<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 March 31, 1999

                                       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 
incorporation of organization)                   Identification 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 May 6, 1999 was 7,807,589.

                                       
<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"),  American Network  Insurance Company  ("ANIC"),  American  Independent
Network Insurance Company of New York  ("AINIC")(collectively,  the "Insurers"),
United Insurance Group Agency,  Inc.  ("UIG") and Senior  Financial  Consultants
(collectively the "Agencies"), which are underwriters and marketers of long-term
care insurance products. PTNA is also an underwriter of life insurance products.


                                       2
<PAGE>
<TABLE>

                       PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                           Condensed Balance Sheets
                            (amounts in thousands)
<CAPTION>
                                                                                    March 31,     December 31,
                                                                                      1999            1998
                                                                                      ----            ----
                                                                                   (unaudited)
                                    ASSETS
<S>                                                                                 <C>             <C>
Investments:
  Bonds, available for sale at market (cost of $328,396 and $310,993, respectively) $ 330,455       $ 321,448
  Equity securities at market value (cost of $15,728 and $15,090, respectively)        18,399          17,334
  Policy loans                                                                            118             107
                                                                                    ---------       ---------
Total investments                                                                     348,972         338,889
Cash and cash equivalents                                                              30,244          38,402
Property and equipment, at cost, less accumulated depreciation of
  $3,249 and $3,033, respectively                                                      10,329           9,635
Unamortized deferred policy acquisition costs                                         168,455         157,385
Receivables from agents, less allowance for
  uncollectable amounts of $166 and $166, respectively                                  1,708           1,804
Accrued investment income                                                               5,176           4,889
Cost in excess of fair value of net assets acquired, less
  accumulated amortization of $1,287 and $1,029, respectively                          23,091           6,349
Present value of future profits acquired                                                3,078           3,181
Receivable from reinsurers                                                             12,632          12,288
Federal income tax recoverable                                                            804           1,741
Other assets                                                                            7,907           5,989
                                                                                    ---------       ---------
    Total assets                                                                    $ 612,396       $ 580,552
                                                                                    ---------       ---------
                                                                                    ---------       --------- 
                                  LIABILITIES
Policy reserves:
  Accident and health                                                               $ 205,713       $ 190,036
  Life                                                                                  9,707           9,434
Policy and contract claims                                                            111,323         105,667
Accounts payable and other liabilities                                                 14,012           8,639
Note payable                                                                            7,167              -
Long-term debt                                                                         76,527          76,550
Deferred income taxes                                                                  30,600          32,556
                                                                                    ---------       ---------
    Total liabilities                                                                 455,049         422,882
                                                                                    ---------       ---------
Commitments and contingencies

                             SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding                -              -
Common stock, par value $.10; 10,000
  shares authorized, 8,189 and 8,189 shares issued                                        819             819
Additional paid-in capital                                                             53,548          53,516
Net unrealized appreciation of securities                                               3,122           8,381
Retained earnings                                                                     101,564          96,660
                                                                                    ---------       ---------
                                                                                      159,053         159,376
Less 606 common shares held in treasury, at cost                                       (1,706)         (1,706)
                                                                                    ---------       ---------
                                                                                      157,347         157,670
                                                                                    ---------       ---------
    Total liabilities and shareholders' equity                                      $ 612,396       $ 580,552
                                                                                    ---------       ---------
                                                                                    ---------       ---------
          See accompanying notes to consolidated financial statements
</TABLE>

                                       3
<PAGE>
<TABLE>

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

<CAPTION>
                                                                         Three Months Ended March 31,
                                                                         ----------------------------
                                                                              1999            1998 
                                                                              ----            ----
 <S>                                                                        <C>             <C>
 Revenue:
   Accident and health premiums                                             $ 66,166        $ 50,912
   Life premiums                                                                 893             867
                                                                            --------        --------
                                                                              67,059          51,779

   Net investment income                                                       5,183           4,626
   Net realized capital gains                                                    616           6,715
   Other income                                                                1,440              76
                                                                            --------        --------   
                                                                              74,298          63,196
 Benefits and expenses:
   Benefits to policyholders                                                  45,404          34,282
   Commissions                                                                21,608          17,365
   Net policy acquisition costs  deferred                                    (11,070)         (8,275)
   General and administrative expense                                          9,842           5,955
   Interest expense                                                            1,195           1,213
                                                                            --------        --------
                                                                              66,979          50,540
                                                                            --------        --------

