<PAGE>


                              FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

[X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the quarterly period ended September 30, 1998

                                       or

[ ]  Transition  Report  pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934 for the transition period from
                                    to 
     ------------------------------    --------------------------

Commission file number 0-13972

                        PENN TREATY AMERICAN CORPORATION
                        --------------------------------
             (Exact name of registrant as specified in its charter)

       PENNSYLVANIA                                  23-1664166 
       ------------                                  ----------            
(State or other jurisdiction of              (I.R.S. Employer Identifi-
incorporation of organization)                       cation No.)

                     3440 Lehigh Street, Allentown, PA 18103
                     ---------------------------------------
                        (Address, including zip code, of
                          principal executive offices)

                                 (610) 965-2222
                                 --------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
                                 --------------
              (Former name, former address and former fiscal year,
                          if change since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X NO
                                      --   --

The number of shares outstanding on the Registrant's common stock, par
value $.10 per share, as of November 2, 1998 was 7,804,392.



                                       1
<PAGE>



PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements

The registrant's Unaudited Consolidated Balance Sheets, Statements of Operations
and Comprehensive Income and Statements of Cash Flows and Notes thereto required
under this item are contained on pages 3 through 7 of this report, respectively.
These financial  statements represent the consolidation of the operations of the
registrant, and its subsidiaries,  Penn Treaty Network America Insurance Company
("PTNA"),  Penn  Treaty  Life  Insurance  Company  ("PTLIC"),  American  Network
Insurance Company ("ANIC"),  American  Independent  Network Insurance Company of
New York ("AINIC") and Senior Financial  Consultants Company.  PTNA, PTLIC, ANIC
and AINIC,  (collectively,  "the Insurers"),  are underwriters of long-term care
insurance  products.  PTNA and PTLIC  are also  underwriters  of life  insurance
products.

Effective December 31, 1997, PTLIC dividended its common stock ownership of PTNA
to the registrant as a tax-exempt  transaction.  The registrant  intends to sell
the charter and insurance  licenses of PTLIC on or before  December 31, 1998. In
the  event  it is not sold by that  time,  the  charter  will  dissolve.  No new
business may be written by PTLIC prior to its sale.



                                       2
<PAGE>




                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (amounts in thousands)
<TABLE>
<CAPTION>
                                                                                September 30,  December 31,
                                                                                    1998           1997
                                                                                    ----           ----
                                                                                (unaudited)
<S>                                                                             <C>            <C>
                                     ASSETS
        
Investments:
  Bonds, available for sale at market (cost of $305,464 and $271,315,           
  respectively)                                                                 $ 321,615      $ 278,148
  Equity securities at market value, (cost of $10,880 and $18,511, respectively)   10,837         23,554                 
  Policy loans                                                                        104             85
                                                                                ---------      ---------           
    Total investments                                                             332,556        301,787      
Cash and cash equivalents                                                          34,622         11,241
Property and equipment, at cost, less accumulated depreciation of
  $2,656 and $2,399, respectively                                                   9,415          8,753 
Unamortized deferred policy acquisition costs                                     142,921        110,471
Receivables from agents, less allowance for
  uncollectable amounts of $130 and $130, respectively                              1,369          1,107
Accrued investment income                                                           4,964          4,112
Federal income tax recoverable                                                        587          1,182
Cost in excess of fair value of net assets acquired, less
  accumulated amortization of $772 and $716, respectively                           5,956          6,662
Present value of future profits acquired                                            3,285          3,597
Receivable from reinsurers                                                         12,077         10,542
Other assets                                                                        5,821          6,318
                                                                                ---------      ---------
    Total assets                                                                $ 553,573      $ 465,772
                                                                                ---------      ---------
                                                                                ---------      ---------
                                  LIABILITIES
Policy reserves:
  Accident and health                                                           $ 179,695      $ 139,963
  Life                                                                              8,378          8,117
Policy and contract claims                                                         95,500         78,142
Accounts payable and other liabilities                                              8,176          6,192
Long-term debt                                                                     76,502         76,752
Deferred income taxes                                                              31,743         23,850
                                                                                ---------      ---------
    Total liabilities                                                             399,994        333,016            
                                                                                ---------      ---------

                             SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding          -              -                       
Common stock, par value $.10; 25,000 and 10,000
  shares authorized, 8,186 and 8,178 shares issued                                    818            818 
Additional paid-in capital                                                         53,301         53,194
Net unrealized appreciation of securities                                          10,632          7,838
Retained earnings                                                                  90,534         72,612
                                                                                ---------      ---------
                                                                                  155,285        134,462
Less 606 common shares held in treasury, at cost                                   (1,706)        (1,706)
                                                                                ---------      ---------
                                                                                  153,579        132,756
                                                                                ---------      ---------
    Total liabilities and shareholders' equity                                  $ 553,573      $ 465,772
                                                                                ---------      ---------
                                                                                ---------      ---------
</TABLE>

        See accompanying notes to consolidated financial statements.




