<PAGE>


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

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

For the quarterly period ended June 30, 1998

                                               or

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

Commission file number 0-13972

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

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

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

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

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

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

The number of shares outstanding on the Registrant's common stock, par value
$.10 per share, as of August 4, 1998 was 7,803,492.


<PAGE>


PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements

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

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

<PAGE>




                                     PENN TREATY AMERICAN CORPORATION
                                             AND SUBSIDIARIES
                                       Consolidated Balance Sheets
                            (amounts in thousands)

<TABLE>
<CAPTION>

                                                                                         June 30,            December 31,
                                                                                           1998                  1997
                                                                                           ----                  ----
                                                                                       (unaudited)
<S>                                                                                    <C>                  <C>
                                    ASSETS                                      

Investments:

  Bonds, available for sale at market (cost of $282,828 and $271,315, respectively)        $ 290,765         $ 278,148
  Equity securities at market value, (cost of $6,075 and $18,511, respectively)                6,220            23,554
  Policy loans                                                                                   101                85
                                                                                           ---------         ---------
    Total investments                                                                        297,086           301,787
Cash and cash equivalents                                                                     45,851            11,241
Property and equipment, at cost, less accumulated depreciation of
  $2,606 and $2,420, respectively                                                              9,006             8,753
Unamortized deferred policy acquisition costs                                                130,779           110,471
Receivables from agents, less allowance for
  uncollectable amounts of $130 and $130, respectively                                         1,173             1,107
Accrued investment income                                                                      4,322             4,112
Federal income tax recoverable                                                                 2,724             1,182
Cost in excess of fair value of net assets acquired, less
  accumulated amortization of $872 and $716, respectively                                      6,505             6,662
Present value of future profits acquired                                                       3,389             3,597
Receivable from reinsurers                                                                    12,610            10,542
Other assets                                                                                   6,293             6,318
                                                                                           ---------         ---------
    Total assets                                                                           $ 519,738         $ 465,772
                                                                                           ---------         ---------
                                                                                           ---------         ---------

                                  LIABILITIES
Policy reserves:
  Accident and health                                                                      $ 166,105         $ 139,963
  Life                                                                                         8,352             8,117
Policy and contract claims                                                                    88,841            78,142
Accounts payable and other liabilities                                                         7,283             6,192
Long-term debt                                                                                76,521            76,752
Deferred income taxes                                                                         29,454            23,850
                                                                                           ---------         ---------
    Total liabilities                                                                        376,556           333,016
                                                                                           ---------         ---------
Commitments and contingencies


                            SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding                     --                --
Common stock, par value $.10; 25,000 and 10,000
  shares authorized, 8,178 and 8,178 shares issued                                               818               818
Additional paid-in capital                                                                    53,271            53,194
Net unrealized appreciation of securities                                                      5,325             7,838
Retained earnings                                                                             85,474            72,612
                                                                                           ---------         ---------
                                                                                             144,888           134,462
Less 606 common shares held in treasury, at cost                                              (1,706)           (1,706)
                                                                                           ---------         ---------
                                                                                             143,182           132,756
                                                                                           ---------         ---------
    Total liabilities and shareholders' equity                                             $ 519,738         $ 465,772
                                                                                           ---------         ---------
                                                                                           ---------         ---------
</TABLE>


          See accompanying notes to consolidated financial statements.




                                       3
<PAGE>




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

<TABLE>
<CAPTION>


                                                                      Three Months Ended June 30,  Six Months Ended June 30,
                                                                             1998         1997        1998          1997
                                                                             ----         ----        ----          ----
<S>                                                                       <C>          <C>          <C>          <C>      
 Revenue:
   Accident and health premiums                                           $  53,749    $  40,081    $ 104,662    $  78,897
   Life premiums                                                                854          981        1,721        1,875
                                                                          ---------    ---------    ---------    ---------
                                                                             54,603       41,062      106,383       80,772

   Net investment income                                                      4,950        4,103        9,576        7,997
   Net realized capital gains                                                    76          111        6,791          160
   Other income                                                                  89          101          164          180
                                                                          ---------    ---------    ---------    ---------
                                                                             59,718       45,377      122,914       89,109
 Benefits and expenses:
   Benefits to policyholders                                                 38,093       31,556       72,376       56,887
   Commissions                                                               19,666       13,439       37,030       26,345
   Net policy acquisition costs  deferred                                   (12,034)     (11,283)     (20,309)     (16,775)
   General and administrative expense                                         6,120        5,186       12,075       10,154
   Interest expense                                                           1,200        1,188        2,413        2,391
                                                                          ---------    ---------    ---------    ---------
                                                                             53,045       40,086      103,585       79,002
                                                                          ---------    ---------    ---------    ---------

