UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

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

For the quarterly period ended June 30, 2001

                                       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
                     3440 Lehigh Street, Allentown, PA 18103
                                 (610) 965-2222

            Incorporated in Pennsylvania        I.R.S. Employer ID No.
                    023-1664166
                -------------------------------------------------

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 of the Registrant's common stock, par value
$.10 per share, as of August 10, 2001 was 19,367,737.
<PAGE>

                          PART I FINANCIAL INFORMATION

Item 1.  Financial Statements

Penn Treaty American Corporation is one of the leading providers of long-term
nursing home and home health care insurance. Our 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 10 of this report, respectively. Our financial statements represent the
consolidation of our operations and those of our subsidiaries, Penn Treaty
Network America Insurance Company ("PTNA"), American Network Insurance Company
("American Network"), American Independent Network Insurance Company of New York
("American Independent") and Penn Treaty (Bermuda) Ltd. ("Penn Treaty
(Bermuda))" (collectively the "Insurers") and United Insurance Group Agency,
Inc. ("UIG"), Network Insurance Senior Health Division ("NISHD") and Senior
Financial Consultants (collectively the "Agencies"), which are underwriters and
marketers of long-term care insurance, disability and other senior-market
products. Penn Treaty Network is also an underwriter of life insurance products.



                                       2
<PAGE>

<TABLE>
<CAPTION>
                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                            Condensed Balance Sheets
                             (amounts in thousands)
                                                                                     June 30         December 31,
                                                                                       2001              2000
                                                                                       ----              ----
                                                                                   (unaudited)
                                     ASSETS
<S>                                                                                      <C>          <C>
Investments:
  Bonds, available for sale at market (cost of $464,844 and $349,877, respectively)      $ 468,519    $ 349,488
  Bonds, classified as trading                                                              16,914         --
  Equity securities at market value (cost of $19,506 and $17,112, respectively)             18,182       16,496
  Policy loans                                                                                 163          142
                                                                                         ---------    ---------
Total investments                                                                          503,778      366,126
Cash and cash equivalents                                                                   54,409      116,596
Property and equipment, at cost, less accumulated depreciation of
  $5,794 and $5,162, respectively                                                           12,963       12,467
Unamortized deferred policy acquisition costs                                              255,358      251,711
Receivables from agents, less allowance for
  uncollectable amounts of $199 and $199, respectively                                       2,577        3,333
Accrued investment income                                                                    7,949        6,214
Federal income tax recoverable                                                               3,635        3,671
Cost in excess of fair value of net assets acquired, less
  accumulated amortization of $3,961 and $3,314, respectively                               26,417       27,064
Present value of future profits acquired                                                     2,144        2,352
Receivable from reinsurers                                                                  17,090       16,131
Other assets                                                                                49,120       50,466
                                                                                         ---------    ---------
    Total assets                                                                         $ 935,440    $ 856,131
                                                                                         =========    =========
                                   LIABILITIES
Policy reserves:
  Accident and health                                                                    $ 363,773    $ 348,344
  Life                                                                                      13,051       13,065
Policy and contract claims                                                                 201,743      164,565
Accounts payable and other liabilities                                                      14,903       14,706
Long-term debt                                                                              79,231       81,968
Deferred income taxes                                                                       46,623       45,421
                                                                                         ---------    ---------
    Total liabilities                                                                      719,324      668,069
                                                                                         ---------    ---------
                              SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding                   --           --
Common stock, par value $.10; 40,000 shares authorized, 19,750 and 8,202 shares issued       1,975          820
Additional paid-in capital                                                                  78,497       53,879
Accumulated other comprehensive income (loss)                                                1,524         (662)
Retained earnings                                                                          140,825      140,730
                                                                                         ---------    ---------
                                                                                           222,821      194,767
Less 915 and 915, respectively, common shares held in treasury, at cost                     (6,705)      (6,705)
                                                                                         ---------    ---------
                                                                                           216,116      188,062
                                                                                         ---------    ---------
    Total liabilities and shareholders' equity                                           $ 935,440    $ 856,131
                                                                                         =========    =========
          See accompanying notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>

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

                                                          Three Months Ended June 30,  Six Months Ended June 30,
                                                          ---------------------------  -------------------------
                                                               2001         2000           2001         2000
                                                               ----         ----           ----         ----
<S>                                                         <C>          <C>            <C>          <C>
Revenue:
  Premiums                                                  $  90,039    $  86,825      $ 186,058    $ 172,863
  Net investment income                                         7,185        6,636         13,910       12,797
  Net realized capital gains (losses)                             712       (1,414)          (854)         741
  Trading account (loss) income                                   399         --           (1,324)        --
  Other income                                                  2,365        2,222          4,765        4,360
                                                            ---------    ---------      ---------    ---------
                                                              100,700       94,269        202,555      190,761
Benefits and expenses:
  Benefits to policyholders                                    60,235       59,488        132,372      119,399
  Commissions                                                  20,836       26,086         45,824       51,372
  Net policy acquisition costs deferred                         1,750      (12,090)        (3,647)     (22,980)
  General and administrative expense                           12,957       12,261         25,591       23,334
  Reserve for claim litigation                                   --           --             (250)       1,500
  Interest expense                                              1,240        1,281          2,522        2,562
                                                            ---------    ---------      ---------    ---------
                                                               97,018       87,026        202,412      175,187
                                                            ---------    ---------      ---------    ---------

(Loss) income before federal income taxes                       3,682        7,243            143       15,574
Provision for federal income tax (benefit)                      1,252        2,455             49        5,295
                                                            ---------    ---------      ---------    ---------
    Net (loss) income                                           2,430        4,788             94       10,279
                                                            ---------    ---------      ---------    ---------

 Other comprehensive income:
    Unrealized holding gain (loss) arising during period       (3,961)      (5,134)         1,180       (3,175)
    Income tax expense from unrealized holdings                 1,386        1,746           (412)       1,080
    Reclassification adjustment for realized (gain) loss       (1,111)       1,414          2,178         (741)
    Income (tax) benefit from reclassification adjustment         378         (481)          (760)         252
                                                            ---------    ---------      ---------    ---------

    Comprehensive income                                    $    (878)   $   2,333      $   2,280    $   7,695
                                                            =========    =========      =========    =========


Basic earnings per share                                    $    0.20    $    0.66      $    0.01    $    1.41
Diluted earnings per share                                  $    0.20    $    0.56      $    0.01    $    1.20


Weighted average number of shares outstanding                  11,857        7,277          9,585        7,277
Weighted average number of shares outstanding (diluted)        11,857        9,976          9,594        9,963

              See accompanying notes to consolidated financial statements.
</TABLE>


                                       4
<PAGE>
<TABLE>
<CAPTION>
                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                        for the Six Months Ended June 30,
                                   (unaudited)
                             (amounts in thousands)
                                                                 2001         2000
                                                                 ----         ----
<S>                                                           <C>          <C>
Net cash flow from operating activities:
  Net income                                                  $      94    $  10,279
  Adjustments to reconcile net income to cash
    provided by operations:
    Amortization of intangible assets                               945          855
    Policy acquisition costs, net                                (3,647)     (22,980)
    Deferred income taxes                                            25        1,402
    Depreciation expense                                            632          509
    Net realized capital losses (gains)                             854         (741)
    Trading account loss                                          1,324         --
    Net proceeds from purchases and sales of trading account       (707)        --
  Increase (decrease) due to change in:
    Receivables from agents                                         756          204
    Receivable from reinsurers                                     (959)         101
    Policy and contract claims                                   37,178       10,712
    Policy reserves                                              15,415       46,360
    Accounts payable and other liabilities                          197       (2,064)
    Federal income taxes recoverable                                 36        1,393
    Accrued investment income                                    (1,735)        (650)
    Other, net                                                    1,293          (28)
                                                              ---------    ---------
      Cash provided by operations                                51,701       45,352
Cash flow used in investing activities:
  Net cash purchase of subsidiary                                  --         (6,000)
  Proceeds from sales of bonds                                   34,358       57,671
  Proceeds from sales of equity securities                        4,728       15,527
  Maturities of investments                                       8,408        7,976
  Purchase of bonds                                            (175,104)    (105,684)
  Purchase of equity securities                                  (8,151)     (16,550)
  Acquisition of property and equipment                          (1,128)      (1,728)
                                                              ---------    ---------
      Cash used in investing                                   (136,889)     (48,788)
Cash flow provided by (used in) financing activities:
  Proceeds from exercise of stock options                            12            7
  Proceeds from stock offering                                   25,726         --
  Repayments of long-term debt                                   (2,737)        (855)
                                                              ---------    ---------
      Cash provided by (used in) financing                       23,001         (848)
                                                              ---------    ---------
Decrease in cash and cash equivalents                           (62,187)      (4,284)
Cash balances:
  Beginning of period                                           116,596       17,347
                                                              ---------    ---------
  End of period                                               $  54,409    $  13,063
                                                              =========    =========

             See accompanying notes to consolidated financial statements.
</TABLE>

                                       5
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (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, 2000 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) that 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.       Recent Developments:

         In the Company's Annual Report on Form 10-K for the year ended December
31, 2000, it reported that its Report of Independent Accountants contained a
going concern qualification. The going concern qualification addressed the
parent company's liquidity and the statutory capital and surplus position of
PTNA.

         On April 27, 2001, the Company distributed rights to its shareholders
and holders of its 6 1/4% convertible subordinated notes due 2003 for the
purpose of raising new equity capital. Pursuant to the rights offering, holders
of the Company's common stock and holders of its convertible subordinated notes
received rights to purchase approximately 11,550 newly issued shares of common
stock at a set price of $2.40 per share. The rights offering was completed on
May 25, 2001 and generated net proceeds of $25,726 in additional equity capital.
The Company contributed $18,000 of the net proceeds to the statutory capital of
its subsidiaries, PTNA and American Network. The remaining proceeds are
sufficient to meet the parent company's liquidity requirements through December
31, 2001.

         At December 31, 2000, PTNA's statutory surplus had decreased so that
for regulatory purposes, it was at the Regulatory Action Level, below which an
insurer must prepare a Corrective Action Plan (the "Plan") that details the
insurer's plan to raise additional statutory capital over the next four years.
As a result, PTNA is required to submit the Plan to the Pennsylvania Insurance
Department (the "Department") for approval.

         PTNA expects to complete the Plan by September 1, 2001, with the
assistance of its consulting actuaries and the Department. In conjunction with
the Plan, the Department has requested PTNA to adopt more conservative claims
assumptions in the establishment of its statutory reserves, as indicated in the
preliminary findings of their most recent financial examination. While PTNA
believes that it may not be required by statute to adopt these claims
assumptions, it agrees that increased statutory reserves are appropriate given
recent Company and industry developments in policy persistency and claims
duration. PTNA proposes to incorporate these assumptions for all new policies
written after January 1, 2001 and to incorporate these assumptions in
its calculation of reserves over an extended period as its statutory capital
permits. PTNA's statutory reserves, as reported for the period ended June 30,
2001, reflect its proposal under the Plan. The Department has not yet approved
the Plan or PTNA's current reserving methodology. If the Plan is not approved,
PTNA's statutory financial position could be significantly adversely affected.
However, the assumptions utilized in the formulation of statutory reserves do

                                       6
<PAGE>

not impact policy reserves calculated for presentation under accounting
principles generally accepted in the United States of America ("GAAP").

         On July 23, 2001, the Company announced that it would not complete its
sale to an unaffiliated party of its New York subsidiary, American
Independent, and certain of its non-core product lines, including medicare
supplement and disability coverages. On August 13, 2001, the Company announced
that it had signed a letter of intent with an unaffiliated insurer for the sale
of its disability product line for an undisclosed amount pending a definitive
purchase agreement. The transaction remains subject to final due diligence, and
execution of a definitive agreement and regulatory approval.