                                       3
<PAGE>


                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
         Consolidated Statements of Operations and Comprehensive Income
                                   (unaudited)
                  (amounts in thousands, except per share data)


<TABLE>
<CAPTION>

                                                           Three Months Ended September 30,   Nine Months Ended September 30,
                                                                1998           1997              1998           1997
                                                                ----           ----              ----           ----
<S>                                                            <C>          <C>               <C>            <C>

 Revenue:
   Accident and health premiums                               $ 57,575      $ 41,533          $ 162,237      $ 120,430
   Life premiums                                                   830           908              2,551          2,782
                                                              --------      --------          ---------      ---------
                                                                58,405        42,441            164,788        123,212

   Net investment income                                         5,432         4,585             15,008         12,581
   Net realized capital gains                                      532           775              7,323            935
   Other income                                                     75           125                239            305
                                                              --------      --------          ---------      ---------
                                                                64,444        47,926            187,358        137,033
 Benefits and expenses:
   Benefits to policyholders                                    40,535        29,510            112,911         86,370
   Commissions                                                  20,655        14,166             57,685         40,511
   Net policy acquisition costs  deferred                      (12,141)       (8,186)           (32,450)       (24,961)
   General and administrative expense                            6,765         5,325             18,840         15,478
   Interest expense                                              1,173         1,193              3,586          3,584
                                                              --------      --------          ---------      --------- 
                                                                56,987        42,008            160,572        120,982
                                                              --------      --------          ---------      ---------
     
 Income before federal income taxes                              7,457         5,918             26,786         16,051
 Provision for federal income taxes                              2,399         1,746              8,866          4,70
                                                              --------      --------          ---------      ---------
     Net income                                                  5,058         4,172             17,920         11,348
                                                              --------      --------          ---------      ---------

  Other comprehensive income:
     Unrealized holding gain (loss) arising during period        8,594        (3,033)            11,577          2,876
     Income (tax) benefit from unrealized holdings              (2,922)        1,031             (3,936)          (978)
     Reclassification adjustment for (gain) loss included
     in net income                                                (532)         (775)            (7,323)          (935)
     Income (tax) benefit from reclassification adjustment         181           264              2,490            318
                                                              --------      --------          ---------      ---------
     Comprehensive income                                     $ 10,379      $  1,659          $  20,728      $  12,629
                                                              --------      --------          ---------      ---------
                                                              --------      --------          ---------      ---------

Basic earnings per share                                      $   0.67      $   0.55          $    2.37      $    1.51
Diluted earnings per share                                    $   0.57      $   0.49          $    1.96      $    1.35

 Weighted average number of shares outstanding                   7,580         7,551              7,575          7,531
 Weighted average number of shares outstanding (diluted)        10,421        10,425             10,407         10,381


</TABLE>

        See accompanying notes to consolidated financial statements.

                                       4
<PAGE>




                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     for the Nine Months Ended September 30,
                                   (unaudited)
                             (amounts in thousands)
<TABLE>
<CAPTION>

                                                          1998        1997
                                                          ----        ----
<S>                                                    <C>         <C>

Net cash flow from operating activities:         
  Net income                                           $ 17,920    $ 11,348
  Adjustments to reconcile net income to cash
    provided by operations:
    Amortization of intangible assets                       816         829
    Policy acquisition costs, net                       (32,450)    (24,961)
    Deferred income taxes                                 6,652       4,184
    Depreciation expense                                    284         316
    Net realized capital gains                           (7,323)       (935)
  Increase (decrease) due to change in:
    Receivables from agents                                (262)        (30)
    Receivable from reinsurers                           (1,535)       (487)
    Policy and contract claims                           17,358       6,189
    Policy reserves                                      39,993      34,173
    Accounts payable and other liabilities                1,984       1,129
    Federal income taxes recoverable                        595         (24)
    Accrued investment income                              (852)       (799)
    Other, net                                              479      (1,918)
                                                       --------    --------
      Cash provided by operations                        43,659      29,014
Cash flow from (used in) investing activities:   
  Proceeds from sales of bonds                           35,060      13,575
  Proceeds from sales of equity securities               22,640       2,672
  Maturities of investments                              14,919      15,796
  Purchase of bonds                                     (83,384)    (89,942)
  Purchase of equity securities                          (8,026)     (8,573)
  Acquisition of property and equipment                  (1,345)       (946)
                                                       --------    --------
      Cash used in investing                            (20,136)    (67,418)
Cash flow from (used in) financing activities:
  Proceeds from exercise of stock options                   108         477
  Repayments of long-term debt                             (250)       (254)
                                                       --------    --------
      Cash from (used in) financing                        (142)        223
                                                       --------    --------
Increase (decrease) in cash and cash equivalents         23,381     (38,181)
Cash balances:
  Beginning of period                                    11,241      51,613
                                                       --------    --------
  End of period                                        $ 34,622    $ 13,432
                                                       --------    --------
                                                       --------    --------
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       5
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(unaudited)

The Consolidated  Financial  Statements should be read in conjunction with these
notes and with the Notes to Consolidated  Financial  Statements included in Penn
Treaty American  Corporation's  ("the Company's") Annual Report on Form 10-K for
the year ended December 31, 1997.

In the opinion of management,  the summarized financial information reflects all
adjustments   (consisting  only  of  normal  recurring  adjustments)  which  are
necessary  for a fair  presentation  of the  financial  position  and results of
operations  for the interim  periods.  Certain  prior  period  amounts have been
reclassified to conform with current period presentation.