 Income before federal income taxes                                           6,673        5,291       19,329       10,107
 Provision for federal income taxes                                           2,182        1,561        6,467        2,958
                                                                          ---------    ---------    ---------    ---------
     Net income                                                               4,491        3,730       12,862        7,149
                                                                          ---------    ---------    ---------    ---------

  Other comprehensive income:
     Unrealized holding gain (loss) arising during period                     1,286       (4,874)       2,983       (4,826)
     Income (tax) benefit from unrealized holdings                             (437)       1,657       (1,014)
                                                                                                                     1,641
     Reclassification adjustment for (gain) loss included in net income         (76)        (111)      (6,791)        (160)

     Income (tax) benefit from reclassification adjustment                       26           38        2,309           54
                                                                          ---------    ---------    ---------    ---------

     Comprehensive income                                                 $   5,290    $     440    $  10,349    $   3,858
                                                                          ---------    ---------    ---------    ---------
                                                                          ---------    ---------    ---------    ---------

Basic earnings per share                                                  $    0.59    $    0.50    $    1.70    $    0.95

Diluted earnings per share                                                $    0.51    $    0.45    $    1.39    $    0.86

 Weighted average number of shares outstanding                                7,573        7,524        7,573        7,520
 Weighted average number of shares outstanding (diluted)                     10,427       10,348       10,423       10,344
                                                                          ---------    ---------    ---------    ---------
                                                                          ---------    ---------    ---------    ---------


</TABLE>

          See accompanying notes to consolidated financial statements.



                                       4
<PAGE>



                        PENN TREATY AMERICAN CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                        for the six months ended June 30,
                                   (unaudited)
                             (amounts in thousands)


<TABLE>
<CAPTION>

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

Net cash flow from operating activities:
  Net income                                       $ 12,862    $  7,150
  Adjustments to reconcile net income to cash
    provided by operations:
    Amortization of intangible assets                   365         558
    Deferred income taxes                             6,881       2,790
    Depreciation expense                                186         203
    Net realized capital gains                       (6,791)       (161)
  Increase (decrease) due to change in:
    Receivables from agents                             (66)        141
    Receivable from reinsurers                       (2,067)       (419)
    Policy acquisition costs, net                   (20,309)    (16,775)
    Policy and contract claims                       10,699       4,724
    Policy reserves                                  26,378      22,981
    Accounts payable and other liabilities            1,091          39
    Federal income taxes recoverable                 (1,542)        (67)
    Accrued investment income                          (210)       (487)
    Other, net                                           25      (1,508)
                                                   --------    --------
     Cash provided by operations                     27,502      19,169
Cash flow from (used in) investing activities:
  Proceeds from sales of bonds                       10,828       3,432
  Proceeds from sales of equity securities           22,045        --
  Maturities of investments                           5,792      11,328
  Purchase of bonds                                 (27,794)    (71,898)
  Purchase of equity securities                      (3,169)       --
  Acquisition of property and equipment                (440)       (357)
                                                   --------    --------
      Cash used in investing                          7,262     (57,495)

Cash flow from (used in) financing activities:
  Proceeds from excercise of stock options               77         406
  Repayments of long-term debt                         (231)       (216)
                                                   --------    --------
      Cash from (used in) financing                    (154)        190
                                                   --------    --------
Increase (decrease) in cash and cash equivalents     34,610     (38,136)
Cash balances:
  Beginning of period                                11,241      51,612
                                                   --------    --------
  End of period                                    $ 45,851    $ 13,476
                                                   --------    --------
                                                   --------    --------
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
June 30, 1998 
(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, 1997 of Penn Treaty
American Corporation ("the Company").

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

1.   Investments

     Management has categorized all of its investment securities as available
     for sale since they may be sold in response to changes in interest rates,
     prepayments, and similar factors. Investments in this classification are
     reported at their current market value with net unrealized gains and
     losses, net of the applicable deferred income tax effect, being added to or
     deducted from the Company's total shareholders' equity on the balance
     sheet. As of June 30, 1998, shareholders' equity was increased by $5,325
     due to unrealized gains of $8,068 in the investment portfolio. As of
     December 31, 1997, shareholders' equity was increased by $7,838 due to
     unrealized gains of $11,876 in the investment portfolio.