2.       Deferred Acquisition Costs and Policy Reserves:

During the second quarter 2001, the Company, with the assistance of its new
consulting actuary, completed an analysis to determine if existing policy
reserves and policy and contract claim reserves, together with the present value
of future gross premiums, would be sufficient to (1) cover the present value of
future benefits to be paid to policyholders and settlement and maintenance costs
and (2) recover unamortized deferred policy acquisition costs. The Company
determined that it would require premium rate increases on certain of its
existing products in order to fully recover its present deferred acquisition
cost asset. As a result of this analysis, and the subsequent redetermination of
factors employed, the Company recorded a loss of approximately $300 through a
net change in the policy reserves and unamortized deferred policy acquisition
costs. Future changes in policy reserves and unamortized deferred policy
acquisition costs will be based on these revised assumptions. In determining the
impairment, the Company evaluated future claims expectations, premium rates and
required rate increases, persistency and expense projections.

3.       Contingencies:

         The Company received notice on April 17, 2001, that it and certain of
its key executive officers have been named as defendants in class action
lawsuits filed in United States District Court for the Eastern District of
Pennsylvania as a result of the Company's recent stock performance. The
complaints in each case allege that the Company and its executives made
misleading statements about the Company's statutory surplus, statutory reserves
and financial health. The Company cannot predict the outcome of these class
action lawsuits, however it contends that the lawsuits are baseless and
completely without merit, and intends to defend itself vigorously.

4.       Codification:

         In 1998, the National Association of Insurance Commissions ("NAIC")
adopted the Codification of Statutory Accounting Principles guidance, which
replaces the current Accounting Practices and Procedures manual as the NAIC's
primary guidance on statutory accounting as of January 1, 2001. The Codification
provides guidance for areas where statutory accounting has been silent and
changes current statutory accounting in some areas.

         The Pennsylvania and New York Insurance Departments have adopted the
Codification guidance, effective January 1, 2001. The Company's subsidiaries
have adopted the applicable Codification guidance, including certain
limitations on the recognition of goodwill and EDP equipment, and the
recognition of other than temporary declines in investments, which served to
reduce the statutory surplus of the Company's insurance subsidiaries at January
1, 2001, by approximately $3,050.

                                       7
<PAGE>

5.       Investments:

         Management has categorized the majority 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 June 30,
2001, shareholders' equity was increased by $1,524 due to unrealized gains of
$2,351 in the investment portfolio. As of December 31, 2000, shareholders'
equity was decreased by $662 due to unrealized losses of $1,005 in the
investment portfolio.

         The amortized cost and estimated market value of the Company's
available for sale investment portfolio as of June 30, 2001 and December 31,
2000 are as follows:

                                June 30, 2001               December 31, 2000
                                -------------               -----------------
                             Amortized   Estimated       Amortized    Estimated
                               Cost     Market Value       Cost     Market Value
U.S. Treasury securities
  and obligations of U.S
  Government authorities
  and agencies               $ 165,542   $ 169,778        $ 120,691   $ 125,981

Obligations of states and
  political sub-divisions          572         599              572         600

Mortgage backed securities      31,412      31,633           26,529      26,720

Debt securities issued by
 foreign governments            16,811      16,725           15,817      15,549

Corporate securities           250,507     249,784          186,268     180,638

Equities                        19,506      18,182           17,112      16,496
                             ---------   ---------        ---------   ---------

Total Investments            $ 484,350   $ 486,701        $ 366,989   $ 365,984
                             =========   =========        =========   =========

Net unrealized gain (loss)       2,351                       (1,005)
                             ---------                      -------

                             $ 486,701                    $ 365,984
                             =========                    =========


         Effective January 1, 2001, in accordance with Statement of Financial
Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), the Company transferred its convertible bond
portfolio, which contained embedded derivatives, from the available for sale
category of investments to the trading category. Realized gains and losses and
changes in unrealized gains and losses for the trading portfolio are recorded in
current operations. The unrealized loss at the time of the transfer was $1,064.

         During the six month period ended June 30, 2001, the Company recognized
impairment losses of $744 on equity securities, which it deemed to be other than
temporary.

6.       New Accounting Principles:

         Effective January 1, 2001, the Company adopted SFAS No. 133 as amended
by SFAS No. 137 "Deferral of the Effective Date of FAS 133", 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.

                                       8
<PAGE>

         In accordance with SFAS No. 133, the Company transferred its
convertible bond portfolio from the available for sale category to the trading
category.

         The Company has entered into an interest rate swap agreement, which
serves to convert its mortgage loan from a variable rate to a fixed rate
instrument. The Company has determined that the swap qualifies as a cash-flow
hedge. The notional amount of the swap is approximately $1,600. The effects have
been determined to be immaterial to the financial statements.

         The Company's involvement with derivative instruments and transactions
is primarily to mitigate its own risk and is not considered speculative in
nature.

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
two Statements of Financial Accounting Standards ("SFAS").  SFAS No. 141
"Business Combinations" requires usage of the purchase method for all business
combinations initiated after June 30, 2001, and prohibits the usage of the
pooling of interests method of accounting for business combinations.  The
provisions of SFAS No. 141 relating to the application of the purchase method
are generally effective for business combinations completed after July 1, 2001.
Such provisions include guidance on the identification of the acquiring entity,
the recognition of intangible assets other than goodwill acquired in a business
combination and the accounting for negative goodwill.  The transition provisions
of SFAS No. 141 require an analysis of goodwill, acquired in purchase business
combinations prior to July l, 2001, to identify and reclassify separately
identifiable intangible assets currently recorded as goodwill.

         SFAS No. 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to the acquisition.  The Company will adopt SFAS
No. 142 on January 1, 2001 and will cease amortizing goodwill at that time.  All
goodwill recognized in the Company's consolidated balance sheet at January 1,
2002 should be assigned to one or more reporting units.  Goodwill in each
reporting unit should be tested for impairment by June 30, 2002.  An impairment
loss recognized as a result of a transitional impairment test of goodwill should
be reported as the cumlative effect of a change in accounting principle.

         Although the Company believes there are separately identifiable
intangible assets currently included in the total cost in excess of fair value
of net assets acquired on the consolidated balance sheet, it has not yet
evaluated the impact of SFAS No. 141 and SFAS No. 142 on its financial condition
or results of operations.


                                       9
<PAGE>

7.       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. Anti-dilutive effects are not included.

<TABLE>
<CAPTION>
                                           Three Months Ended June 30,  Six Months Ended June 30,
                                           ---------------------------  -------------------------
                                                  2001        2000          2001        2000
                                                  ----        ----          ----        ----
<S>                                             <C>         <C>           <C>         <C>
Net income                                      $ 2,430     $ 4,788       $    94     $10,279
Weighted average common shares outstanding       11,857       7,277         9,585       7,277
Basic earnings per share                        $  0.20     $  0.66       $  0.01     $  1.41
                                                =======     =======       =======     =======

Net income                                      $ 2,430     $ 4,788       $    94     $10,279
Adjustments net of tax:
     Interest expense on convertible debt          --           772          --         1,542
     Amortization of debt offering costs           --            60          --           120
                                                -------     -------       -------     -------
Diluted net income                              $ 2,430     $ 5,620       $    94     $11,941
                                                =======     =======       =======     =======

Weighted average common shares outstanding       11,857       7,277         9,585       7,277
Common stock equivalents due to dilutive
     effect of stock options                       --            71             9          58
Shares converted from convertible debt             --         2,628          --         2,628
                                                -------     -------       -------     -------
Total outstanding shares for diluted earnings
     per share computation                       11,857       9,976         9,594       9,963
Diluted earnings per share                      $  0.20     $  0.56       $  0.01     $  1.20
                                                =======     =======       =======     =======
</TABLE>


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

Overview

         As a result of our insurance subsidiary surplus needs and parent
company liquidity requirements, the Report of our Independent Accountant for our
fiscal 2000 financial statements contained a going concern qualification. See "-
Liquidity and Capital Resources."

         Our principal products are individual, defined benefit accident and
health insurance policies that consist of nursing home care, home health care,
Medicare supplement and long-term disability insurance. Our underwriting
practices rely upon the base of experience that we have developed in over 29
years of providing nursing home care insurance, as well as upon available
industry and actuarial information. As the home health care market has
developed, we have encouraged our customers to purchase both nursing home and
home health care coverage, thus providing our insureds with enhanced protection
and broadening our policy base.

         Our insurance subsidiaries are subject to the insurance laws and
regulations of the states in which they are licensed to write insurance. These
laws and regulations govern matters such as payment of dividends, settlement of
claims and loss ratios. State regulatory authorities must approve premiums
charged for insurance products. In addition, our insurance subsidiaries are
required to establish and maintain reserves with respect to reported and
incurred but not reported losses, as well as estimated future benefits payable
under our insurance policies. These reserves must, at a minimum, comply with
mandated standards. For a description of current regulatory matters affecting
our insurance subsidiaries, see "- Liquidity and Capital Resources - Subsidiary
Operations."

                                       10
<PAGE>

         Our results of operations are affected significantly by the following
other factors:

         Level of required reserves for policies in-force. The amount of
reserves relating to reported and unreported claims incurred is determined by
periodically evaluating historical claims experience and statistical information
with respect to the probable number and nature of such claims. Claim reserves
reflect actual experience through the most recent time period. We compare actual
experience with estimates and adjust our reserves on the basis of such
comparisons. Revisions to reserves are reflected in our current results of
operations through benefits to policyholders' expense.

         We also maintain reserves for policies that are not currently in claim
based upon actuarial expectations that a policy may go on claim in the future.
These reserves are calculated based on factors that include estimates for
mortality, morbidity, interest rates and persistency. Factor components
generally include assumptions that are consistent with both our experience and
industry practices.

         Policy premium levels. We attempt to set premium levels to maximize
profitability. Premium levels on new products, as well as rate increases on
existing products, are subject to government review and regulation.

         Deferred acquisition costs. In connection with the sale of our
insurance policies, we defer and amortize a portion of the policy acquisition
costs over the related premium paying periods of the life of the policy. These
costs include all expenses that are directly related to, and vary with, the
acquisition of the policy, including commissions, underwriting and other policy
issue expenses. The amortization of deferred acquisition costs is determined
using the same projected actuarial assumptions used in computing policy
reserves. Deferred acquisition costs can be affected by unanticipated
terminations of policies because, upon such terminations, we are required to
expense fully the deferred acquisition costs associated with the terminated
policies.

         With the assistance of our new consulting actuary, we reviewed the
appropriateness and recoverability of our deferred acquisition cost ("DAC")
asset. We determined that we require premium rate increases on certain of our
existing products in order to fully recover our present DAC from future profits.
In the event that premium rate increases cannot be obtained as needed, our DAC
would be impaired and we would incur an expense in the amount of the impairment.
See "-- Net Policy Acquisition Costs Deferred."

         The number of years a policy has been in effect. Claims costs tend to
be higher on policies that have been in-force for a longer period of time. As
the policy ages, it is more likely that the insured will need services covered
by the policy. However, the longer the policy is in effect, the more premium we
receive.

         Investment income. Our investment portfolio consists primarily of
investment grade fixed income securities. Income generated from this portfolio
is largely dependent upon prevailing levels of interest rates. Due to the
duration of our investments (approximately 5.0 years), investment interest
income does not immediately reflect changes in market interest rates. However,
we are susceptible to changes in market rates when cash flows from maturing
investments are reinvested at prevailing market rates. As of June 30, 2001, 3.7%
of our invested assets were committed to common stocks and small capitalization
preferred stocks.