 Income before federal income taxes                                            7,319          12,656
 Provision for federal income taxes                                            2,415           4,285
                                                                            --------        --------
     Net income                                                                4,904           8,371
                                                                            --------        --------
  Other comprehensive income:
     Unrealized holding gain (loss) arising during period                     (7,353)          1,697
     Income (tax) benefit from unrealized holdings                             2,500            (577)
     Reclassification adjustment for (gain) loss included in net income         (616)         (6,715)
     Income (tax) benefit from reclassification adjustment                       210           2,283
                                                                            --------        --------
     Comprehensive income                                                   $   (355)       $ (5,059
                                                                            --------        --------
                                                                            --------        --------


Basic earnings per share                                                    $   0.65        $   1.11
Diluted earnings per share                                                  $   0.56        $   0.88


 Weighted average number of shares outstanding                                 7,583           7,572
 Weighted average number of shares outstanding (diluted)                      10,355          10,418

           See accompanying notes to consolidated financial statements

</TABLE>

                                       4
<PAGE>

<TABLE>

                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                      for the Three Months Ended March 31,
                                   (unaudited)
                             (amounts in thousands)
<CAPTION>
                                                                         1999             1998
                                                                         ----             ----
<S>                                                                   <C>              <C>
Net cash flow from operating activities:  
  Net income                                                          $  4,904         $  8,371
  Adjustments to reconcile net income to cash
    provided by operations:
    Amortization of intangible assets                                      452              272
    Policy acquisition costs, net                                      (11,070)          (8,275)
    Deferred income taxes                                                  807            5,224
    Depreciation expense                                                   216               89
    Compensation expense for agent options                                  27               -
    Net realized capital gains                                            (616)          (6,715)
  Increase (decrease) due to change in:
    Receivables from agents                                                 96              (31)
    Receivable from reinsurers                                            (344)            (889)
    Policy and contract claims                                           5,656            5,811
    Policy reserves                                                     15,950           11,457
    Accounts payable and other liabilities                               3,730            2,505
    Federal income taxes recoverable                                       937           (1,229)
    Accrued investment income                                             (287)            (118)
    Other, net                                                          (1,457)          (1,752)
                                                                      --------         --------
      Cash provided by operations                                       19,000           14,720
Cash flow from (used in) investing activities:
  Net cash purchase of subsidiary                                       (9,194)              -
  Proceeds from sales of bonds                                          12,190            6,224
  Proceeds from sales of equity securities                               3,236           22,045
  Maturities of investments                                              2,869            2,995
  Purchase of bonds                                                    (32,282)          (2,355)
  Purchase of equity securities                                         (3,352)            (193)
  Acquisition of property and equipment                                   (608)            (238)
                                                                      --------         --------
      Cash provided by (used in) investing                             (27,141)          28,478
Cash flow from (used in) financing activities:
  Proceeds from exercise of stock options                                    6               11
  Repayments of long-term debt                                             (23)            (192)
                                                                      --------         --------
      Cash used in financing                                               (17)            (181)
                                                                      --------         --------
Increase (decrease) in cash and cash equivalents                        (8,158)          43,017
Cash balances:
  Beginning of period                                                   38,402           11,241
                                                                      --------         --------
  End of period                                                       $ 30,244         $ 54,258
                                                                      --------         --------
                                                                      --------         --------

  Acquisition of subsidiary with note payable                         $ (7,167)        $     - 
                                                                      --------         --------
                                                                      --------         --------

                 See accompanying notes to consolidated financial statements.

</TABLE>


                                       5
<PAGE>


NOTES TO CONSOLIDATED  FINANCIAL  STATEMENTS
March 31, 1999 
(unaudited) 
(amounts in thousands, except per share data)

The Consolidated  Financial  Statements should be read in conjunction with these
notes and with the Notes to Consolidated  Financial  Statements  included in the
Annual  Report on Form 10-K for the year ended  December 31, 1998 of Penn Treaty
American Corporation (the "Company").

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 to 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 March 31, 1999,  shareholders'  equity was increased by $3,122
     due to  unrealized  gains of  $4,730  in the  investment  portfolio.  As of
     December  31,  1998,  shareholders'  equity was  increased by $8,381 due to
     unrealized gains of $12,699 in the investment portfolio.