     The amortized cost and estimated market value of investments available for
     sale as of June 30, 1998 and December 31, 1997 are as follows:


<TABLE>
<CAPTION>

                                   June 30, 1998            December 31, 1997
                                   -------------            -----------------
                              Amortized      Estimated    Amortized    Estimated
                                Cost        Market Value     Cost      Market Value

<S>                         <C>        <C>        <C>        <C>     

U.S. Treasury securities
  and obligations of U.S
  Government authorities
  and agencies                 $165,152      $170,509      $163,277      $167,857

Obligations of states and
  political sub-divisions        26,542        25,716        30,515        32,152

Debt securities issued by
 foreign governments                205           205           204           205

Corporate securities             90,943        94,335        77,319        77,934

Equities                          6,075         6,220        18,511        23,554

Policy loans                        101           101            85            85
                               --------      --------      --------      --------

Total investments              $289,018      $297,086      $289,911      $301,788
                               --------      --------      --------      --------
                               --------      --------      --------      --------

Net unrealized gain               8,068                      11,877
                               --------                    --------
                              $ 297,086                    $301,788
                               --------                    --------
                               --------                    --------

</TABLE>



                                       6
<PAGE>


2.   New Accounting Principles:

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

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

In 1998, the FASB issued Statement 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," which revises employer's disclosures about
pension and other postretirement benefits. The Company expects that the adoption
of Statement 132, beginning in 1999, will have no material impact on its
financial condition or results of operations.

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





                                       7
<PAGE>





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

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

     Accident and Health Premiums. First year accident and health premiums
earned in the three month period ended June 30, 1998 (the "1998 quarter"),
including long-term care and Medicare supplement, increased 48.2% to $20,489,
compared to $13,825 in the same period in 1997 (the "1997 quarter"). First year
long-term care premiums earned in the 1998 quarter increased 48.4% to $19,966,
compared to $13,455 in the 1997 quarter. The Company attributes its growth to
continued improvements in product offerings, which competitively meet the needs
of the long term care marketplace. In addition, the Company actively recruits
and trains agents to sell its products. Management believes that the general
public has become more educated regarding the benefits of long-term care
insurance, which has added to its growth. First year Medicare supplement
premiums earned by the Company in the 1998 quarter increased to $524 from $370
in the 1997 quarter. Although the Company does not actively solicit new Medicare
supplement business, Management expects that this product line will only
continue to grow as a result of its complimentary mix with other long-term care
products being sold.

Renewal accident and health premiums earned by the Company in the 1998 quarter
increased 28.5% to $31,580, compared to $24,567 in the 1997 quarter. Renewal
long-term care premiums earned in the 1998 quarter increased 28.3% to $30,805,
compared to $24,004 in the 1997 quarter. This increase reflects renewals of a
larger base of in-force policies. The Company believes that this increase also
reflects an increase in persistency (renewals as a percentage of total prior
year business). Renewal Medicare supplement premiums in the 1998 quarter
increased 37.5% to $774, compared to $563 in the 1997 quarter.

     Disability and Life Premiums. The Company posted $1,681 in disability
income in the 1998 quarter, compared to $1,689 in the 1997 quarter. During the
1998 quarter, first year disability premiums were $237 and renewal premiums were
$1,444. First year life premiums earned by the Company in the 1998 quarter
decreased 37.0% to $187, compared to $297 in the 1997 quarter. Renewal life
premiums earned by the Company in the 1998 quarter declined to $666, compared to
$684 in the 1997 quarter.

     Net Investment Income. Net investment income earned by the Company for the
1998 quarter increased 20.6% to $4,950, from $4,103 for the 1997 quarter.
Management attributes this growth to larger invested assets as a result of
higher established reserves.

     Benefits to Policyholders. Total benefits to policyholders in the 1998
quarter increased 20.7% to $38,093 compared to $31,556 in the 1997 quarter.

Accident and health benefits to policyholders, excluding disability benefits, in
the 1998 quarter increased 18.6% to $35,735 compared to $30,134 in the 1997
quarter. The Company's accident and health loss ratio (the ratio of benefits to
policyholders to total accident and health premiums) was 69.2% in the 1998
quarter, compared to 78.5% in the 1997 quarter. The 1997 loss ratio includes
additions to reserves that resulted from changes in actuarial factors for the
Company's newer products. These factors represent higher persistency levels for
the Company's in-force 


                                       8
<PAGE>


policies. The Company uses independent care managers to control claims in its
home health care coverage. The amounts due to care management included in
benefits to policyholders were approximately $375 or .7% and $200 or .5% of
premiums in the 1998 and 1997 quarters, respectively. Disability benefits were
$925 and $767 in the 1998 and 1997 quarters, or 43.7% and 45.4% of premiums,
respectively.

     Commissions. Commissions to agents increased 46.3% to $19,666 in the 1998
quarter, compared to $13,439 in the 1997 quarter.