                                       11
<PAGE>

         Lapsation and persistency. Factors that affect our results of
operations include lapsation and persistency, both of which relate to the
renewal of insurance policies. Lapsation is the termination of a policy by
non-renewal. Lapsation is automatic if and when premiums become more than 31
days overdue although, in some cases, a lapsed policy may be reinstated within
six months. Persistency represents the percentage of premiums renewed, which we
calculate by dividing the total annual premiums at the end of each year (less
first year premiums for that year) by the total annual premiums in-force for the
prior year. For purposes of this calculation, a decrease in total annual
premiums in-force at the end of any year would be the result of non-renewal of
policies, including policies that have terminated by reason of death, lapsed due
to nonpayment of premiums and/or been converted to other policies offered by us.
First year premiums are premiums covering the first twelve months a policy is
in-force. Renewal premiums are premiums covering all subsequent periods.

         Policies renew or lapse for a variety of reasons, both internal and
external. We believe that our efforts to address policyholder concerns or
questions help to ensure policy renewals. We also believe that we enjoy a
favorable reputation among policyholders for providing desirable policy benefits
and efficient claims processing. We work closely with our licensed agents, who
play an integral role in policy conservation and policyholder communication.

         External factors also contribute to policy renewal or lapsation.
Economic cycles can influence a policyholder's ability to continue the payment
of insurance premiums when due. We believe that tax relief for certain long-term
care insurance premiums and other governmental initiatives, which have raised
public awareness of the escalating costs of long-term care, increase new sales
and renewal payments. The ratings assigned to our insurance subsidiaries by
independent rating agencies also influence consumer decisions.

                                       12

<PAGE>

         Lapsation and persistency can both positively and adversely impact
future earnings. Improved lapsation and persistency generally result in higher
renewal premiums and lower amortization of deferred acquisition costs, but may
lead to increased claims in future periods. Lapsation and persistency problems
can result in reduced premium collection and a greater percentage of higher-risk
policyholders and lapsation requires us to fully expense deferred acquisition
costs relating to lapsed policies in the period in which policies lapse.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2001 and 2000
(amounts in thousands, except per share data)

Premiums. Total premium revenue earned in the three month period ended June 30,
2001 (the "2001 quarter"), including long-term care, disability, life and
Medicare supplement, increased 3.7% to $90,039, compared to $86,825 in the same
period in 2000 (the "2000 quarter").

         First year long-term care premiums earned in the 2001 quarter decreased
50.5% to $12,299, compared to $24,824 in the 2000 quarter. We experienced
significant reductions in new premium sales due to the voluntary cessation of
new business generation in certain states that accounted for approximately 30%
of our new business sales during 2000 and as a result of financial concerns
regarding our insurance subsidiaries' statutory surplus. Under our proposed
Corrective Action Plan, currently being formulated in consultation with the
Pennsylvania Insurance Department (the "Department") and our consulting
actuaries, we intend to limit new business growth to levels that will allow us
to maintain sufficient statutory surplus. See "-Liquidity and Capital
Resources."

         Renewal long-term care premiums earned in the 2001 quarter increased
25.4% to $73,324, compared to $58,494 in the 2000 quarter. This increase
reflects renewals of a larger base of in-force policies. We may experience
future reduced renewal premiums if policies lapse. Current declines in first
year premiums, as discussed above, will negatively impact future renewal premium
growth.

Net Investment Income. Net investment income earned for the 2001 quarter
increased 8.3% to $7,185, from $6,636 for the 2000 quarter. Management
attributes this growth to more invested assets as a result of higher established
reserves and from the investment of funds raised under our recently completed
Rights Offering. Our average yield on invested assets at cost, including cash
and cash equivalents, was 5.4% in the 2001 quarter, compared to 6.2% in the 2000
quarter. The average yield is lower due to reduced market rates for reinvesting
of maturing investments and due to higher cash balances held during the 2001
quarter.

Net Realized Capital Gains and Trading Account Activity. During the 2001
quarter, we recognized capital gains of $712, compared to capital losses of
$1,414 in the 2000 quarter. The results in both periods were recorded as a
result of our normal investment management operations.

         As a result of the adoption of SFAS No. 133, we classify our
convertible bond portfolio as trading account investments. Changes in trading
account investment market values are recorded in our statement of operations
during the period in which the change occurs, rather than as an unrealized gain
or loss recorded directly through equity. As a result, we have recorded a
trading account gain in the 2001 quarter of $399, which reflects the unrealized
and realized gain of our convertible portfolio that arose during the quarter.

Other Income. We recorded $2,365 in other income during the 2001 quarter, up
from $2,222 in the 2000 quarter. The increase is attributable to an increase of
commissions earned by United Insurance Group on sales of insurance products
underwritten by unaffiliated insurers and to income generated from corporate
owned life insurance policies.

Benefits to Policyholders. Total benefits to policyholders in the 2001 quarter
increased 1.3% to $60,235, compared to $59,488 in the 2000 quarter. Our loss
ratio, or policyholder benefits to premiums, was 66.9% in the 2001 quarter,
compared to 68.5% in the 2000 quarter.

         Newly reported claims increased during the 2001 quarter, requiring
additional reserves to be established. Management believes that claims were
reported earlier during the 2001 quarter due to reduced policyholder and
provider confidence levels following our reports of additional statutory surplus
needs. In addition, management has seen an increase during the 2001 quarter in
claim duration, for which it has established higher reserves.

         Claims experience can differ from our expectations due to numerous
factors, including mortality rates, duration of care and type of care utilized.
When we experience deviation from our estimates, we typically seek premium rate
increases that are sufficient to offset future deviation. We have been generally
successful in the past in obtaining state insurance department approvals for
increases. If we are unsuccessful in obtaining rate increases when deemed
necessary, or if we do not pursue rate increases when actual claims experience
exceeds our expectations, we would suffer a financial loss.

                                       13
<PAGE>

         During the 2001 quarter, with the assistance our new consulting
actuary, we completed an analysis to determine if existing policy reserves and
policy and contract claim reserves, together with the present value of future
gross premiums, would be sufficient to (1) cover the present value of future
benefits to be paid to policyholders and settlement and maintenance costs and
(2) recover unamortized deferred policy acquisition costs. We determined that we
would require premium rate increases on certain of our existing products in
order to fully recover our present deferred acquisition cost asset from future
profits.As a result of this analysis, we recorded a loss of approximately $300
through a net change in the policy reserves and unamortized deferred policy
acquisition costs. Future changes in policy reserves and unamortized deferred
policy acquisition costs will be based on these revised assumptions. In
determining the impairment, we evaluated future claims expectations, premium
rates and our ability to obtain future rate increases, persistency and expense
projections.

         We estimate that current policy reserves and our DAC asset were reduced
by offsetting amounts of approximately $7,500 during the 2001 quarter due to
this analysis. Without this adjustment, we estimate that our loss ratio during
the 2001 quarter would have been approximately 75%, reflecting the increase
discussed above regarding our claim reserves. See "-Net Policy Acquisition
Costs Deferred."

Commissions. Commissions to agents decreased 20.1% to $20,836 in the 2001
quarter, compared to $26,086 in the 2000 quarter.

         First year commissions on accident and health business in the 2001
quarter decreased 46.8% to $8,671, compared to $16,312 in the 2000 quarter, due
to the decrease in first year accident and health premiums. The ratio of first
year accident and health commissions to first year accident and health premiums
was 68.4% in the 2001 quarter and 65.4% in the 2000 quarter. We believe that the
increase in the first year commission ratio is primarily attributable to the
sale of younger issue age policies. We generally pay a higher first year
commission percentage on sales to younger policyholders due to the expectation
that premiums will be collected over a longer period of time.

         Renewal commissions on accident and health business in the 2001quarter
increased 32.9% to $12,754, compared to $9,596 in the 2000 quarter, due to the
increase in renewal premiums discussed above. The ratio of renewal accident and
health commissions to renewal accident and health premiums was 17.0% in the 2001
quarter and 16.1% in the 2000 quarter. Although the ratio of commission expense
can be affected by adjustments in any particular quarter, we believe that the
increase in the 2001 quarter is indicative of the renewal of policies written by
managing general agents, who receive higher commissions for new and renewal
business written. Managing general agents generally receive higher commissions
to compensate them for providing additional services in the recruitment,
training and retention of producing agents.

         Commission expense during the 2001 quarter was reduced by $1,089 from
United Insurance Group and NISHD override commissions paid to those companies by
affiliated insurers. During the 2000 quarter, commissions were reduced by
$1,195.

Net Policy Acquisition Costs Deferred. The net deferred policy acquisition costs
in the 2001 quarter decreased 114.5% to a net charge of $1,750, compared to a
net credit of $12,090 in the 2000 quarter.

                                       14
<PAGE>

         Deferred costs are typically all costs that are directly related to,
and 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
ultimate renewal commission rates, and variable general and administrative
expenses related to policy underwriting. Deferred costs are amortized over the
life of the policy based upon actuarial assumptions, including persistency of
policies in-force. In the event a policy lapses prematurely due to death or
termination of coverage, the remaining unamortized portion of the deferred
amount is immediately recognized as expense in the current period.

         During the 2001 quarter, with the assistance of our new consulting
actuary, we completed an analysis to determine if existing policy reserves and
policy and contract claim reserves, together with the present value of future
gross premiums, would be sufficient to (1) cover the present value of future
benefits to be paid to policyholders and settlement and maintenance costs and
(2) recover unamortized deferred policy acquisition costs. We determined that we
would require premium rate increases on certain of our existing products in
order to fully recover our present deferred acquisition cost asset from future
profits. As a result of this analysis, we recorded an impairment loss of
approximately $300 through a net change in the policy reserves and unamortized
deferred policy acquisition costs. Future changes in policy reserves and
unamortized deferred policy acquisition costs will be based on these revised
assumptions in future periods. In determining the impairment, we evaluated
future claims expectations, premium rates and our ability to obtain future rate
increases, persistency and expense projections.

         We also estimate that current policy reserves and our DAC asset were
reduced by offsetting amounts of approximately $7,500 during the 2001 quarter
due to this analysis.

General and Administrative Expenses. General and administrative expenses in the
2001 quarter increased 5.7% to $12,957, compared to $12,261 in the 2000 quarter.
The 2001 and 2000 quarters include $1,713 and $2,102, respectively of general
and administrative expenses related to United Insurance Group expense. The ratio
of total general and administrative expenses to premium revenues was 14.4% in
the 2001 quarter, compared to 14.1% in the 2000 quarter.

         As described above, our ratio of renewal commissions to renewal
premiums has increased as a result of policy sales made by agencies with a
higher commission schedule. These agencies are paid higher rates in order to
compensate them for incurring additional costs related to policy generation,
such as sales lead generation, agent training and certain marketing material
expense. As a result, our general and administrative expenses should be reduced.
As new premium sales have declined, we have recognized that our new policy
generation expenses have not declined at a comparable rate. Therefore, during
the 2001 quarter, the Company reduced its staff related to new business
production by approximately 50 employees in order to eliminate costs associated
with declining new business production. We believe that if we are unsuccessful
in our attempt to write new business in states where we have currently ceased
new production or if further new business declines are experienced, we will need
to decrease production expenses further.

         General and administrative expenses also increased during the 2001
quarter as a result of supplemental accounting fees, actuarial fees, legal fees
and amortization and depreciation expenses.

Reserve for Claim Litigation. In the 2000 quarter, a jury awarded compensatory
damages of $24 and punitive damages of $2,000 in favor of the plaintiff in a
disputed claim case against one of our subsidiaries, for which we maintained a
$1,000 reserve. During the 2001 quarter, we agreed to settle the claim for $750.