1.       Investments

           Management  has  categorized  all of  its  investment  securities  as
           available  for sale since they may be sold in  response to changes in
           interest rates, prepayments, and similar factors. Investments in this
           classification  are reported at their  current  market value with net
           unrealized  gains and losses,  net of the applicable  deferred income
           tax  effect,  being  added to or deducted  from the  Company's  total
           shareholders'  equity on the balance sheet. As of September 30, 1998,
           shareholders' equity was increased by $10,646 due to unrealized gains
           of $16,109 in the  investment  portfolio.  As of December  31,  1997,
           shareholders'  equity was increased by $7,838 due to unrealized gains
           of $11,876 in the investment portfolio.

           The  amortized  cost  and  estimated   market  value  of  investments
           available for sale as of September 30, 1998 and December 31, 1997 are
           as follows:
<TABLE>
<CAPTION>

                                     September 30, 1998             December 31, 1997
                                     ------------------             -----------------
                                  Amortized      Estimated       Amortized       Estimated
                                    Cost        Market Value        Cost       Market Value
<S>                               <C>           <C>              <C>           <C>

   U.S. Treasury securities   
     and obligations of U.S.
     Government authorities
     and agencies                 $  149,657    $  160,013       $  163,277    $  167,856

   Obligations of states and
     political sub-divisions                                                     
                                      22,454        21,915           30,515        32,152

   Debt securities issued by
    foreign governments                                                          
                                         205           208              204           205

   Corporate securities                                                          
                                     133,147       139,479           77,319        77,934

   Equities                                                                      
                                      10,880        10,837           18,511        23,554
   Policy Loans                                                  
                                         104           104               85            85
                                        ----          ----              ---            --

   Total Investments              $  316,427    $  332,556       $  289,911    $  301,787
                                  ----------    ----------       ----------    ----------
                                  ----------    ----------       ----------    ----------
                                                      
   Net unrealized gain                16,109                         11,876
                                  ----------                     ----------
                                  $  332,556                     $  301,787
                                  ----------                     ----------
                                  ----------                     ----------   
</TABLE>


                                       6
<PAGE>


2.       New Accounting Principle:

The Financial  Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard 130, "Reporting  Comprehensive  Income," which requires that
changes in comprehensive  income be shown in a financial statement with the same
prominence  as in other  financial  statements.  While not  mandating a specific
financial  statement format,  Statement 130 requires that an amount representing
total comprehensive income be reported for fiscal years beginning after December
15, 1997.  Restatement for earlier years is required for  comparative  purposes.
The Company has adopted Statement 130.

The FASB also issued Statement 131, "Disclosures about Segments of an Enterprise
and  Related  Information."  This  Statement,  which  supersedes  Statement  14,
Financial  Reporting  for  Segments  of a Business  Enterprise,  changes the way
public  companies report  information  about segments.  The Statement,  which is
based on the management approach to segment reporting,  includes requirements to
report selected segment information quarterly and entity-wide  disclosures about
products and services,  major customers, and the material countries in which the
entity holds assets and reports revenues. The Statement is effective for periods
beginning after December 15, 1997. Restatement for earlier years is required for
comparative purposes unless impracticable.  Statement 131 need not be applied to
interim  periods in the initial  year;  however,  in subsequent  years,  interim
period information must be presented on a comparative basis. The Company expects
to report  segment  information  for only its primary  product of long-term care
insurance.  It's  other  products,  including  disability  and  life  insurance,
comprise an immaterial  portion of the  Company's  total  revenues.  The Company
expects to report segment  information for only its primary product of long-term
care insurance.  It's other products,  including  disability and life insurance,
comprise an immaterial  portion of the  Company's  total  revenues.  The Company
believes that the adoption of Statement  131 will not have a material  impact on
its financial condition or results of operations.

In 1998, the FASB issued Statement 132,  "Employers'  Disclosures about Pensions
and Other Postretirement  Benefits," which revises employer's  disclosures about
pension and other postretirement benefits. The Company expects that the adoption
of Statement 132, which is effective for fiscal periods beginning after December
15, 1997, will have no material impact on its financial  condition or results of
operations.

Statement of Position 97-3,  "Accounting by Insurance and Other  Enterprises for
Insurance-Related  Assessments" (SOP 97-3) was issued by the American  Institute
of Certified  Public  Accountants  in December  1997 and  provides  guidance for
determining when an insurance or other  enterprise  should recognize a liability
for  guaranty-fund  assessments  and guidance for measuring the  liability.  The
statement  is  effective  for 1999  financial  statements  with  early  adoption
permitted.  The Company  does not expect  adoption of this  statement  to have a
material effect on its financial position or results of operations.



                                       7
<PAGE>



Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Three Months Ended September 30, 1998 and 1997:
(amounts in thousands, except per share data)

     Accident  and Health  Premiums.  First year  accident  and health  premiums
earned in the three month period ended September 30, 1998 (the "1998  quarter"),
including  long-term care and Medicare  supplement,  increased 49.2% to $21,173,
compared to $14,192 in the same period in 1997 (the "1997 quarter").  First year
long-term care premiums  earned in the 1998 quarter  increased 51.2% to $20,837,
compared to $13,784 in the 1997 quarter.  These results reflect increased market
demand for the Company's  newest  products,  which include nursing home coverage
with  attached  home health care riders,  and its  Assisted  Living and Personal
Freedom policies, which combine the benefit coverage of skilled, assisted living
and  custodial  nursing home and home health care  protection  under one benefit
plan. The Company  introduced  these plans in late 1996 and management  believes
this  increase is  indicative  of the growing need for  comprehensive  coverage.
First  year  Medicare  supplement  premiums  earned by the  Company  in the 1998
quarter decreased to $336 from $408 in the 1997 quarter.  Total new business for
this product remains low due to the Company's  continued reduced emphasis of its
Medicare  supplement  products  because of lower profit margins  associated with
this line of business.