     The amortized cost and estimated market value of investments  available for
     sale as of March 31, 1999 and December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                              March 31, 1999                       December 31, 1998
                                              --------------                       -----------------
                                          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                         $ 118,149      $ 121,075              $ 124,664       $ 132,031

   Obligations of states and
     political sub-divisions                    571            627                  2,660           2,864

   Mortgage backed securities                49,099         46,007                 10,368          10,407

   Debt securities issued by
    foreign governments                      11,411         11,668                  2,974           3,109

   Corporate securities                     149,166        151,078                170,327         173,037

   Equities                                  15,728         18,399                 15,090          17,334

   Policy Loans                                 118            118                    107             107
                                          ---------      ---------              ---------       ---------

   Total Investments                      $ 344,242      $ 348,972              $ 326,190       $ 338,889
                                          ---------      ---------              ---------       ---------
                                          ---------      ---------              ---------       ---------

   Net unrealized gain                        4,730                                12,699
                                          ---------                             ---------

                                          $ 348,972                             $ 338,889
                                          ---------                             ---------
                                          ---------                             ---------
</TABLE>


                                       6
<PAGE>

2.   New Accounting Principles:

     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 has adopted SOP 97-3, and  established a gross
liability  of $1,066  for  future  assessments  and a gross  asset of $1,046 for
premium tax offsets related to those assessments during the 1999 quarter.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively referred to as "derivatives") and for
hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
as either  assets or  liabilities  in the  statement of  financial  position and
measure  those  instruments  at fair  value.  While  the  Company  is  presently
evaluating  the  impact of SFAS No.  133,  the  adoption  of SFAS No. 133 is not
expected  to have a material  impact on the  Company's  financial  condition  or
results of operations.

3.   Statutory Regulation:

     In  1998,  the  NAIC  adopted  the  Codification  of  Statutory  Accounting
Principles  guidance,  which will replace the current  Accounting  Practices and
Procedures  manual as the NAIC's primary guidance on statutory  accounting.  The
Codification  provides  guidance for areas where  statutory  accounting has been
silent and changes current statutory accounting in some areas.

     The  Pennsylvania   Insurance   Department  has  adopted  the  Codification
guidance, effective January 1, 2001. The Company has not estimated the effect of
the Codification guidance upon its financial condition or results of operations.

4.   Acquisition of Business:

     On November 25, 1998, the Company  entered a purchase  agreement to acquire
all of the common stock of United Insurance Group Agency, Inc., a Michigan based
consortium of long-term care insurance  agencies.  The acquisition was effective
January 1, 1999, for the amount of $18,192, of which $8,078 was in the form of a
three-year zero-coupon installment note. The installment note, after discounting
for imputed interest,  is recorded as a note payable of $7,167.  The acquisition
is accounted  for as a purchase,  for which the Company  recognized  goodwill of
$17,000  that is being  amortized  over 25 years.  The Company  expects that the
proforma  effect of  consolidating  the  financial  results of UIG prior to 1999
would  be  immaterial  to  the  Company's  financial  condition  or  results  of
operations.

5.   Reconciliation of Earnings Per Share:

     A reconciliation of the numerator and denominator of the basic earnings per
share  computation to the numerator and denominator of the diluted  earnings per
share  computation  follows.  Basic earnings per share excludes  dilution and is
computed  by  dividing   income   available  to  common   stockholders   by  the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.

                                       7
<PAGE>

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

                                                   Three Months Ended Mar 31,
                                                   --------------------------
                                                      1999           1998
                                                      ----           ----
Net income                                          $ 4,904        $ 8,371
Weighted average common shares outstanding            7,583          7,572
Basic earnings per share                            $  0.65        $  1.11
                                                    -------        -------
                                                    -------        -------

Net income                                          $ 4,904        $ 8,371
Adjustments net of tax:
     Interest expense on convertible debt               783            773
     Amortization of debt offering costs                 61             60
                                                    -------        -------
Diluted net income                                  $ 5,748        $ 9,204
                                                    -------        -------
                                                    -------        -------