                                       15
<PAGE>

Provision for Federal Income Taxes. Our provision for federal income taxes for
the 2001 quarter declined 49.0% to $1,252, compared to $2,455 for the 2000
quarter. The effective tax rates of 34.0% and 33.9% in the 2001 and 2000
quarters, respectively, are at or below the normal federal corporate rate. The
reduced rates are as a result of credits from our investments in tax-exempt
bonds and corporate owned life insurance and from dividends we receive that are
partially exempt from taxation and are partially offset by non-deductible
goodwill amortization and other non-deductible expenses.

Comprehensive Income (Loss). During the 2001 quarter, our investment portfolio
generated pre-tax unrealized losses of $3,961, compared to 2000 quarter
unrealized losses of $5,134. After accounting for deferred taxes from these
gains, shareholders' equity declined by $878 from comprehensive losses during
the 2001 quarter, compared to comprehensive income of $2,333 in the 2000
quarter.

Six Months Ended June 30, 2001 and 2000 (amounts in thousands, except per share
data)

Premiums. Total premium revenue earned in the six month period ended June 30,
2001 (the "2001 period"), including long-term care, disability, life and
Medicare supplement, increased 7.6% to $186,058, compared to $172,863 in the
same period in 2000 (the "2000 period").

         First year long-term care premiums earned in the 2001 period decreased
36.3% to $31,524, compared to $49,495 in the 2000 period. We experienced
significant reductions in new premium sales due to the voluntary cessation of
new business generation in certain states that have generally accounted for
approximately 30% of our new business sales during 2000 and as a result of
financial concerns regarding our insurance subsidiaries' statutory surplus.
Under our proposed Corrective Action Plan, currently being formulated in
consultation with the Department and our consulting actuaries, we intend to
limit new business growth to levels that will allow us to maintain sufficient
statutory surplus. See " - Liquidity and Capital Resources."

         Renewal premiums earned in the 2001 period increased 25.2% to $153,240,
compared to $122,416 in the 2000 period. Renewal long-term care premiums earned
in the 2001 period increased 25.3% to $145,500, compared to $116,099 in the 2000
period. This increase reflects renewals of a larger base of in-force policies,
as well as a continued increase in policyholder persistency.

Net Investment Income. Net investment income earned for the 2001 period
increased 8.7% to $13,910, from $12,797 for the 2000 period. Management
attributes this growth to more invested assets as a result of higher established
reserves and from the investment of additional funds generated from our Rights
Offering. Our average yield on invested assets at cost, including cash and cash
equivalents, was 5.4% in the 2001 period, compared to 6.1% in the 2000 period.
The average yield is lower due to reduced market rates for reinvesting of
maturing investments and due to higher cash balances held during the 2001
period.

Net Realized Capital Gains and Trading Account Activity. During the 2001 period,
we recognized capital losses of $854, compared to capital gains of $741 in the
2000 period. The results in both periods were recorded as a result of our normal
investment management operations.

                                       16
<PAGE>

         As a result of the adoption of SFAS No. 133, we classify our
convertible bond portfolio as trading account investments. Changes in trading
account investment market values are recorded in our statement of operations
during the period in which the change occurs, rather than as an unrealized gain
or loss recorded directly through equity. As a result, we have recorded a
trading account loss in the 2001 period of $1,324, which reflects the unrealized
and realized gain or loss of our convertible portfolio that arose during the
period.

Other Income. We recorded $4,765 in other income during the 2001 period, up from
$4,360 in the 2000 period. The increase is attributable to an increase of
commissions earned by United Insurance Group on sales of insurance products
underwritten by unaffiliated insurers and to income generated from corporate
owned life insurance policies.

Benefits to Policyholders. Total benefits to policyholders in the 2001 period
increased 10.9% to $132,372, compared to $119,399 in the 2000 period. Our loss
ratio, or policyholder benefits to premiums, was 71.2% in the 2001 period,
compared to 69.1% in the 2000 period.

         Newly reported claims increased during the 2001 period, requiring
additional reserves to be established. Management believes that claims were
reported sooner during the 2001 period due to reduced policyholder and provider
confidence levels following our reports of additional statutory surplus needs.
In addition, management has seen an increase during the 2001 period in claim
duration, for which it has established higher reserves. We have also increased
our reserves approximately $2,500 during the 2001 period through the increase of
our loss adjustment expense reserve, which is established for the funding of
administrative costs associated with the payment of current claims.

         Claims experience can differ from our expectations due to numerous
factors, including mortality rates, duration of care and type of care utilized.
When we experience deviation from our estimates, we typically seek premium rate
increases that are sufficient to offset future deviation. We have been generally
successful in the past in obtaining state insurance department approvals for
increases. If we are unsuccessful in obtaining rate increases when deemed
necessary, or if we do not pursue rate increases when actual claims experience
exceeds our expectations, we would suffer a financial loss.

         During the 2001 period, with the assistance of our new consulting
actuary, we completed an analysis to determine if existing policy reserves and
policy and contract claim reserves, together with the present value of future
gross premiums, would be sufficient to (1) cover the present value of future
benefits to be paid to policyholders and settlement and maintenance costs and
(2) recover unamortized deferred policy acquisition costs. We determined that we
would require premium rate increases on certain of our existing products in
order to fully recover our present deferred acquisition cost asset from future
profits.  As a result of this analysis, we recorded a loss of approximately $300
through a net change in the policy reserves and unamortized deferred policy
acquisition costs. Future changes in policy reserves and unamortized deferred
policy acquisition costs will be based on these revised assumptions in future
periods. In determining the impairment, we evaluated future claims expectations,
premium rates and our ability to obtain future rate increases, persistency and
expense projections.

         We estimate that current policy reserves and our DAC asset were reduced
by offsetting amounts of approximately $7,500 during the 2001 period due to this
analysis. Without this adjustment, we estimate that our loss ratio during the
2001 period would have been approximately 75%, reflecting the increase discussed
above regarding our claim reserves. See " - Net Policy Acquisition Costs
Deferred."

                                       17
<PAGE>

Commissions. Commissions to agents decreased 10.8% to $45,824 in the 2001
period, compared to $51,372 in the 2000 period.

         First year commissions on accident and health business in the 2001
period decreased 33.4% to $21,560, compared to $32,373 in the 2000 period, due
to the decrease in first year accident and health premiums. The mix of
policyholder issue ages for new business affects the percentage of commissions
paid for new business due to our age-scaled commission rates. Generally, sales
to younger policyholders receive a higher commission percentage. The ratio of
first year accident and health commissions to first year accident and health
premiums was 66.7% in the 2001 period and 65.1% in the 2000 period.

         Renewal commissions on accident and health business in the 2001 period
increased 34.3% to $25,269, compared to $18,817 in the 2000 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
17.0% in the 2001 period and 15.9% in the 2000 period.

         Commission expense during the 2001 period was reduced by the netting of
$2,081 from override commissions paid to the Agencies by affiliated insurers.
During the 2000 period, commissions were reduced by $2,064.

Net Policy Acquisition Costs Deferred. The net deferred policy acquisition costs
in the 2001 period decreased 84.1% to $3,647, compared to $22,980 in the 2000
period.

         Deferred costs are typically all costs that are directly related to,
and vary with, the acquisition of policies. These costs include the variable
portion of commissions, which are defined as the first year commission rate less
ultimate renewal commission rates, and variable general and administrative
expenses related to policy underwriting. Deferred costs are amortized over the
life of the policy based upon actuarial assumptions, including persistency of
policies in-force. In the event a policy lapses prematurely due to death or
termination of coverage, the remaining unamortized portion of the deferred
amount is immediately recognized as expense in the current period.

         During the 2001 period, with the assistance of our new consulting
actuary, we completed an analysis to determine if existing policy reserves and
policy and contract claim reserves, together with the present value of future
gross premiums, would be sufficient to (1) cover the present value of future
benefits to be paid to policyholders and settlement and maintenance costs and
(2) recover unamortized deferred policy acquisition costs. We determined that we
would require premium rate increases on certain of our existing products in
order to fully recover our present deferred acquisition cost asset from future
profits. As a result of this analysis, we recorded a loss of approximately $300
through a net change in the policy reserves and unamortized deferred policy
acquisition costs. Future changes in policy reserves and unamortized deferred
policy acquisition costs will be based on these revised assumptions in future
periods. In determining the impairment, we evaluated future claims expectations,
premium rates and required rate increases, persistency and expense projections.

         We estimate that current policy reserves and our DAC asset were reduced
by offsetting amounts of approximately $7,500 during the 2001 period due to this
analysis.

                                       18
<PAGE>

General and Administrative Expenses. General and administrative expenses in the
2001 period increased 9.7% to $25,591, compared to $23,334 in the 2000 period.
The 2001 and 2000 periods include $3,370 and $4,256, respectively of general and
administrative expenses related to United Insurance Group expense. The ratio of
total general and administrative expenses to premium revenues was 13.8% in the
2001 period, compared to 13.5% in the 2000 period.

         As described above, our ratio of renewal commissions to renewal
premiums has increased as a result of policy sales made by agencies with a
higher commission schedule. These agencies are paid higher rates in order to
compensate them for incurring additional costs related to policy generation,
such as sales lead generation, agent training and certain marketing material
expense. As a result, our general and administrative expenses should be reduced.
As new premium sales have declined, we have recognized that our new policy
generation expenses have not declined at a comparable rate. Therefore, during
the 2001 period, the Company reduced its staff related to new business
production by approximately 50 employees in order to eliminate costs associated
with declining new business production. We believe that if we are unsuccessful
in our attempt to write new business in states where we have currently ceased
new production or if further new business declines are experienced, we will need
to decrease production expenses further.

         General and administrative expenses also increased during the 2001
period as a result of supplemental accounting and actuarial fees, legal fees and
depreciation expenses.

Reserve for Claim Litigation. In the 2000 period, a jury awarded compensatory
damages of $24 and punitive damages of $2,000 in favor of the plaintiff in a
disputed claim case against one of our subsidiaries, for which we maintained a
$1,000 reserve. During the 2001 period, we agreed to settle the claim for $750.

Provision for Federal Income Taxes. Our provision for federal income taxes for
the 2001 period decreased 99.1% to $49, compared to $5,295 for the 2000 period.
The effective tax rates of 34.0% and 34.0% in the 2001 period and the 2000
period, respectively, are below the normal federal corporate rate as a result of
credits from the small life insurance company deduction, as well as our
investments in tax-exempt bonds, corporate owned life insurance and from
dividends received that are partially exempt from taxation. These credits are
partially offset by non-deductible goodwill amortization.

Comprehensive Income. During the 2001 period, our investment portfolio generated
pre-tax, unrealized gains of $1,180, compared to the 2000 period unrealized
losses of $3,175. After accounting for deferred taxes from these gains and
losses, shareholders' equity increased by $2,298 from comprehensive income
during the 2001 period, compared to comprehensive income of $7,695 in the 2000
period.

Liquidity and Capital Resources

         As a result of our insurance subsidiary surplus needs and parentcompany
liquidity requirements, the Report of our Independent Accountant for our fiscal
2000 financial statements contained a going concern qualification.  The going
concern qualification addressed parent liquidity and the statutory capital and
surplus position of our primary insurance subsidiary.

         Our consolidated liquidity requirements have historically been created
and met from the operations of our insurance subsidiaries. Our primary sources
of cash are premiums, investment income and maturities of investments. We have
obtained, and may continue to obtain, cash through public offerings of our
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.