Renewal  accident and health  premiums earned by the Company in the 1998 quarter
increased  35.5% to $34,714,  compared to $25,626 in the 1997  quarter.  Renewal
long-term care premiums  earned in the 1998 quarter  increased 35.1% to $33,854,
compared to $25,049 in the 1997 quarter.  This increase  reflects  renewals of a
larger base of in-force  policies.  In recent years, the Company has experienced
significant growth in first year premium sales, which produces increased renewal
rates in subsequent years.

     Disability  and Life  Premiums.  The Company  earned  $1,688 in  disability
premium in the 1998 quarter,  compared to $1,714 in the 1997 quarter. During the
1998 quarter, first year disability premiums were $238 and renewal premiums were
$1,450.  First year life  premiums  earned by the  Company  in the 1998  quarter
decreased  16.2% to $227,  compared to $271 in the 1997  quarter.  Renewal  life
premiums earned by the company in the 1998 quarter declined to $603, compared to
$637 in the 1997 quarter.

     Net Investment  Income. Net investment income earned by the Company for the
1998  quarter  increased  18.5% to $5,432,  from  $4,585  for the 1997  quarter.
Management  attributes this growth to larger invested assets,  which continue to
grow with increased premiums. New investments have been made at lower rates than
in the past due to reduced market interest rates.

     Benefits to  Policyholders.  Total  benefits to  policyholders  in the 1998
quarter increased 37.4% to $40,535 compared to $29,510 in the 1997 quarter.

Accident and health benefits to policyholders, excluding disability benefits, in
the 1998  quarter  increased  40.1% to $39,374  compared  to $28,098 in the 1997
quarter.  The Company's accident and health loss ratio (the ratio of benefits to
policyholders  to total  accident  and  health  premiums)  was 71.6% in the 1998
quarter,  compared to 70.6% in the 1997  quarter.  This increase is for maturing
business and is within Management's expectations.  In the 1998 quarter, incurred
claims as a percentage of accident and health  premiums  were 47.6%  compared to


                                       8
<PAGE>


42.1% in the 1997  quarter.  The incurred  loss ratio has  increased  due to the
establishment  of higher claim  reserves per newly opened  claim.  The Company's
paid loss ratio has declined to 34.0% in the 1998 quarter,  compared to 38.0% in
the 1997 quarter.  The Company uses  independent care managers to control claims
in its home health care coverage. The amounts due to care management included in
benefits  to  policyholders  were  approximately  $525 or .9% and $300 or .8% of
premiums in the 1998 and 1997 quarters, respectively.

     Commissions.  Commissions to agents  increased 45.8% to $20,655 in the 1998
quarter compared to $14,166 in the 1997 quarter.

     First year  commissions on accident and health business in the 1998 quarter
increased 54.0% to $14,743 compared to $9,576 in the 1997 quarter, corresponding
to the increase in first year  accident  and health  premiums and an increase in
younger (below age 65) policies being sold at higher first year commissions. The
ratio of first year accident and health  commissions  to first year accident and
health  premiums  was 69.6% in the 1998  quarter and 67.5% in the 1997  quarter.
First year  commissions on life business in the 1998 quarter  decreased 45.7% to
$133, compared to $245 in the 1997 quarter.  First year disability  commissions,
at 57.9%  of  premiums,  were  $138 in the 1998  quarter,  compared  to 59.4% of
premiums in the 1997 quarter.

Renewal  commissions  on  accident  and  health  business  in the  1998  quarter
increased  55.1% to $6,142,  compared to $3,959 in the 1997 quarter,  consistent
with the  increase in renewal  premiums  discussed  above.  The ratio of renewal
accident and health  commissions  to renewal  accident  and health  premiums was
17.7% in the 1998 quarter and 15.4% in the 1997 quarter.  This ratio  fluctuates
in  relation to the age of the  policies  in force and the rates of  commissions
paid to the agents.  Life renewal  commissions were 9.7% of premiums in the 1998
quarter compared to 11.7% in the 1997 quarter.  Renewal commissions of $131 were
9.1% of disability premiums.

     Net Policy Acquisition Costs Deferred.  The net deferred policy acquisition
costs in the 1998 quarter  increased 48.3% to $12,141  compared to $8,186 in the
1997 quarter. This deferral is net of amortization, which decreases or increases
as the  Company's  actual  persistency  is higher or lower than the  persistency
assumed for reserving purposes.  Cost deferrals are higher in the current period
due to the deferral of higher  commissions  and longer than  anticipated  policy
duration.

     General and Administrative Expenses. General and administrative expenses in
the 1998  quarter  increased  27.0% to  $6,765,  compared  to $5,325 in the 1997
quarter.  This  increase was due to variable  expense  growth,  yet is below the
37.6% rise in premiums.  The Company attributes these savings to efficiencies in
its processing areas and to utilization of its existing capacity.

