplan...................................................... -- *
Domenic P. Stangherlin................................................. 87,963 *
Cameron B. Waite (13).................................................. 24,000 *
Bruce A. Stahl......................................................... -- *
All Directors and Executive Officers
as a group (13 persons) (14)........................................... 2,905,959 12.7%

* Less than 1%
---------------------

(1) Unless otherwise noted, the address of each person named above is in care
of Penn Treaty American Corporation 3440 Lehigh Street, Allentown,
Pennsylvania 18103.

(2) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. Shares of Common Stock subject to
options currently exercisable or exercisable within 60 days of April 22,
2003 are deemed outstanding for computing the percentage beneficially owned
by such holder but are not deemed outstanding for purposes

of computing the percentage beneficially owned by any other person. Except
as otherwise indicated, Penn Treaty believes that the beneficial owners of
the Common Stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable, and that there are no
other affiliations among the shareholders listed in the table.

(3) Based on 19,907,737 shares outstanding on April 7, 2003.

(4) Other investors who have purchased significant portions of the 6 1/4%
convertible subordinated notes due 2008 ("2008 Notes")may beneficially own
5% or more of the outstanding shares of Common Stock.

(5) According to the Form 3 filed with the SEC by Conus Partners, Inc. on
February 24, 2003. Consists of shares issuable upon conversion of 2008
Notes. According to the Form 3 filed with the SEC by Conus Partners, its
principal business address of Conus Partners, Inc. is One Rockefeller
Plaza, New York, New York, 10020. Conus Partners owns approximately
$12,343,757 in aggregate principal amount of 2008 Notes, which, if
converted, would represent approximately 9.3% of our Common Stock, assuming
conversion of all of our 2008 Notes. Conus Partners does not currently own
any of our outstanding Common Stock.

(6) According to the Schedule 13D filed with the SEC on April 7, 2003. Consists
of shares issuable upon conversion of 2008 Notes. According to the Schedule
13D filed with the SEC by WLR Recovery Fund II, L.P., WLR Recovery
Associates II, LLC, WL Ross & Co. LLC and Wilbur Ross, their principal
business address is 101 East 52nd Street, 19th Floor, New York, NY 10022.
WLR Recovery Fund II, L.P., WLR Recovery Associates II, LLC, WLR Ross &
Co., LLC and Wilbur Ross reported shared voting power and shared
dispositive power with respect to 5,714,286 shares. The Wilbur Ross
entities own approximately $20,000,000 in aggregate principal amount of
2008 Notes, which, if converted, would represent approximately 14.0% of our
Common Stock, assuming conversion of all of the 2008 Notes. The Wilbur Ross
entities do not currently own any of our outstanding Common Stock.

(7) Includes 46,350 shares held by a private foundation of which Mr. Levit is
an officer and director, 45,007 shares held by

Mr. Levit as trustee of a retirement account, 147,167 shares held by Mr.
Levit as co-trustee of an irrevocable trust for Mr. Levit's children and
exercisable options to purchase 241,455 shares of Common Stock. Also
includes 46,000 shares held by Mr. Levit's wife as to which he disclaims
beneficial ownership. Excludes 59,233 shares held by other family members
as to which he also disclaims beneficial ownership.

(8) Includes exercisable options to purchase 50,577 shares of Common Stock.

(9) Consists of exercisable options to purchase shares of Common Stock.

(10) Includes exercisable options to purchase 37,500 shares of Common Stock.

(11) Includes 53,100 shares owned by Fallen Angels Fund, L.P., a limited
partnership of which Mr. Hindes has sole voting power as the managing
member of the general partnership, 1,700 shares held by Mr. Hindes' wife as
to which he disclaims beneficial ownership and 1,500 shares held by Mr.
Hindes' children as to which he disclaims beneficial ownership.

(12) Includes exercisable options to purchase 30,000 shares of Common Stock.

(13) Includes exercisable options to purchase 8,000 shares of Common Stock.

(14) Includes exercisable options held by members of the group to purchase
467,451 shares of Common Stock.

PERFORMANCE GRAPH

The following graph compares the five-year cumulative total return for Penn
Treaty's common stock with the comparable cumulative return of two indices. The
NYSE Composite provides some indication of the performance of the overall stock
market, and the S & P Insurance Composite reflects the performance of insurance
company stock generally.