                                       19
<PAGE>

         In the 2001 period, our cash flows were attributable to cash provided
by operations, cash used in investing and cash provided in financing. Our cash
decreased $62,187 in the 2001 quarter primarily due to the purchase of $183,255
in bonds and equity securities. Cash was provided primarily from the maturity
and sale of $47,494 in bonds and equity securities and the net proceeds from our
Rights Offering, which generated $25,726 during the 2001 period. These sources
of funds were supplemented by $51,701 from operations. The major provider of
cash from operations was premium revenue used to fund reserve additions of
$52,593.

         Our cash decreased $4,284 in the 2000 period primarily due to the
acquisition of $122,234 in bonds and equity. The use of these funds offset
$39,739 from operations and $16,412 provided from the sale and maturity of bonds
and equity securities. The major provider of cash from operations was premium
revenue used to fund reserve increases of $48,799. We also used $6,000 for the
purchase of Network Insurance Senior Health Division, an insurance agency.

         We invest in securities and other investments authorized by applicable
state laws and regulations and follow an investment policy designed to maximize
yield to the extent consistent with liquidity requirements and preservation of
assets. At June 30, 2001, the market value of our bond portfolio represented
100.8% of our cost, with a current unrealized gain of $3,675. Our equity
portfolio market value was below cost by $1,324 at June 30, 2001. Our equity
portfolio was below cost by $616 at December 31, 2000 and the market value of
our bond portfolio was below our cost by $389.

          As of June 30, 2001, shareholders' equity was increased by $1,524 due
to unrealized gains of $2,351 in the investment portfolio. As of December 31,
2000, shareholders' equity was decreased by $662 due to unrealized losses of
$1,005 in the investment portfolio.

Subsidiary Operations

         At December 31, 2000, our primary insurance subsidiary's statutory
surplus had decreased to $14,969 so that, for regulatory purposes, it was
at the Regulatory Action Level, below which an insurer must file a Corrective
Action Plan that details its plan to raise additional statutory
capital over the next four years. As a result, our subsidiary is required to
submit the Corrective Action Plan (the "Plan") to the Department for approval.
Individual states in which our insurance subsidiaries are licensed to conduct
business may also suspend our certificate of authority if they believe that our
subsidiary's capital and surplus levels are deficient.

         We expect to complete the Plan by September 1, 2001, with the
assistance of our consulting actuaries and the Department. As part of the Plan,
the Department has requested us to adopt more conservative claims assumptions in
the establishment of our statutory reserves, as is indicated in the preliminary
findings of their most recent financial examination. While we believe that we
may not be required by statute to adopt these claims assumptions, we agree that
increased statutory reserves are appropriate given recent company and industry
developments in policy persistency and claims duration. We have proposed to
incorporate these assumptions for all new policies written after January 1, 2001
and to include the impact of these assumptions in our calculation of reserves
over an extended period as our statutory capital can permit. Our statutory
reserves, as reported for the period ended June 30, 2001, reflect our intended
proposal under the Plan. In addition, we have projected our statutory capital
and surplus, on a quarterly basis, beyond the required Plan period. Our
projections include existing and new business in order to allow us to assess our
statutory capital strength at varying levels of new business growth. We intend
to utilize these projections to control future growth within allowable statutory
constraints and to monitor our need for additional statutory capital as
appropriate. The Department has not yet approved the Plan or PTNA's current
reserving methodology.  If the Plan is not adopted, PTNA's statutory financial
position could be significantly adversely affected.

                                       20
<PAGE>

         At June 30, 2001, our primary subsidiary's total adjusted capital had
increased to $25,969. However, the Department has not yet approved the reserving
methodology incorporated in our reported June 30, 2001 statutory filings. We
believe that if our statutory surplus declines further beyond our projections,
or if the Department does not accept our proposed Plan, the Department would
require further corrective action. This corrective action could include, but may
not be limited to the involuntary cessation of new business generation, placing
the subsidiary under departmental supervision, or involuntary receivership,
which could result in the liquidation of all subsidiary assets. In this event,
our shareholders would likely receive little if any value from the sale or
liquidation of this subsidiary.

         As part of the Plan, the Department has requested that we seek its
approval prior to taking certain actions. These include payment of dividends,
transactions with affiliates, new investments, incurral of debt, pledging of
assets and new reinsurance agreements. The Department is also requiring monthly
reports related to our financial condition.

         On March 31, 2001, we contributed the common stock ownership of one of
our insurance subsidiaries to our largest insurance subsidiary as a capital
infusion. This resulted in an increase of statutory surplus for that insurer of
$4,875.

         On May 28, 2001, we contributed $18,000 from the net proceeds of our
Rights Offering (see " - Parent Company Operations" for a description of our
Rights Offering) to the statutory capital and surplus of our largest insurance
subsidiary. It subsequently contributed $4,000 to its subsidiary, another
affiliated insurance subsidiary of the Company.

         Our subsidiaries' debt currently consists primarily of a mortgage note
in the amount of approximately $1,600 that was issued by a former subsidiary and
assumed by us when that subsidiary was sold. The mortgage note is currently
amortized over 15 years, and has a balloon payment due on the remaining
outstanding balance in December 2003. Although the note carries a variable
interest rate, we have entered into an amortizing swap agreement with the same
bank with a nominal amount equal to the outstanding debt, which has the effect
of converting the note to a fixed rate of interest of 6.85%.

Parent Company Operations

         Our parent company is a non-insurer that directly or indirectly
controls 100% of the voting stock of our insurance company subsidiaries. If we
are unable to meet our financial obligations, become insolvent or discontinue
operations, the financial condition and results of operations of our insurance
company subsidiaries could be materially affected.

         Parent company debt currently consists of $74,750 of 6.25% Convertible
Subordinated Notes due 2003, as well as an installment note in the amount of
$2,858 issued in connection with the purchase of United Insurance Group. The
convertible subordinated notes, issued in November 1996, are convertible into
common stock at $28.44 per share until maturity in November 2003. At maturity,
to the extent that the convertible subordinated notes have not been converted
into common stock, we will have to repay their entire principal amount in cash.
The convertible subordinated notes carry a fixed interest coupon of 6.25%,
payable semi-annually. We expect that we will need to refinance our convertible
subordinate notes upon their maturity in 2003, unless those notes are converted
into common stock.

                                       21
<PAGE>

          On January 1, 1999, we purchased all of the common stock of United
Insurance Group, a Michigan based consortium of long-term care insurance
agencies, for $18,192. As part of the purchase, we issued a note payable for
$8,078, which was in the form of a three-year zero-coupon installment note. The
installment note, after discounting for imputed interest, was recorded as a note
payable of $7,167, and had an outstanding balance of $2,858 at June 30, 2001.
The remainder of the purchase was for cash.

         In December 1999, we contributed $1,000 to initially capitalize another
subsidiary, which concurrently lent us $750 in exchange for a demand note.

         At June 30, 2000, we had a $3,000 line of credit from a bank, which was
unused. The bank did not renew the line of credit at December 31, 2000.

         Cash flow needs of the parent company primarily include principal and
interest payments on outstanding debt and limited operating expenses. The
funding is primarily derived from the operating cash flow of our agency
operations, tax sharing arrangements with our subsidiaries and dividends, if
allowed under insurance department regulations, from the insurance subsidiaries.
However, as noted above, the dividend capabilities of the insurance subsidiaries
are limited.

         On April 27, 2001, we distributed rights to our shareholders and
holders of our 6 1/4% convertible subordinated notes due 2003 for the purpose of
raising new equity capital. Pursuant to the rights offering, holders of our
common stock and holders of our convertible subordinated notes received rights
to purchase approximately 11,550 newly issued shares of common stock at a set
price of $2.40 per share. The rights offering was completed on May 25, 2001 and
generated net proceeds of $25,726 in additional equity capital. We contributed
$18,000 of the net proceeds to the statutory capital of our largest insurance
subsidiary. The remaining proceeds are sufficient to meet our parent liquidity
requirements through December 31, 2001.

         On July 23, 2001, we announced that we would not complete the sale to
an unaffiliated party of our New York Subsidiary, American Independent, and
certain of our non-core product lines, including Medicare supplement and
disability coverages.  On August 13,2001, we announced that we had signed a
letter of intent with an unaffiliated insurer for the sale of our disability
product line for an undisclosed amount pending a definitive purchase agreement
and regulatory approval.

         We believe that our parent company and subsidiaries will have ongoing
capital and liquidity needs that extend beyond our current cash availability and
liquid resources. Therefore, we are continuing to assess all financial
alternatives, including, but not limited to, venture capital, partnerships,
acquisitions, and reinsurance transactions. There are no assurances that we will
be successful.

                                       22
<PAGE>

New Accounting Principles

         Effective January 1, 2001, we adopted SFAS No. 133 as amended by SFAS
No. 137 "Deferral of the Effective Date of FAS 133", 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.

         In accordance with SFAS No. 133, we transferred our convertible bond
portfolio from the available for sale category to the trading category. The
unrealized loss at the time of the transfer was $1,064, which has been included
in current operations.

         We have entered into an interest rate swap agreement, which serves to
convert our mortgage loan from a variable rate to a fixed rate instrument. We
have determined that the swap qualifies as a cash-flow hedge. The notional
amount of the swap is approximately $1,600. The effects have been determined to
be immaterial to the financial statements.

         Our involvement with derivative instruments and transactions is
primarily to offer protection to others or to mitigate our own risk and is not
considered speculative in nature.

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
two Statements of Financial Accounting Standards ("SFAS"). SFAS No. 141
"Business Combinations" requires usage of the purchase method for all business
combinations initiated after June 30,2001, and prohibits the usage of the
pooling of interests method of accounting for business combinations. The
provisions of SFAS No.141 relating to the application of the purchase method are
generally effective for business combinations completed after July 1,2001.
Such provisions include guidance on the identification of the acquiring entity,
the recognition of intangible assets other than goodwill acquired in a business
combination and the accounting for negative goodwill. The transition  provisions
of SFAS No. 141 require an analysis of goodwill, acquired in purchase business
combinations prior to July 1, 2001, to identify and reclassify separately
identifiable intangible assets currently recorded as goodwill.

         SFAS No. 142  primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition.  Wewill adopt SFAS No. 142 on
January 1, 2001 and will cease amortizing goodwill at that time.  All goodwill
recognized in ourconsolidated balance sheet at January 1, 2002 should be
assigned to one or more reporting units.  Goodwill in each reporting unit
should be tested for impairment by June 30, 2002.  An impairment loss recognized
as a result of a transitional impairment test of goodwill should be reported as
the cumulative effect of a change in accounting principle.

          Although we believe there are separately identifiable intangible
assets currently included in the total cost in excess of fair value of net
assets acquired on the consolidated balance sheet, we have not yet evaluated the
impact of SFAS No. 141 and SFAS No. 142 on our financial condition or results of
operations.
                                       23
<PAGE>

Forward Looking Statements

         Certain statements we make in this filing may be considered
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. Although we believe that our expectations are based upon reasonable
assumptions within the bounds of our knowledge of our business and operations,
there can be no assurance that actual results of operations will not differ
materially from our expectations. Factors that could cause actual results to
differ from expectations include, among others, our ability to raise adequate
capital to meet the requirements of current business, anticipated growth and
liquidity needs, the ability to write business, the completion of the proposed
acquisition of certain product lines, the adequacy of loss reserves and the
recoverability of our deferred acquisition cost asset, our ability to qualify
new insurance products for sale in certain states, our ability to resume
generating new business in states in which we have ceased new sales, our
ability to succeed in obtaining necessary rate increases, our ability to comply
with government regulations and the requirements that may be imposed by state
regulators as a result of our surplus levels, the ability of senior citizens to
purchase our products in light of the increasing costs of health care, the
modality of premium revenue, our ability to defend against adverse litigation
and our ability to expand our network of productive independent agents. For
additional information, please refer to our Annual Report on Form 10-K and other
documents filed with the Securities and Exchange Commission.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         We invest in securities and other investments authorized by applicable
state laws and regulations and follow an investment policy designed to maximize
yield to the extent consistent with liquidity requirements and preservation of
assets.