     Provision for Federal Income Taxes.  The provision for federal income taxes
recorded by the Company for the 1998 quarter increased 37.4% to $2,399, compared
to $1,746 for the 1997 quarter.  This increase is primarily  attributable to the
Company's higher anticipated tax rates due to lower tax-exempt bond holdings and
reduced small life company exemptions.  The effective tax rates of approximately
32% and 30% in the 1998 and 1997  quarters,  respectively,  are below the normal
federal  corporate  rate as a result of credits  from the small  life  insurance
company deduction as well as the Company's investments in tax-exempt bonds.


                                       9
<PAGE>


Nine Months Ended September 30, 1997 and 1996:
(amounts in thousands, except per share data)

     Accident  and Health  Premiums.  First year  accident  and health  premiums
earned in the nine month period ended  September  30, 1998 (the "1998  period"),
including  long-term care and Medicare  supplement,  increased 47.1% to $58,959,
compared to $40,088 in the same period in 1997 (the "1997  period").  First year
long-term care premiums  earned in the 1998 period  increased  47.1% to $57,484,
compared to $39,086 in the 1997 period.  These results reflect  increased market
demand for the Company's  newest  products,  which include nursing home coverage
with  attached  home health care riders,  and its  Assisted  Living and Personal
Freedom policies, which combine the benefit coverage of skilled, assisted living
and custodial  nursing home and home health care protection in one comprehensive
benefit  plan.  Management  believes  this increase is indicative of the growing
need for  comprehensive  coverage  following its late 1996  introduction  of the
plans. First year Medicare supplement premiums earned by the Company in the 1998
period increased to $1,475 from $1,002 in the 1997 period.

Renewal  accident and health  premiums  earned by the Company in the 1998 period
increased  31.5% to $101,207,  compared to $76,984 in the 1997  period.  Renewal
long-term care premiums  earned in the 1998 period  increased  31.6% to $98,742,
compared to $75,055 in the 1997 period.  This  increase  reflects  renewals of a
larger  base  of  in-force  policies  and  continued  increases  in  persistency
(renewals as a percentage  of total prior year  business).  The Company has also
experienced significant growth in recent years of first year premiums,  which is
now  reflected in renewals.  Renewal  Medicare  supplement  premiums in the 1998
period increased 27.8% to $2,465, compared to $1,928 in the 1997 period.

Disability and Life Premiums. The Company earned $5,033 in disability premium in
the 1998 period.  During the 1998 period,  first year  disability  premiums were
$724 and renewal  premiums were $4,309.  First year life premiums  earned by the
Company in the 1998 period decreased 24.9% to $623, compared to $829 in the 1997
period. Renewal life premiums earned by the Company in the 1998 period increased
to $2,551, compared to $1,953 in the 1997 period.

     Net Investment  Income. Net investment income earned by the Company for the
1998 period increased 19.3% to $15,008,  from $12,581 for the 1997 period.  This
increase  was  primarily  the result of higher  investable  assets.  This growth
however  was  reduced  by the lower  interest  rate  environment  available  for
investments made during the 1998 period.  The Company also recognized  $7,323 of
capital gains during the 1998 period as a result of the sale of its equities and
tax-free  bond  portfolios.   Benefits  to  Policyholders.   Total  benefits  to
policyholders in the 1998 period increased 31.0% to $112,911 compared to $86,370
in the 1997 period.

Accident and health benefits to policyholders, excluding disability benefits, in
the 1998  period  increased  30.7% to  $107,910  compared to $82,290 in the 1997
period.  The Company's  accident and health loss ratio (the ratio of benefits to
policyholders  to total  accident  and  health  premiums)  was 69.3% in the 1998
period,  compared  to 71.3% in the 1997  period.  Although  Management  normally
expects  the loss  ratio to grow  year  over  year,  the  1997  period  included
actuarial factor  adjustments that temporarily  increased the loss ratio in that
period. The Company uses independent care managers to monitor and control claims
in its home health care coverage. The amounts due to care management included in
benefits to policyholders  were  approximately  $1,200 or .7% and $700 or .7% of
premiums in the 1998 and 1997 periods, respectively.




                                       10
<PAGE>



     Commissions.  Commissions to agents  increased 42.4% to $57,685 in the 1998
period compared to $40,511 in the 1997 period.

First year  commissions  on  accident  and health  business  in the 1998  period
increased   52.3%  to  $40,784,   compared  to  $26,785  in  the  1997   period,
corresponding  to the increase in first year accident and health  premiums.  The
ratio of first year accident and health  commissions  to first year accident and
health premiums was 69.2% in the 1998 period and 66.8% in the 1997 period. First
year  commissions on life business in the 1998 period  decreased  30.2% to $478,
compared to $685 in the 1997 period. The ratio of first year life commissions to
first year life  premiums was 76.8% in the 1998 period  compared to 82.6% in the
1997 period. First year disability commissions,  at 58.3% of premiums, were $423
in the 1998 period, compared to $560 in the 1997 period.

Renewal commissions on accident and health business in the 1998 period increased
35.4% to $16,062,  compared to $11,865 in the 1997 period,  consistent  with the
increase in renewal premiums  discussed above. The ratio of renewal accident and
health commissions to renewal accident and health premiums was 15.9% in the 1998
period  and 15.4% in the 1997  period.  Life  renewal  commissions  were 9.3% of
premiums  in the 1998  period  compared  to 12.0%  in the 1997  period.  Renewal
commissions of $391 were 9.1% of disability premiums.