PENN TREATY AMERICAN CORPORATION
Performance Graph
[Graphics Omitted]

PLOT POINTS FOR GRAPH

1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----

PTA STOCK $ 100.00 $ 84.85 $ 49.61 $ 55.12 $ 20.00 $ 6.27
NYSE COMPOSITE $ 100.00 $ 123.55 $ 137.39 $ 141.35 $ 129.22 $ 246.67
S&P INSURANCE INDEX $ 100.00 $ 114.92 $ 124.36 $ 169.02 $ 149.25 $ 119.15

---------------
(1) Assumes an $100 investment on December 31, 1997 in the Company's common
stock, and in each of the indices shown. The total return assumes
reinvestment of all dividends.

HOUSEHOLDING OF ANNUAL MEETING MATERIALS

Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of this proxy statement has been sent to multiple
shareholders in your household. IF you would like to obtain another copy of
either document, please contact Cameron B. Waite, Executive Vice President and
Chief Financial Officer, Penn Treaty American Corporation, 3440 Lehigh Street,
Allentown, PA 18103, telephone 610) 965-2222. If you want to receive separate
copies of our proxy statements and annual reports in the future, or if you are
receiving multiple copies and would like to receive only one copy for your
household, you should contact your bank, broker or other

nominee record holder, or your may contact us at the above address or telephone
number.

INCORPORATION OF DOCUMENTS BY REFERENCE
---------------------------------------

The following information is incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 2002 (File No.
001-14681), a copy of which is being delivered to Penn Treaty's shareholders in
conjunction with this Proxy Statement: Financial Statements and Notes to
Consolidated Financial Statements at pages F-1 to F-40; Management's Discussion
and Analysis of Financial Condition and Results of Operations at pages 41 to 65;
Quantitative and Qualitative Disclosures About Market Risk at pages 66 to 67;
and Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure at page 68.

OTHER MATTERS
-------------

At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the Annual
Meeting is that which is presented above. If any other matter or matters are
properly brought before the Annual Meeting, or any adjournment or postponement,
it is the intention of the persons named in the accompanying proxy card to vote
proxies on such matters in accordance with their judgment.

By Order of the Board of Directors,

/s/ SANDRA A. KOTSCH
------------------------------------
Sandra A. Kotsch, Secretary

Allentown, Pennsylvania
April 30, 2003
27

REVOCABLE PROXY
PENN TREATY AMERICAN CORPORATION ANNUAL MEETING OF SHAREHOLDERS-May 23, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

Jack D. Baum, Michael F. Grill and Matthew W. Kaplan, each with the power of
substitution and with all the powers and discretion the undersigned would
have if personally present, are hereby appointed the Proxy Agents to
represent the undersigned at the Annual Meeting of Shareholders of Penn
Treaty American Corporation (the "Company") to be held at 9:00 A. M.,
prevailing local time on May 23, 2003 (the "Meeting"), including any
adjournments thereof, and to vote all shares of stock of the Company which
the undersigned is entitled to vote on all matters that properly come before
the Meeting, subject to any directions indicated in the boxes below.
Indicate your vote by placing an (X) in the appropriate box.

1. PROPOSAL TO ELECT DIRECTORS:

/ / FOR / / AGAINST / / ABSTAIN
/ / WITHHOLD FOR ALL
(*) To withhold authority to vote for any individual nominee,
strike a line through the nominee's name listed below and
mark an (X) in the "For All Except" box.

Name of Nominee:
William W. Hunt, Jr. Irving Levit Domenic P. Stangherlin

2. PROPOSAL TO APPROVE THE APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLP as
the independent public accountants for the Company and its subsidiaries
for the year ending December 31, 2003.

/ / FOR / / AGAINST / / ABSTAIN

3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment(s)
or postponement(s) thereof.

/ / FOR / / AGAINST / / ABSTAIN

(over)

-------------------------------------------------------------------------------
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT
THE ANNUAL MEETING IN THE MANNER SPECIFIED. IF PROPERLY EXECUTED AND
RETURNED, AND NO SPECIFICATION IS MADE, VOTES WILL BE CAST "FOR" ALL ITEMS ON
THE PROXY. Receipt of the Notice of the Annual Meeting of Shareholders and
the Proxy Statement dated April 30, 2003 are hereby acknowledged.

IMPORTANT: WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE
AS SUCH. IN THE CASE OF JOINT HOLDERS,
ALL SHOULD SIGN.

Dated: , 2003
---------------------------

---------------------------------------
(Signature)

PLEASE ACT PROMPTLY. SIGN, DATE &
MAIL YOUR PROXY CARD TODAY.