         A significant portion of our assets and liabilities are financial
instruments, which are subject to the market risk of potential losses from
adverse changes in market rates and prices. Our primary market risk exposures
relate to interest rate risk on fixed rate domestic medium-term instruments and,
to a lesser extent, domestic short-term and long-term instruments. We have
established strategies, asset quality standards, asset allocations and other
relevant criteria for our portfolio to manage our exposure to market risk.

         We currently have an interest rate swap on our mortgage with the same
bank, which is used as a hedge to convert the mortgage to a fixed interest rate.
We believe that since the notional amount of the swap is amortized at the same
rate as the underlying mortgage, and that both financial instruments are with
the same bank, no credit or financial risk is carried with the swap.

         Our financial instruments are held for purposes other than trading,
except for our convertible bond portfolio. Our portfolio does not contain any
significant concentrations in single issuers (other than U.S. treasury and
agency obligations), industry segments or geographic regions.

         We urge caution in evaluating overall market risk from the information
below. 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 80.4% of total liabilities
and reinsurance receivables on unpaid losses represent 1.8% of total assets).
Long-term debt, although not carried at fair value, is included in the
hypothetical effect calculation.

                                       24
<PAGE>

         The hypothetical effects of changes in market rates or prices on the
fair values of financial instruments as of June 30, 2001, 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 $18,544,000 decrease in the net fair value of our investment
portfolio less our long-term debt and 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 June 30, 2001 would have resulted in an approximate $35,559,000
decrease in the net fair value. If interest rates had decreased by 100 and 200
basis points, there would have been an approximate $20,234,000 and $42,339,000
net increase, respectively, in the net fair value of our total investments and
debt.

         We hold certain mortgage and asset backed securities as part of our
investment portfolio. The fair value of these instruments may react in a convex
or non-linear fashion when subjected to interest rate increases or decreases.
The anticipated cash flows of these instruments may differ from expectations in
changing interest rate environments, resulting in duration drift or a varying
nature of predicted time-weighted present values of cash flows. The result of
unpredicted cash flows from these investments could cause the above hypothetical
estimates to change. However, we believe that the minimal amount we have
invested in these instruments and their broadly defined payment parameters
sufficiently outweigh the cost of computer models necessary to accurately
predict their possible impact to our investment income from the hypothetical
effects of changes in market rates or prices on the fair values of financial
instruments as of June 30, 2001.


                                       25
<PAGE>


                            PART II OTHER INFORMATION

Item 1.  Legal Proceedings

         Our subsidiaries are parties to various lawsuits generally arising in
the normal course of their business.

         In April 2000, a jury awarded compensatory damages of $24,000 and
punitive damages of $2,000,000 in favor of the plaintiff in a disputed claim
case against one of our subsidiaries. During June, 2001, we agreed to settle
this suit for $750,000.

         On April 17, 2001, we received notice that the company and certain of
our key executive officers were named in class action lawsuits filed in United
States District Court for the Eastern District of Pennsylvania as a result of
our recent stock performance. The complaints in each case allege that the
company and its executives made misleading statements about the company's
statutory surplus, statutory reserves and financial health. We contend that the
lawsuits are baseless and completely without merit, and intend to defend
ourselves vigorously.

Item 2.  Changes in Securities

         On April 27, 2001, we distributed rights to our shareholders and
holders of our 6 1/4% convertible subordinated notes due 2003 for the purpose of
raising new equity capital.  Pursuant to the rights offering, holders of our
common stock and holders of our convertible subordinated notes received rights
to purchase approximately 11,550,000 new issued shares of common stock at a set
price of $2.40 per share.  The rights offering was completed on May 25, 200l and
generated net proceeds of $25,726,000 in additional equity capital.  We
contributed $18,000,000 of the net proceeds to the statutory capital and surplus
of our insurance subsidiaries.  We retained the remainder of the net proceeds at
the parent company for future liquidity needs.

Item 3.  Defaults Upon Senior Securities

         Not Applicable

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

         The Company's Annual Meeting of Shareholders was held on May 25, 2001.
At this meeting, the following matters were voted upon by the shareholders,
receiving the number of affirmative, negative and withheld votes, as well as
abstentions and broker non-votes, set forth below each matter.

1.            The vote on the proposal to amend Article Fifth of the Restated
              Articles of Incorporation of the Company's number of authorized
              shares of Common Stock from 25,000,000 to 40,000,000.

                                                              Broker Non-Votes
                           For              Against           and Abstentions
                           ---              -------           -------
                         6,346,501          360,200            9,406

2.            The vote for election of three Class II Directors of the Company
              to serve until the 2004 Annual Meeting of Shareholders, and until
              their successors are elected and qualified.

                                               For            Withheld
                                               ---            --------
                  Jack D. Baum              5,713,434        1,002,673
                  Alexander M. Clark        6,101,847          614,260
                  Matthew W. Kaplan         6,106,627          609,480

                The following directors will continue to serve their unexpired
                terms:
                        Irving Levit
                        Michael F. Grill
                        Aloysius J. Carden
                        Dominick Stangherlin
                        Francis Grebe
                                       26
<PAGE>

3.            The vote on the proposal to ratify the selection of
              PricewaterhouseCoopers LLP as independent public accountants for
              the Company and its subsidiaries for the year ending December 31,
              2001.

                                                              Broker Non-Votes
                           For              Against           and Abstentions
                           ---              -------           -------
                         6,668,535          38,887             8,685

Item 5.  Other Information

         Not Applicable

Item 6.  Exhibits and Reports on Form 8-K

         Exhibits:

1.       Amendment to Restated Articles of Incorporation - Exhibit 3.1 (c)

2.       Executive Change of Control Agreement
a.       William W. Hunt, Jr. - Exhibit 10.48
b.       Bruce A. Stahl - Exhibit 10.49

3.       Executive Compensation Agreement - William W. Hunt, Jr. - Exhibit 10.50

         Reports on Form 8-K:

1.       April 27, 2001 - Registration Statement on Form S-3

2.       May 8, 2001 - Form of Standby Purchase Agreement




                                       27
<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:   August 14, 2001                     /s/ Irving Levit
        -------------------                 ------------------------------------
                                                Irving Levit
                                                Chairman of the Board, President
                                                and Chief Executive Officer

Date:   August 14, 2001                     /s/ Cameron B. Waite
        -------------------                 ------------------------------------
                                                Cameron B. Waite
                                                Chief Financial Officer





                                       28
<PAGE>

                                   Exhibit 3.1


                Amendment to Restated Articles of Incorporation

"Fifth:  The aggregate number of shares which the Corporation shall have
authority to issue is 40,000,000 shares of common stock, par value $.10 per
share ("Common Stock"); and 5,000,000 shares of preferred stock, par value
$1.00 per share ("Preferred Stock")"

                                       29
<PAGE>
                                  Exhibit 10.48

                                CHANGE OF CONTROL
                              EMPLOYMENT AGREEMENT


         AGREEMENT made as of this 18th day of June, 2001 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
William W. Hunt, Jr. ("Employee").

         The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Employee, notwithstanding the possibility,
threat, or occurrence of a Change of Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable distraction of
Employee by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control, to encourage Employee's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide Employee with compensation
arrangements upon a Change of Control which provide Employee with individual
financial security and which are competitive with those of other corporations
and, in order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.

         In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:

I.       CHANGE OF CONTROL

         For the purpose of this Agreement, a "Change of Control" shall mean:

                  (a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or

                  (b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or

                  (c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).

                                       30
<PAGE>

II.      EMPLOYMENT

         2.01. Effective Date. The Company hereby agrees to continue to employ
Employee and Employee hereby agrees to remain an employee of the Company, for
the period beginning upon a Change of Control (as defined in Section I) and
ending on the third anniversary of such date (the "Employment Period"), subject
to the terms and conditions hereinafter set forth. The Employment Period shall
automatically be extended for one or more additional one-year periods commencing
at the conclusion of the initial three-year period, unless three (3) months
prior to the end of the initial term or any subsequent term, the Company shall
have delivered to Employee, or Employee shall have delivered to the Company,
written notice that the term of Employee's employment hereunder will not be
extended.

         2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Employee's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Employee's Employment Period shall begin as of the date immediately prior to the
date of such termination.

III.     DUTIES
         ------

         3.01. Position and Duties. During the Employment Period, (a) Employee's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be comparable in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the commencement of the
Employment Period and (b) Employee's services shall be performed at the location
where he was employed immediately preceding the commencement of the Employment
Period or at any office or location not more than twenty (20) miles from such
location.

         3.02. Full Efforts. During the Employment Period, Employee agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.

IV.      COMPENSATION AND RELATED MATTERS

         4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Employee a base salary of not less than the highest base salary paid or
payable to Employee by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Employee's base salary is increased, it may not thereafter be reduced.

         The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Employee's base salary.

                                       31
<PAGE>

         4.02. Bonus. During the Employment Period, the Company shall pay to
Employee a bonus in an amount at least equal to the highest bonus paid to
Employee during the three fiscal years immediately preceding the year in which
the Employment Period commences.

         4.03. Incentive Awards. During the Employment Period, Employee shall be
entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.

         4.04. Welfare Benefits. During the Employment Period, Employee shall be
entitled to participate in all welfare plans, practices, policies and programs
provided by the Company (including, without limitation, medical plans, dental
plans, disability plans, and group or other insurance plans and benefits), to
the extent that he is and remains eligible to participate thereunder, and
subject to the provisions of such plans as the same may be in effect from time
to time.

         4.05. Fringe Benefits. During the Employment Period, Employee shall be
entitled to all fringe benefits provided by the Company to its key employees.

         4.06. Expenses. During the Employment Period, Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.

         4.07. Services Furnished. During the Employment Period, the Company
shall furnish Employee with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Employee), secretarial
assistance, and such other facilities and services as shall be suitable to
Employee's position and adequate for the performance of his duties hereunder.

V.       TERMINATION

         5.01. Termination by Company. Employee's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:

                  (a)  Death.  Employee's employment hereunder shall terminate
upon his death.

                  (b) Disability. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Employee's employment hereunder.

                  (c) Cause. The company may terminate Employee's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Employee, provided that no
act, or failure to act, on Employee's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Employee shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Employee setting forth the
reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Employee, together with his counsel, to be heard before the full
Board of Directors of the Company with reasonable advance notice of the time and
place of meeting, and (iii) delivery to Employee of a Notice of Termination (as
defined in Section 5.03 hereof) stating that in the good faith opinion of the
Board of Directors, Employee was guilty of conduct constituting "Cause", and
specifying the particulars thereof in detail.

                                       32
<PAGE>

         5.02. Termination by Employee. The Employee may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:

                  (a) the assignment to Employee of any duties inconsistent with
Employee's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Employee;

                  (b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Employee;

                  (c) the Company's requiring Employee to relocate to any office
or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Employee's responsibilities);

                  (d) any purported  termination by the Company of Employee's
employment otherwise than as expressly permitted by this Agreement; or

                  (e)  any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.


         5.03.  Termination Procedure.
                ---------------------

                  (a) Notice of Termination. Any termination of Employee's
employment by the Company or by Employee (other than termination due to
Employee's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated, and (iii) the Date of Termination
(as defined below).

                  (b)  Date of Termination.  "Date of Termination" shall mean:
                       -------------------

                           (1)  if Employee's employment is terminated by his
death, the date of his death,

                           (2) if the Employee's employment is terminated
pursuant to Section 5.01(b), thirty (30) days after Notice of Termination is
given (provided that Employee shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),

                                       33
<PAGE>

                           (3) if Employee's  employment is terminated  pursuant
to Section  5.01(c),  the date specified in the Notice of Termination, and

                           (4) if  Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is given, provided that
if within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).