     Net Policy Acquisition Costs Deferred.  The net deferred policy acquisition
costs in the 1998 period  increased 30.0% to $32,450  compared to $24,961 in the
1997 period, consistent with the growth of the Company's business. This deferral
is net of  amortization,  which  decreases or increases as the Company's  actual
persistency  is higher  or lower  than the  persistency  assumed  for  reserving
purposes.   Generally,   the  deferral  of  policy  acquisition  costs  remained
consistent with the growth of premiums.

     General and Administrative Expenses. General and administrative expenses in
the 1998  period  increased  21.7% to  $18,840,  compared to $15,479 in the 1997
period.  This increase was due to variable expense growth related to the rise in
premiums,  including  premium  taxes  and  costs  related  to  underwriting  new
policies.

     Provision for Federal Income Taxes.  The provision for federal income taxes
recorded by the Company for the 1998 period increased 88.5% to $8,866,  compared
to $4,703 for the 1997 period.  This increase is primarily  attributable  to the
capital  gains  recognized on the sale of the Company's  equity  portfolio.  The
effective  tax  rates  of  approximately  33.1%  and  29.3% in the 1998 and 1997
periods, respectively are below the normal federal corporate rate as a result of
credits from the small life insurance company deduction as well as the Company's
investments in tax-exempt bonds.




                                       11
<PAGE>



Liquidity and Capital Resources:

The Company's consolidated liquidity requirements have historically been created
and met from the operations of its insurance subsidiaries. The Company's primary
sources of cash are premiums and  investment  income.  The Company has provided,
and may continue to provide,  cash through public offerings of its common stock,
capital  markets  activities or debt  instruments.  The primary uses of cash are
policy acquisition costs (principally  commissions),  payments to policyholders,
investment purchases and general and administrative expenses.

Statutory  requirements  allow  insurers to pay  dividends  only from  statutory
earnings as approved by the state insurance commissioner. Statutory earnings are
generally  lower  than  publicly-reported  earnings  due  to  the  immediate  or
accelerated  recognition of all costs associated with premium growth and benefit
reserves.  The Company has not and does not intend to pay shareholder  dividends
in the near  future  due to these  requirements,  choosing  to retain  statutory
surplus to support continued premium growth.

The Company's cash flows in the 1998 period were attributable to cash used in by
operations,  cash  used in  investing,  and  cash  provided  by  financing.  The
Company's cash increased by $23,381 in the 1998 period primarily due to the sale
of  $22,640 of its  equity  securities  portfolio  and cash from  operations  of
$43,659.  The major provider of cash from  operations  was premiums,  which were
used to fund additions to reserves of $57,352 in the 1998 period. The major uses
of cash were commissions paid to agents and the purchase of bonds of $83,384.

The  Company's  cash  decreased  by  approximately  $38,181  in the 1997  period
primarily due to the purchase of  approximately  $98,515 of  investments,  which
more than  offset  cash from  operations  of  approximately  $29,014.  The major
provider of cash from operations was premiums used to fund additions to reserves
of approximately $40,363 in the 1997 period.

The Company invests in securities and other investments authorized by applicable
state laws and regulations and follows an investment policy designed to maximize
yield to the extent  consistent with liquidity  requirements and preservation of
assets.  The market value of the Company's bond portfolio  represented 105.3% of
its cost at September 30, 1998,  compared to 102.5% at December 31, 1997, with a
current unrealized gain of $16,152 at September 30, 1998,  compared to $6,833 at
December 31, 1997. Its equity  portfolio,  at September 30, 1998, was below cost
by $43, compared to $5,043 above cost on December 31, 1997,  reflecting the sale
and capture of $7,323 in capital  gains  during  1998.  As of December 31, 1997,
shareholders'  equity was  increased  by $7,838 due to  unrealized  gains in the
investment  portfolio.  As of  September  30,  1998,  shareholders'  equity  was
increased by $10,646 due to unrealized gains in the investment portfolio.

The  Company's  debt  currently  consists  primarily  of a mortgage  note in the
approximate  amount of $2,000 and $74,750 in convertible  subordinated debt. The
convertible  debt,  issued in November 1996, is convertible at $28.44 per share,
and unless  converted,  is  outstanding  until November 2003. The debt carries a
fixed  interest  coupon of 6.25%,  payable  semi-annually.  The mortgage note is
currently  amortized  over  15  years,  and  has a  balloon  payment  due on the
remaining  outstanding  balance in September  2003.  Although the note carries a
variable  interest  rate,  the  Company  has  entered  into an  amortizing  swap
agreement with the same bank,  with a notional  amount equal to the  outstanding
debt,  which has the  effect of  converting  the note to a 6.85%  fixed  rate of
interest.



                                       12
<PAGE>



The Company  consists of the Insurers and a  non-insurer  parent  company,  Penn
Treaty American  Corporation  ("the Parent").  The Parent directly or indirectly
controls 100% of the voting stock of the subsidiary  insurers.  In the event the
Parent  is unable  to meet its  financial  obligations,  becomes  insolvent,  or
discontinues  operations,  the  Insurers'  financial  condition  and  results of
operations could be materially affected.