Weighted average common shares outstanding            7,583          7,572
Common stock equivalents due to dilutive
     effect of stock options                            144            218
Shares converted from convertible debt                2,628          2,628
                                                    -------        -------
Total outstanding shares for diluted earnings
     per share computation                           10,355         10,418
Diluted earnings per share                          $  0.56        $  0.88
                                                    -------        -------  
                                                    -------        -------


                                       8
<PAGE>

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

THREE MONTHS ENDED MARCH 31, 1999 AND 1998:
(amounts in thousands, except per share data)

     Accident  and Health  Premiums.  First year  accident  and health  premiums
earned in the three month  period  ended  March 31,  1999 (the "1999  quarter"),
including  long-term care and Medicare  supplement,  increased 24.6% to $21,320,
compared to $17,106 in the same period in 1998 (the "1998 quarter").  First year
long-term care premiums  earned in the 1999 quarter  increased 28.3% to $21,150,
compared to $16,491 in the 1998 quarter.  The Company  attributes  its growth to
continued improvements in product offerings,  which competitively meet the needs
of the long term care  marketplace.  In addition,  the Company actively recruits
and trains agents to sell its products. The Company has expanded its sales force
through the appointment and licensing of new, national general  agencies.  Also,
management  has actively  recruited  new agents and filed new products in states
other than in its normal geographic concentration.

Renewal  accident and health  premiums earned by the Company in the 1999 quarter
increased  35.2% to $43,214,  compared to $31,950 in the 1998  quarter.  Renewal
long-term care premiums  earned in the 1999 quarter  increased 34.7% to $41,919,
compared to $31,119 in the 1998 quarter.  This increase  reflects  renewals of a
larger base of in-force policies.  Renewal Medicare  supplement  premiums in the
1999 quarter increased 55.8% to $1,295, compared to $831 in the 1998 quarter.

     Net Investment  Income. Net investment income earned by the Company for the
1999 quarter  increased 12.0% to $5,183,  from $4,626 for the 1998 quarter.  The
Company also earned $616 in capital gains during the 1999  quarter.  These gains
were primarily  attributable to the sale from the Company's investment portfolio
of convertible  securities and preferred  equity  securities.  This portfolio is
managed in order to maximize investment income. In the 1998 quarter, the Company
recognized  approximately  $6,400 in capital gains due to the sale of its common
stock portfolio.

     Other  Income.  The Company  recognized  $1,440 of other income in the 1999
quarter,  compared to $76 in the 1998  quarter.  The 1999 increase was primarily
attributable  to the acquisition of United  Insurance  Group Agency,  Inc. (UIG)
during 1999, which as a sales agency recorded $1,382 in commission income in the
1999 quarter.

     Benefits to  Policyholders.  Total  benefits to  policyholders  in the 1999
quarter  increased 32.4% to $45,404 compared to $34,282 in the 1998 quarter.  In
addition to paid claims, benefits to policyholders increased $15,950 in the 1999
quarter due to increases in policy reserves (the actuarial  reserve  established
for the future  incurral  of claims)  and  $5,656 in policy and  contract  claim
reserves (the reserve  established for current claims incidence).  The Company's
loss ratio, or benefits to premiums, was 67.7% in the 1999 quarter,  compared to
66.2% in the 1998 quarter.

The Company  uses  independent  care  managers  to monitor  claims and to ensure
proper  utilization of  policyholder  benefits in its home health care coverage.
The expenses  related to care management  included in benefits to  policyholders
were  approximately $450 or .7% and $300 or .6% of premiums in the 1999 and 1998
quarters, respectively.

                                       9
<PAGE>

     Commissions.  Commissions to agents  increased 24.4% to $21,608 in the 1999
quarter compared to $17,365 in the 1998 quarter.

First year  commissions  on accident  and health  business  in the 1999  quarter
increased   23.1%  to  $14,446,   compared  to  $11,739  in  the  1998  quarter,
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 67.8% in the 1999  quarter and 68.6% in the 1998  quarter.

Renewal  commissions  on  accident  and  health  business  in the  1999  quarter
increased  34.2% to $6,679,  compared to $4,976 in the 1998 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
15.5% in the 1999 quarter and 15.6% in the 1998 quarter.  This ratio  fluctuates
in  relation to the age of the  policies  in force and the rates of  commissions
paid to the agents.

Commission  expense  in  the  1999  quarter  was  reduced  by  $550  due  to the
elimination of commissions paid to UIG by Company subsidiaries.