VI.  COMPENSATION UPON TERMINATION
     -----------------------------

         6.01. Death. If Employee's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Employee's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Employee as of the Date of Termination,
including, for this purpose (i) Employee's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Employee
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Employee is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Employee's spouse or other designated beneficiary (or if he
leaves to spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.

         6.02. Disability. If Employee's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Employee, other than the obligation to pay to Employee
all Accrued Obligations. All such Accrued Obligations shall be paid to Employee
in a lump sum in cash within thirty (30) days after the Date of Termination.

         6.03. Termination for Cause: Termination by Employee in Breach of
Agreement. If Employee's employment is terminated for Cause or if Employee
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Employee other than the Company's
obligation to pay to Employee all Accrued Obligations. All such Accrued
Obligations shall be paid to Employee in a lump sum in cash within thirty (30)
days after the Date of Termination.

         6.04. Termination by Employee for Good Reason; Termination by the
Company in Breach of Agreement. If Employee's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Employee shall terminate his employment for Good Reason:

                  (a) the Company shall pay to Employee in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:

                           (1)  Employee's full base salary through the end of
the Employment Period; and

                           (2) the product of (x) the annual bonus (if any) paid
to  Employee  for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and

                           (3)  all Accrued Obligations.

                                       34
<PAGE>

                  (b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Employee and/or Employee's family at least equal to those
that would have been provided to them if Employee's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Employee shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Employee's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Employee with benefits
substantially similar to those which Employee would otherwise have been entitled
to receive under the plans, programs, practices or policies from which his
continued participation is barred.

VII.     CONFIDENTIALITY
         ---------------

                  Employee acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Employee, or Employee
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Employee, or any other person or entity at his direction. In light of the
foregoing, Employee agrees to hold the confidential information in the strictest
confidence and will not disclose (without the prior written consent of the
Company) any portion thereof to any person or entity, other than the Company or
those designated by it.

VIII.    MISCELLANEOUS
         -------------

         8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:



                           To the Company at:

                           Penn Treaty American Corporation
                           3440 Lehigh Street
                           Allentown, PA 18103

                           To Employee at:

                           1110 Alexander Lane
                            West Chester, PA 19382


                                       35
<PAGE>

         8.02. Waiver of or Consent to Breach. The waiver by the Company or
Employee of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.

         8.03. Assignability. This Agreement shall not be assignable by
Employee, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.

         8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

         8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.

         8.06.  Employment Before Change of Control

                  (a) Employee and the Company acknowledge that the employment
of Employee by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Employee or the Company at any time, subject to the
terms and provisions of any written employment agreements between Employee and
the Company. Upon a termination of Employee's employment prior to a Change of
Control, there shall be no further rights under this Agreement.

                  (b) Nothing in this Agreement shall prevent or limit
Employee's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Employee may qualify, nor shall anything herein limit or otherwise affect
such rights as Employee may have under any stock option or other agreements with
the Company.

         8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Employee. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
hereof are hereby canceled and superseded and shall be of no further force and
effect.

         8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.

         8.09. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.

         8.10. Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.

                                       36
<PAGE>

         8.11. Gender. As used herein the neuter shall include the masculine and
feminine, as the context may require.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                            PENN TREATY AMERICAN CORPORATION



                                            /s/ Irving Levit
                                            ---------------------------------
                                            By:  Irving Levit
                                            Title: Chief Executive Officer &
                                                   President




                                            /s/ William W. Hunt, Jr.
                                            ---------------------------------
                                            By:  William W. Hunt, Jr.
                                            Title:  Senior Vice President of
                                                    Finance



                                       37
<PAGE>

                                  Exhibit 10.49

                                CHANGE OF CONTROL
                              EMPLOYMENT AGREEMENT


         AGREEMENT made as of this 1st day of July, 2001 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
Bruce Stahl ("Employee").

         The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Employee, notwithstanding the possibility,
threat, or occurrence of a Change of Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable distraction of
Employee by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control, to encourage Employee's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide Employee with compensation
arrangements upon a Change of Control which provide Employee with individual
financial security and which are competitive with those of other corporations
and, in order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.

         In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:

I.       CHANGE OF CONTROL

         For the purpose of this Agreement, a "Change of Control" shall mean:

                  (a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or

                  (b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or

                  (c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).

                                       38
<PAGE>

II.      EMPLOYMENT

         2.01. Effective Date. The Company hereby agrees to continue to employ
Employee and Employee hereby agrees to remain an employee of the Company, for
the period beginning upon a Change of Control (as defined in Section I) and
ending on the first anniversary of such date (the "Employment Period"), subject
to the terms and conditions hereinafter set forth. The Employment Period shall
automatically be extended for one or more additional one-year periods commencing
at the conclusion of the initial one-year period, unless three (3) months prior
to the end of the initial term or any subsequent term, the Company shall have
delivered to Employee, or Employee shall have delivered to the Company, written
notice that the term of Employee's employment hereunder will not be extended.

         2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Employee's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Employee's Employment Period shall begin as of the date immediately prior to the
date of such termination.

III.     DUTIES
         ------

         3.01. Position and Duties. During the Employment Period, (a) Employee's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be comparable in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the commencement of the
Employment Period and (b) Employee's services shall be performed at the location
where he was employed immediately preceding the commencement of the Employment
Period or at any office or location not more than fifty (50) miles from such
location.

         3.02. Full Efforts. During the Employment Period, Employee agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.

IV.      COMPENSATION AND RELATED MATTERS

         4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Employee a base salary of not less than the highest base salary paid or
payable to Employee by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Employee's base salary is increased, it may not thereafter be reduced.

         The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Employee's base salary.

                                       39
<PAGE>

         4.02. Bonus. During the Employment Period, the Company shall pay to
Employee a bonus in an amount at least equal to the highest bonus paid to
Employee during the three fiscal years immediately preceding the year in which
the Employment Period commences.

         4.03. Incentive Awards. During the Employment Period, Employee shall be
entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.

         4.04. Welfare Benefits. During the Employment Period, Employee shall be
entitled to participate in all welfare plans, practices, policies and programs
provided by the Company (including, without limitation, medical plans, dental
plans, disability plans, and group or other insurance plans and benefits), to
the extent that he is and remains eligible to participate thereunder, and
subject to the provisions of such plans as the same may be in effect from time
to time.

         4.05. Fringe Benefits. During the Employment Period, Employee shall be
entitled to all fringe benefits provided by the Company to its key employees.

         4.06. Expenses. During the Employment Period, Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.

         4.07. Services Furnished. During the Employment Period, the Company
shall furnish Employee with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Employee), secretarial
assistance, and such other facilities and services as shall be suitable to
Employee's position and adequate for the performance of his duties hereunder.

V.       TERMINATION

         5.01. Termination by Company. Employee's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:

                  (a)  Death.  Employee's employment hereunder shall terminate
upon his death.

                  (b) Disability. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Employee's employment hereunder.

                  (c) Cause. The company may terminate Employee's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Employee, provided that no
act, or failure to act, on Employee's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Employee shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Employee setting forth the
reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Employee, together with his counsel, to be heard before the full
Board of Directors of the Company with reasonable advance notice of the time and
place of meeting, and (iii) delivery to Employee of a Notice of Termination (as
defined in Section 5.03 hereof) stating that in the good faith opinion of the
Board of Directors, Employee was guilty of conduct constituting "Cause", and
specifying the particulars thereof in detail.

                                       40
<PAGE>

         5.02. Termination by Employee. The Employee may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:

                  (a) the assignment to Employee of any duties inconsistent with
Employee's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Employee;

                  (b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Employee;

                  (c) the Company's requiring Employee to relocate to any office
or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Employee's responsibilities);

                  (d) any purported termination by the Company of Employee's
employment otherwise than as expressly permitted by this Agreement; or

                  (e)  any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.


         5.03.  Termination Procedure.
                ---------------------

                  (a) Notice of Termination. Any termination of Employee's
employment by the Company or by Employee (other than termination due to
Employee's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated, and (iii) the Date of Termination
(as defined below).

                  (b)  Date of Termination.  "Date of Termination" shall mean:

                           (1)  if Employee's employment is terminated by his
death, the date of his death,

                           (2) if the Employee's  employment is terminated
pursuant to Section 5.01(b),  thirty (30) days after Notice of Termination is
given (provided that Employee shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),

                                       41
<PAGE>

                           (3) if Employee's employment is terminated  pursuant
to Section  5.01(c),  the date specified in the Notice of Termination, and

                           (4) if  Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is given, provided that
if within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).

VI.  COMPENSATION UPON TERMINATION
     -----------------------------

         6.01. Death. If Employee's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Employee's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Employee as of the Date of Termination,
including, for this purpose (i) Employee's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Employee
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Employee is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Employee's spouse or other designated beneficiary (or if he
leaves to spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.

         6.02. Disability. If Employee's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Employee, other than the obligation to pay to Employee
all Accrued Obligations. All such Accrued Obligations shall be paid to Employee
in a lump sum in cash within thirty (30) days after the Date of Termination.

         6.03. Termination for Cause: Termination by Employee in Breach of
Agreement. If Employee's employment is terminated for Cause or if Employee
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Employee other than the Company's
obligation to pay to Employee all Accrued Obligations. All such Accrued
Obligations shall be paid to Employee in a lump sum in cash within thirty (30)
days after the Date of Termination.

         6.04. Termination by Employee for Good Reason; Termination by the
Company in Breach of Agreement. If Employee's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Employee shall terminate his employment for Good Reason:

                  (a) the Company shall pay to Employee in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:

                           (1)  Employee's full base salary through the end of
the Employment Period; and

                           (2) the product of (x) the annual  bonus (if any)
paid to  Employee  for the last full fiscal year and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through the
Date of Termination and the denominator of which is 365; and

                           (3)  all Accrued Obligations.

                                       42
<PAGE>

                  (b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Employee and/or Employee's family at least equal to those
that would have been provided to them if Employee's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Employee shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Employee's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Employee with benefits
substantially similar to those which Employee would otherwise have been entitled
to receive under the plans, programs, practices or policies from which his
continued participation is barred.

VII.     CONFIDENTIALITY
         ---------------

                  Employee acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Employee, or Employee
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Employee, or any other person or entity at his direction. In light of the
foregoing, Employee agrees to hold the confidential information in the strictest
confidence and will not disclose (without the prior written consent of the
Company) any portion thereof to any person or entity, other than the Company or
those designated by it.

VIII.    MISCELLANEOUS
         -------------

         8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:



                           To the Company at:

                           Penn Treaty American Corporation
                           3440 Lehigh Street
                           Allentown, PA 18103

                           To Employee at:

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


                                       43
<PAGE>


         8.02. Waiver of or Consent to Breach. The waiver by the Company or
Employee of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.

         8.03. Assignability. This Agreement shall not be assignable by
Employee, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.

         8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

         8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.

         8.06.  Employment Before Change of Control

                  (a) Employee and the Company acknowledge that the employment
of Employee by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Employee or the Company at any time. Upon a termination
of Employee's employment prior to a Change of Control, there shall be no further
rights under this Agreement.

                  (b) Nothing in this Agreement shall prevent or limit
Employee's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Employee may qualify, nor shall anything herein limit or otherwise affect
such rights as Employee may have under any stock option or other agreements with
the Company.

         8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Employee. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
hereof are hereby canceled and superseded and shall be of no further force and
effect.

         8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.

         8.09. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.

         8.10. Headings. The headings in this Agreement are for convenience
nly; they form no part of this Agreement and shall not ffect its interpretation.

