Penn Treaty American Corp. Ratings Unaffected by Reported Weakness in Disclosure

Standard & Poor’s Ratings Services offered comments on Penn Treaty American Corp. (NYSE:PTA; ‘CCC-/Positive/–‘), PTA’s ‘CC’ rated 6.25% subordinated convertible notes due on Oct. 15, 2008, and PTA’s primary insurance operating subsidiary, Penn Treaty Network America Insurance Co. (B-/Positive/–). These ratings are unaffected by the company having reported a material weakness in its disclosure controls and procedures in an 8-K filed with
the SEC on April 4, 2005.

In a release on March 30, 2005, PTA announced that it had discovered as part of its actuarial review for the period ended Dec. 31, 2004, that the inflation rider component of some of its in-force policies was incorrectly excluded from policy benefit liabilities.

Although the company does not anticipate that this discovery will
have a material impact on 2004 or 2003 earnings, the company will restate its financial statements to reflect an increase in policy reserves of about $10 million, $10.2 million, and $10.5 million at year-end 2004, 2003, and 2002, respectively. The statements will also reflect a decrease in shareholders’ equity of about $6.5 million
at year-end 2004, 2003, and 2002. Furthermore, the company estimates that the impact on 2002 pretax earnings will be about a $2 million increase in benefits expense.

The 8-K stated that PTA’s management had determined that this matter constituted a material weakness in the company’s disclosure controls and procedures and that this conclusion will be reported in Item 9A of Part II of the company’s 10-K filing, which was delayed up to two weeks because of this issue.

Standard & Poor’s believes that the economic impact of this matter is not significant and will not affect the ratings. The immaterial impact to recent period earnings- -combined with the relatively small percentage of policy reserves and shareholders’ equity–are the key factors underlying these conclusions.