     Net Policy Acquisition Costs Deferred.  The net deferred policy acquisition
costs in the 1999 quarter  increased 33.8% to $11,070  compared to $8,275 in the
1998  quarter,  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.

Deferred  costs are typically all costs deemed to vary with the  acquisition  of
new premiums. These costs include the variable portion of commissions, which are
defined as the first year commission rate less the renewal commission rates, and
variable general and administrative expenses related to policy underwriting.

     General and Administrative Expenses. General and administrative expenses in
the 1999  quarter  increased  65.3% to  $9,842,  compared  to $5,955 in the 1998
quarter. This increase is due to variable expense growth,  management additions,
information technology expenditures and support staff additions. UIG costs added
$1,910 to general and  administrative  expenses in the 1999  quarter,  including
amortization of goodwill of $180 from the purchase.

     Provision for Federal Income Taxes.  The provision for federal income taxes
recorded by the Company for the 1999 quarter was $2,415,  compared to $4,285 for
the 1998 quarter.  The effective tax rates of  approximately  33% and 34% in the
1999 and 1998 quarters,  respectively,  are below the normal  federal  corporate
rate as a result of of small life  deductions and dividend  received  deductions
attributable to equity investments.

     Comprehensive  Income.  During the 1999 quarter,  the Company's  investment
portfolio  generated  unrealized  losses of $7,353 due to higher market interest
rates,  compared to 1998 quarter gains of $1,696.  After accounting for deferred
taxes  from  these   gains,   shareholders'   equity   decreased  by  $356  from
comprehensive  losses during the 1999 quarter,  compared to comprehensive income
of $5,059 in the 1998 quarter.

                                       10
<PAGE>

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.  All
application  systems that 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.

     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 ) and/or seek other vendors which
are compliant.

     Since January 1999, the Company has been testing its system using Y2K dates
and has not experienced any difficulties or problems. Any policy written with an
annual collection of premium has been successfully processed since January 1999,
with no interruption of services.

     The Company has spent  approximately  $300,000 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
Company  estimates that this amount  represents  approximately  15% of its total
information  technology  budget.  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


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<PAGE>

reasons  rather than for Y2K.  The Company  expects the impact of Y2K to have no
material impact upon its financial condition and results of operations.


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,  investment  income and  maturities  of
investments. 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 1999  quarter were  attributable  to cash
provided by operations,  cash used in investing, and cash provided by financing.
The Company's cash decreased by $8,158 in the 1999 quarter  primarily due to the
purchase of UIG for $9,194 in net cash and a note payable for $8,078.  The major
provider of cash from operations was premiums used to fund additions to reserves
of $21,606 in the 1999  quarter.  The primary  uses of cash,  other than the UIG
acquisition  were to policy  acquisition  costs of $11,070  and the  purchase of
bonds of $32,282.

     The Company's cash  increased by $43,017 in the 1998 quarter  primarily due
to the  sale of  $22,045  of its  equity  securities  portfolio  and  cash  from
operations of $14,720.  The major provider of cash from  operations was premiums
used to fund additions to reserves of $17,210 in the 1998 quarter.

     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  approximately  100.6% of its cost at March 31,  1999,  compared  to
103.4% on December 31, 1998,  with a current  unrealized gain of $2,059 at March
31, 1999, compared to $10,455 on December 31, 1998. Its equity portfolio,  which
consisted  of common and  preferred  stock at March 31, 1999,  exceeded  cost by
$2,671, compared to $2,244 on December 31, 1998.

     As of March 31, 1999,  shareholders'  equity was increased by $3,122 due to
unrealized gains of $4,730 in the investment portfolio. As of December 31, 1998,
shareholders'  equity was increased by $8,381 due to unrealized gains of $12,699
in the investment portfolio.

     The Company's debt currently  consists  primarily of a mortgage note in the
approximate amount of $1,800 and $74,750 in convertible  subordinated debt and a
note payable of $7,167 for the purchase of UIG. The convertible  debt, issued in
November  1996, is convertible at $28.44 per share 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


                                       12
<PAGE>

debt,  which has the effect of converting  the note to a fixed rate of interest.
The note payable,  although carrying a zero percent coupon, is discounted at six
percent and is payable in installments over three years.