The Parent currently has the obligation of making semi-annual  interest payments
attributable to the Company's  convertible debt. In that the dividend ability of
the  subsidiaries  is restricted,  the Parent must rely on its own liquidity and
cash flows to make all required interest installments.  Management believes that
the  Parent  holds  sufficient  liquid  funds  to meet its  obligations  for the
foreseeable future.

The  Company's  continued  growth is dependent  upon its ability to (i) continue
marketing efforts to expand its historical markets,  (ii) continue to expand its
network  of agents  and  effectively  market its  products  in states  where its
insurance  subsidiaries are currently licensed and (iii) fund such marketing and
expansion while at the same time maintaining minimum statutory levels of capital
and surplus required to support such growth.  Management believes that the funds
necessary to accomplish  the  foregoing,  including  funds  required to maintain
adequate levels of statutory  surplus in the Company's  insurance  subsidiaries,
can be met for the foreseeable future by funds generated from the Company's debt
issuance, its public offering in 1995 and from operations.

In the event (i) the Company fails to maintain minimum loss ratios calculated in
accordance  with  statutory  guidelines,  (ii) the  Company  fails to meet other
requirements mandated and enforced by regulatory authorities,  (iii) the Company
has  adverse  claims  experience  in the  future,  (iv) the Company is unable to
obtain additional  financing to support future growth, (v) the economy continues
to effect the buying  powers of senior  citizens,  or (vi) the Company  fails to
maintain its current ratings from A. M. Best or Standard & Poor's, the Company's
results of  operations,  liquidity  and  capital  resources  could be  adversely
affected.


Year 2000

As many computer  systems and other  equipment with embedded chips or processors
use only two  digits to  represent  the year,  they may be unable to  accurately
process  certain  data  before,  during  or after  the year  2000.  As a result,
business and governmental  entities are at risk for possible  miscalculations or
systems  failures  causing  disruptions  in their business  operations.  This is
commonly  known as the Year 2000 ("Y2K")  issue.  The Y2K issue can arise at any
point in the Company's supply, billing, processing, sales or financial chains.

The Company and each of its  subsidiaries  are in the process of  implementing a
Y2K  readiness  program with the  objective  of having all of their  significant
operations  functioning properly with respect to Y2K before January 1, 2000. The
first  component  of the Y2K project was to identify  all systems and  hardware,
which would be impacted by the Y2K issue.  This  portion of the project has been
completed for the Company and for all of its subsidiaries.

The second  component  of the Y2K project  involves the actual  remediation  and
replacement of various  systems and hardware,  which will be affected by the Y2K
issue.  The Company and its insurance  subsidiaries  are using both internal and
external  resources to complete  this  process.  Each system has been assigned a
priority for Y2K  completion,  beginning with the most critical  projects.  Many
application  systems,  which  are  not  Y2K  compliant,  have  been  slated  for
replacement with a new Y2K compliant system. The Company expects to complete the
installation and conversion to these new systems by the summer of 1999.



                                       13
<PAGE>



As part of the Y2K project,  significant service providers,  vendors, suppliers,
and  customers  that are  believed to be critical to business  operations  after
January 1,  2000,  have been  identified  and steps are being  undertaken  in an
attempt to reasonably ascertain their level of readiness through questionnaires,
interviews, on-site visits and other available means.

Because of the reliance  upon new  application  systems to alleviate the risk of
business  operations  due to the Y2K issue,  the Company  cannot  guarantee that
these systems will be implemented  successfully or in a timely  fashion.  In the
event  that one or all of these new system  conversions  are  unsuccessful,  the
Company could  experience  interruptions  in its business  operations  which are
critical to its ongoing  profitability and sustainability.  However, the Company
believes that its efforts in converting to new systems will be  successful,  and
does not anticipate any failures or unnecessary delays in its critical functions
as a result  of the Y2K  issue.  By the end of the  second  quarter,  1999,  the
company will review its progress in the completion of Y2K preparedness,  both on
in-house systems and external vendors. In the event either is not expected to be
completed  prior to January 1, 2000,  the  Company  will  correct  its  existing
systems  (which are  substantially  Y2K  compliant  already)  and/or  seek other
vendors which are compliant.

The  Company  has spent  approximately  $200,000  to date  related to  modifying
existing  systems to become Y2K compliant,  and  anticipates  the expenditure of
approximately  $100,000  more  before the end of the third  quarter,  1999.  The
majority  of  the  Company's  efforts  and  expenditures  have  related  to  the
installation  of a new  computer  system,  which,  although  correcting  for Y2K
issues, is being implemented for normal processing  reasons rather than for Y2K.
The  Company  expects  the  impact of Y2K to have no  material  impact  upon its
Statements of Condition and Comprehensive Income.

Some of the  information  presented in this filing  constitutes  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Although  the  Company  believes  that  its  expectations  are  based  on
reasonable  assumptions  within the bounds of its  knowledge of its business and
operations,  there can be no  assurance  that  actual  results of the  Company's
operations will not differ materially from its expectations. Factors which could
cause actual  results to differ from  expectations  include,  among others,  the
adequacy of the Company's  loss reserves,  the Company's  ability to qualify new
insurance  products  for sale in the  states  in which  it is  licensed  and the
acceptance of such  products,  the Company's  ability to comply with  government
regulations,  the ability of senior citizens to purchase the Company's  products
in light of the  increasing  costs of health care and the  Company's  ability to
expand its network of productive independent agents.