         8.11. Gender. As used herein the neuter shall include the masculine and
feminine, as the context may require.

                                       44
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                            PENN TREATY AMERICAN CORPORATION



                                            /s/ Irving Levit
                                            ---------------------------------
                                            By:  Irving Levit
                                            Title: Chief Executive Officer &
                                                   President




                                            /s/ Bruce Stahl
                                            ---------------------------------
                                            By:  Bruce Stahl
                                            Title:  Vice President and Chief
                                                    Actuary




                                       45
<PAGE>

                                  Exhibit 10.50

                              EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is made effective as of June 1,
2001, by and between PENN TREATY NETWORK AMERICA INSURANCE COMPANY, a
Pennsylvania corporation, and its affiliates and parent corporation
(collectively, the "Company"), and William W. Hunt, Jr., residing at 1110
Alexander Lane, West Chester, PA 19382 ("Executive").

      WHEREAS, the Company desires to employ Executive as its Senior Vice
President of Finance, and

      WHEREAS, Executive desires to be so employed by the Company, and

           WHEREAS, the Company and Executive desire to set forth the terms on
which Executive shall be employed by the Company.

         NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and intending to be legally bound, the parties agree as
follows:

1.   EMPLOYMENT. The Company shall employ Executive as Senior Vice President
of Finance on the terms and subject to the conditions set forth in this
Agreement.

     a.    Scope and Duties.  Executive shall perform such executive duties as
are normally associated with the position of a Senior Vice President of Finance
and as otherwise agreed by the parties hereto. Executive shall be a member of
the Company's senior management team and shall report directly to the President,
Chief Executive Officer and Chairman of the Board. The duties of Executive shall
be performed primarily in Pennsylvania and as otherwise agreed by the parties
hereto. Executive's principal place of business shall be at the offices of the
Company in Allentown, Pennsylvania or at such other location(s) as the parties
may agree from time to time.

     Executive shall devote his entire productive time, ability and attention to
the business of the Company and shall perform all duties in a professional,
ethical and businesslike manner. Executive will not, during the term of this
Agreement, directly or indirectly engage in any other business, either as an
employee, employer, consultant, principal, officer, director, advisor, or in any
other capacity, either with or without compensation, without the prior written
consent of the President, Chief Executive Officer and Chairman of the Board of
the Company.

2.   BEST EFFORTS OF EXECUTIVE. Executive shall use his best efforts to perform,
to the best of his ability, faithfully and efficiently the responsibilities that
may be required by the express and implicit terms of this Agreement, to the
reasonable satisfaction and sole discretion of the Company. Such duties shall be
provided at such place(s) as the needs, business, or opportunities of the
Company may require from time to time.

Executive shall devote all of his business time to his obligations to the
Company pursuant to this Agreement, and shall not, without the approval of the
Company's President, Chief Executive Officer and Chairman of the Board, render
services of a business nature to any other person or entity, if such activities
would materially interfere with the performance of Executive's duties under this
Agreement.


                                       46
<PAGE>

3.  COMPENSATION.

     a.    Base Salary. As compensation for the services provided by Executive
under this Agreement, the Company will pay Executive an annual salary of
$150,000 (one hundred and fifty thousand dollars) which shall be payable at the
usual times for the payment of the Company's other salaried employees, subject
to adjustment as provided herein. Upon termination of this Agreement, payments
under this paragraph shall cease as set forth in paragraph 4 below. This section
of the Agreement is included only for accounting and payroll purposes and should
not be construed as establishing a minimum or definite term of employment. The
base salary shall be adjusted at the end of each year of employment at the
discretion of the Board of Directors.

     b.    Bonus.  In addition to the base salary payments described in the
preceding paragraph, Executive shall be eligible to receive an annual
performance bonus which shall be granted in accordance with the Company's
established criteria of awarding bonuses.

     c.    Stock Options.  The Company shall make an initial grant of 30,000
(thirty thousand) stock options to Executive, in accordance with the terms of
the Company's Non-Qualified Incentive Stock Option Plan. Such options shall be
granted on July 31, 2001 at an exercise price of $3.40 with 10,000 (ten
thousand) options vesting on the initial grant date and the remaining 20,000
(twenty thousand) options vesting on July 31, 2002. Executive shall also be
eligible to receive additional stock option grants in accordance with the
Company's established criteria for granting stock options to similarly situated
executives of the Company.

     d.    Automobile. The Company shall lease or purchase, for Executive's use,
a mutually agreeable vehicle and the Company shall assume responsibility for all
lease or purchase payments, regularly scheduled maintenance, automobile
insurance premiums and necessary repairs for such vehicle.

    e.     Expenses.  During the term of employment hereunder, Executive shall
be entitled to receive prompt reimbursement for all reasonable and necessary
expenses incurred by him in performing services hereunder, provided that such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company. Executive will maintain records and
written receipts as required by the Company policy and as reasonably requested
by the board of directors to substantiate such expenses. Additionally, Executive
shall receive a Company credit card to be used in accordance with Company
policies for reasonable and necessary expenses such as travel, entertainment and
other related company business expenses.

     f.    Other Benefits.  During the term of Executive's employment under this
Agreement, Executive shall be entitled to receive all benefits (such as medical,
dental, disability and life insurance, paid time off and retirement plan
coverage) as are generally available from time to time to similarly situated
executives of the Company and the portion of such benefits paid by Executive
shall be consistent with the portion of such benefits paid by similarly situated
employees of the Company. Executive shall, at his option, be eligible to
participate in any incentive compensation, stock option, stock purchase or
similar plans or programs as the Company may maintain for compensating similarly
situated employees at such level of participation as the Board of Directors may
determine in its reasonable discretion based upon Executive's responsibilities
and performance.

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4.  TERM/TERMINATION.  Executive's employment under this Agreement shall be for
an unspecified term on an "at will" basis and may be terminated by either party
as set forth below.

     a.    Executive's employment may be terminated by the Company at its
discretion at any time and, if the Company shall so terminate Executive pursuant
to this subsection, Executive shall be entitled to receive certain compensation
for a period of time following the effective date of Executive's termination as
set forth below ("Severance Period"). If the Company shall so terminate this
Agreement within the first three months of Executive's employment, Executive
shall be entitled to compensation for three months beyond the termination date
of such termination, unless the Company terminates Executive's employment for
Cause. If the Company shall terminate this Agreement after the first three
months but within the first six months of Executive's employment, Executive
shall be entitled to compensation for six months beyond the termination date of
such termination, unless the Company terminates Executive's employment for
Cause. If the Company shall terminate this Agreement at any time after the first
six months of Executive's employment, Executive shall be entitled to
compensation for twelve months beyond the termination date of such termination,
unless the Company terminates Executive's employment for Cause. The Company
shall pay such amounts to Executive in a lump sum in cash within thirty (30)
days after the date of termination. In the event of such a discretionary
termination by the Company, Executive shall not be entitled to receive any bonus
payments or other compensation, prorated or otherwise; however, Executive shall
be entitled to continue to receive all stock options previously granted to
Executive that vest during the Severance Period. The Company shall also pay for
the reasonable and customary charges for the services of an outplacement career
organization for Executive's benefit for a period of one-month following the
date of termination.

     b.    Executive may terminate this Agreement at Executive's discretion at
any time. In the event of termination by Executive pursuant to this subsection,
the Company may immediately relieve Executive of all duties and immediately
terminate this Agreement, provided that the Company shall pay Executive at the
then applicable base salary rate to the termination date included in Executive's
original termination notice. The compensation provided for under this section
4(b) shall be Executive's exclusive remedy and Executive shall not be paid any
bonus payments or other compensation, prorated or otherwise.

           However, if Executive shall terminate his employment for Good Reason,
Executive shall be entitled be entitled to receive compensation from the date of
termination according to the schedule set forth in Section 4(a) above. The
Company shall pay such amounts to Executive in a lump sum in cash within thirty
(30) days after the date of termination. Executive shall not be entitled to
receive any bonus payments or other compensation, prorated or otherwise;
however, Executive shall be entitled to continue to receive all stock options
previously granted to Executive that vest during the Severance Period. For
purposes of this Agreement, "Good Reason" shall mean:

                  (1) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;

                  (2) the Company's requiring Executive to relocate to any
office or location other than that described in Section 1(a) (excluding travel
reasonably required in the performance of Employee's responsibilities);

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     c.    In the event that Executive is in breach of any material obligation
owed to the Company in this Agreement, habitually neglects the duties to be
performed under this Agreement, engages in any conduct which is dishonest,
damages the reputation or standing of the Company, or is convicted of any
criminal act or engages in any act of moral turpitude, this shall constitute
"Cause" as set forth in this Agreement. The Company may terminate Executive's
employment for Cause without notice. In event of termination of the Agreement
pursuant to this subsection, Executive shall be only be entitled to be paid for
days worked that occurred prior to the date of termination and for which
Executive has not yet been paid. The compensation provided for under this
Agreement shall be Executive's exclusive remedy and Executive shall not be
paid any bonus payments or other compensation, prorated or otherwise.

5. Upon termination of Executive's employment by either party or for any reason,
Executive shall immediately return to the Company all lists, books, records,
financial data, and any other materials or data of any kind furnished to you by
the Company, or owned by the Company, and shall not keep any copies without the
Company's express consent. Executive further agrees that he shall not at any
time utilize or divulge any of the Company's trade secrets, proprietary or
confidential information to any third party without the Company's prior written
consent.

6. This Agreement shall be binding upon and inure to the benefit of the Company
and any of its successors or assigns. The obligations of the Company under
paragraphs 4 and 5 shall survive any termination of this Agreement.

7. The law of the Commonwealth of Pennsylvania shall control all questions
related to the Agreement. With the exception of the Change in Control Employment
Agreement executed by both parties and dated June 18, 2001, this Agreement
contains the entire understanding of the parties with respect to Executive's
employment with the Company and supersedes all prior agreements and
understandings, express or implies, oral or written. This Agreement may not be
modified except by an agreement in writing signed by the Chief Executive Officer
of the Company and the Executive.

8. Headings used in this Agreement are provided for convenience only and shall
not be used to construe meaning or intent.

9. Neither this Agreement nor any or interest in this Agreement may be assigned
by Executive without the prior express written approval of Company, which may be
withheld by Company at Company's absolute discretion.

10. If any term of this Agreement is held by a court of competent jurisdiction
to be invalid or unenforceable, then this Agreement, including all of the
remaining terms, will remain in full force and effect as if such invalid or
unenforceable term had never been included.

11. The parties agree that they will use their best efforts to amicably resolve
any dispute arising out of or relating to this Agreement. Any controversy, claim
or dispute that cannot be so resolved shall be settled by final binding
arbitration in accordance with the rules of the American Arbitration Association
and judgment upon the award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof. Any such arbitration shall be
conducted in Lehigh County, Pennsylvania, or such other place as may be mutually
agreed upon by the parties. Within fifteen (15) days after the commencement of
the arbitration, each party shall select one person to act arbitrator, and the
two arbitrators so selected shall select a third arbitrator within ten (10) days
of their appointment. Each party shall bear its own costs and expenses and an
equal share of the arbitrator's expenses and administrative fees of arbitration.

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IN WITNESS WHEREOF, the parties, intending to be legally bound, hereto have
executed this Agreement as of the date first above written.


By:  PENN TREATY NETWORK AMERICA            By:  William W. Hunt, Jr.
       INSURANCE COMPANY


/s/ Irving Levit                            /s/ William W. Hunt, Jr.
-----------------------------               ----------------------------------
Irving Levit, President and                 William W. Hunt, Jr.
Chief Executive Officer                     Senior Vice President of Finance



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