     The Company consists of the Insurers, the Agencies and a non-insurer parent
company,  Penn Treaty American  Corporation (the "Parent").  The Parent controls
100% of the voting stock its subsidiaries  insurers.  In the event the Parent is
unable to meet its financial  obligations,  becomes  insolvent,  or discontinues
operations, its subsidiaries 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 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 from
current funds.

     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,  or (v) the
economy  adversely  affect the buying power of senior  citizens,  the  Company's
results of  operations,  liquidity  and  capital  resources  could be  adversely
affected.

     Some   of  the   information   presented   in   this   report   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 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, the Company's ability to expand
its  network  of  productive  independent  agents  and  the  performance  of the
Company's investment portfolio.

NEW ACCOUNTING PRINCIPLES

     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

                                       13
<PAGE>

adoption  permitted.  The Company has adopted SOP 97-3, and  established a gross
liability  of $1,066  for  future  assessments  and a gross  asset of $1,046 for
premium tax offsets related to those assessments during the 1999 quarter.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively referred to as "derivatives") and for
hedging activities. SFAS No. 133 requires an entity to recognize all derivatives
as either  assets or  liabilities  in the  statement of  financial  position and
measure  those  instruments  at fair  value.  While  the  Company  is  presently
evaluating  the  impact of SFAS No.  133,  the  adoption  of SFAS No. 133 is not
expected  to have a material  impact on the  Company's  financial  condition  or
results of operations.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

     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.

     A significant portion of assets and liabilities are financial  instruments,
which are subject to the market risk of potential losses from adverse changes in
market rates and prices.  The Company's  primary market risk exposures relate to
interest  rate risk on fixed rate  domestic  medium-term  instruments  and, to a
lesser  extent,  domestic  short- and  long-term  instruments.  The  company has
established  strategies,  asset quality  standards,  asset allocations and other
relevant  criteria for its  portfolio to manage its exposure to market risk.  In
addition,  maturities are structured after projecting  liability cash flows with
actuarial  models.  The Company  currently  has only one  derivative  instrument
outstanding, an interest rate swap on its mortgage, with the same bank, which is
used as a hedge to convert the  mortgage to a fixed  interest  rate.  All of the
Company's  financial  instruments are held for purposes other than trading.  The
Company's  portfolio does not contain any significant  concentrations  in single
issuers (other than U.S. treasury and agency obligations),  industry segments or
geographic regions.

     Caution  should  be  used  in  evaluating  overall  market  risk  from  the
information  below,  since actual  results could differ  materially  because the
information was developed  using  estimates and assumptions as described  below,
and because  insurance  liabilities and reinsurance  receivables are excluded in
the  hypothetical  effects  (insurance  liabilities  represent  71.8%  of  total
liabilities and reinsurance receivables on unpaid losses represent 2.1% of total
assets).

     The  hypothetical  effects of changes in market rates or prices on the fair
values of  financial  instruments  as of March  31,  1999,  excluding  insurance
liabilities and reinsurance  receivables on unpaid losses because such insurance
related assets and liabilities are not carried at fair value, would have been as
follows:

     If interest rates had increased by 100 basis points,  there would have been
an  approximate  $10,000,000  increase  in the net fair  value of the  Company's
investment portfolio less its long-term debt or the related swap agreement.  The
change in fair values was  determined by estimating  the present value of future
cash flows using  models that measure the change in net present  values  arising
from selected  hypothetical  changes in market  interest rate. A 200 basis point
increase in market rates at March 31, 1999 would have resulted in an approximate
$19,000,000  increase in the net fair value.  If interest rates had decreased by
100 and 200 basis points,  there would have been an approximate  $11,000,000 and
$23,000,000 net decrease,  respectively,  in the net fair value of the Company's
total investments and debt.

                                       14
<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

         Not Applicable

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:

         United  Insurance  Group Agency,  Inc.  Stock  Purchase and  Employment
         Agreements.



                                       15
<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:   May 14, 1999               /s/ Irving Levit  
        -------------------        ----------------------------------------
                                       Irving Levit
                                       Chairman of the Board, President and
                                       Chief Executive Officer

Date:   May 14, 1999               /s/ Cameron B. Waite                    
        -------------------        ----------------------------------------
                                       Cameron B. Waite
                                       Chief Financial Officer



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