                                       14
<PAGE>



New Accounting Principle:

The Financial  Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard 130, "Reporting  Comprehensive  Income," which requires that
changes in comprehensive  income be shown in a financial statement with the same
prominence  as in other  financial  statements.  While not  mandating a specific
financial  statement format,  Statement 130 requires that an amount representing
total comprehensive income be reported for fiscal years beginning after December
15, 1997.  Restatement for earlier years is required for  comparative  purposes.
The Company has adopted Statement 130.

The FASB also issued Statement 131, "Disclosures about Segments of an Enterprise
and  Related  Information."  This  Statement,  which  supersedes  Statement  14,
Financial  Reporting  for  Segments  of a Business  Enterprise,  changes the way
public  companies report  information  about segments.  The Statement,  which is
based on the management approach to segment reporting,  includes requirements to
report selected segment information quarterly and entity-wide  disclosures about
products and services,  major customers, and the material countries in which the
entity holds assets and reports revenues. The Statement is effective for periods
beginning after December 15, 1997. Restatement for earlier years is required for
comparative purposes unless impracticable.  Statement 131 need not be applied to
interim  periods in the initial  year;  however,  in subsequent  years,  interim
period information must be presented on a comparative basis. The Company expects
to report  segment  information  for only its primary  product of long-term care
insurance.  It's  other  products,  including  disability  and  life  insurance,
comprise an immaterial  portion of the  Company's  total  revenues.  The Company
believes that the adoption of Statement  131 will not have a material  impact on
its financial condition or results of operations.

In 1998, the FASB issued Statement 132,  "Employers'  Disclosures about Pensions
and Other Postretirement  Benefits," which revises employer's  disclosures about
pension and other postretirement benefits. The Company expects that the adoption
of Statement 132, which is effective for fiscal periods beginning after December
15, 1997, will have no material impact on its financial  condition or results of
operations.


Statement of Position 97-3,  "Accounting by Insurance and Other  Enterprises for
Insurance-Related  Assessments" (SOP 97-3) was issued by the American  Institute
of Certified  Public  Accountants  in December  1997 and  provides  guidance for
determining when an insurance or other  enterprise  should recognize a liability
for  guaranty-fund  assessments  and guidance for measuring the  liability.  The
statement  is  effective  for 1999  financial  statements  with  early  adoption
permitted.  The Company  does not expect  adoption of this  statement  to have a
material effect on its financial position or results of operations.





                                       15
<PAGE>




                            PART II OTHER INFORMATION

Item 1.  Legal Proceedings

The Insurers  are parties to various  lawsuits  generally  arising in the normal
course of their  insurance  business.  The  Company  does not  believe  that the
eventual outcome of any of the suits to which the Insurers are currently a party
will have a material  effect on the financial  condition or result of operations
of the Company.

Item 2.  Changes in Securities

Not Applicable

Item 3.  Defaults Upon Senior Securities

Not Applicable

Item 4.  Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:

         Exhibit 11 -    Earnings Per Share Calculation
         Exhibit 27 -    Financial Data Schedule

(b)      Reports on Form 8-K:

         The  Company  filed no reports on Form 8-K  during the  quarter  ending
         September 30, 1998.



                                       16
<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  had duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                        PENN TREATY AMERICAN CORPORATION
                        --------------------------------
                                   Registrant


Date  November 12, 1998                 /s/ Irving Levit              
      -----------------                 ----------------
                                        Irving Levit
                                        President

Date  November 12, 1998                 /s/ Michael F. Grill           
      -----------------                 --------------------
                                        Michael F. Grill
                                        Treasurer


                                       17
<PAGE>

                                   Exhibit 11

                 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
                  (amounts in thousands, except per share data)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                Three Months Ended September 30,   Nine Months Ended September 30,
                                                --------------------------------   -------------------------------
                                                     1998             1997             1998            1997
                                                     ----             ----             ----            ----
<S>                                                <C>             <C>               <C>             <C>

Net income                                         $ 5,058          $ 4,172          $17,920         $11,348
Weighted average common shares outstanding           7,580            7,551            7,575           7,531
Basic earnings per share                           $  0.67          $  0.55          $  2.37         $  1.51
                                                   -------          -------          -------         -------
                                                   -------          -------          -------         -------
                                                   
Net income                                         $ 5,058          $ 4,172          $17,920         $11,348
Adjustments net of tax:
     Interest expense on convertible debt              792              823            2,344           2,477
     Amortization of debt offering costs                62               64              182             193
                                                   -------          -------          -------         -------    
Diluted net income                                 $ 5,912          $ 5,059          $20,446         $14,018
                                                   -------          -------          -------         -------
                                                   -------          -------          -------         -------

Weighted average common shares outstanding           7,580           7,551             7,575           7,531
Common stock equivalents due to dilutive
     effect of stock options                           213             246               204             222
Shares converted from convertible debt               2,628           2,628             2,628           2,628
                                                   -------          -------          -------         -------
Total outstanding shares for diluted earnings
     per share computation                          10,421           10,425           10,407          10,381
Diluted earnings per share                         $  0.57          $  0.49          $  1.96         $  1.35
                                                   -------          -------          -------         -------
                                                   -------          -------          -------         -------
</TABLE>


                                       18
<PAGE>