First year commissions on accident and health business in the 1998 quarter
increased 58.8% to $14,196, compared to $8,940 in the 1997 quarter,
corresponding to the increase in first year accident and health premiums and to
higher commission percentages being paid for new business as a result of
policies issued to younger applicants. The ratio of first year accident and
health commissions to first year accident and health premiums was 69.3% in the
1998 quarter and 64.7% in the 1997 quarter. First year commissions on life
business in the 1998 quarter decreased 28.1% to $163, compared to $227 in the
1997 quarter, directly reflecting the Company's reduction in first year life
premiums. The ratio of first year life commissions to first year life premiums
was 87.2% in the 1998 quarter compared to 76.5% in the 1997 quarter. This ratio
varies from quarter to quarter depending on the issuance of single premium
policies, which typically pay a higher commission. First year commissions on
disability policies were $141 or 59.4% of premiums in the 1998 quarter.

Renewal commissions on accident and health business in the 1998 quarter
increased 27.4% to $4,944, compared to $3,880 in the 1997 quarter, consistent
with the increase in renewal premiums discussed above. The ratio of renewal
accident and health commissions to renewal accident and health premiums was
15.7% in the 1998 quarter and 15.8% in the 1997 quarter. This ratio fluctuates
in relation to the age of the policies in force and the rates of commissions
paid to the agents. Life renewal commissions were 13.5% of premiums in the 1998
quarter compared to 11.7% in the 1997 quarter. Renewal commissions of $131 were
9.1% of disability premiums in the 1998 quarter.

     Net Policy Acquisition Costs Deferred. The net deferred policy acquisition
costs in the 1998 quarter increased 6.7% to $12,034 compared to $11,283 in the
1997 quarter. The 1997 quarter is not indicative of a normal quarter, in that
the Company's actuary reset the factors used to establish deferred costs for all
of 1997 in order to account for increased persistency, resulting in higher
expense deferrals. This deferral is net of amortization, which decreases or
increases as the Company's actual persistency is higher or lower than the
persistency assumed for reserving purposes. Generally, the deferral of policy
acquisition costs remained consistent with the growth of premiums.

     General and Administrative Expenses. General and administrative expenses in
the 1998 quarter increased 18.0% to $6,120, compared to $5,186 in the 1997
quarter. This increase was due to variable expense growth, yet is below the 33%
rise in premiums. The Company attributes these savings to efficiencies in its
processing areas, which enables fixed costs to better utilized.

     Provision for Federal Income Taxes. The provision for federal income taxes
recorded by the Company for the 1998 quarter increased to $2,182, compared to
$1,561 for the 1997 quarter. This increase is primarily attributable to the
Company's higher anticipated tax rates due to lower tax-exempt bond holdings and
reduced small life company exemptions. The effective tax rates 


                                       9
<PAGE>


of approximately 33% and 30% in the 1998 and 1997 quarters, respectively, are
below the normal federal corporate rate as a result of credits from the small
life insurance company deduction as well as the Company's investments in
tax-exempt bonds.


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

     Accident and Health Premiums. First year accident and health premiums
earned in the six month period ended June 30, 1998 (the "1998 period"),
including long-term care and Medicare supplement, increased 45.9% to $37,786,
compared to $25,897 in the same period in 1997 (the "1997 period"). First year
long-term care premiums earned in the 1998 period increased 44.8% to $36,647,
compared to $25,302 in the 1997 period. Management believes that it is no longer
relevant to measure separate growth for nursing home and home health care
policies given the Company's sale of comprehensive coverage plans and base plans
with attached riders. The Company attributes its growth to continued
improvements in product offerings, which competitively meet the needs of the
long term care marketplace. In addition, the Company actively recruits and
trains agents to sell its products. First year Medicare supplement premiums
earned by the Company in the 1998 quarter increased to $1,139 from $594 in the
1997 quarter. Although the Company does not actively solicit new Medicare
supplement business, Management expects that this product line will only
continue to grow as a result of its complimentary mix with other long-term care
products being sold.

Renewal accident and health premiums earned by the Company in the 1998 period
increased 27.9% to $63,530, compared to $49,643 in the 1997 period. Renewal
long-term care premiums earned in the 1998 period increased 28.2% to $61,925,
compared to $48,292 in the 1997 period. This increase reflects renewals of a
larger base of in-force policies. The Company believes that this increase also
reflects an increase in persistency (renewals as a percentage of total prior
year business). Renewal Medicare supplement premiums in the 1998 period
increased 18.8% to $1,605, compared to $1,351 in the 1997 period.

     Disability and Life Premiums. The Company posted $3,345 in disability
income in the 1998 period, compared to $3,358 in the 1997 period. During the
1998 period, first year disability premiums were $486 and renewal premiums were
$2,859. First year life premiums earned by the Company in the 1998 period
decreased 29.3% to $395, compared to $559 in the 1997 period. Renewal life
premiums earned by the Company in the 1998 period increased to $1,326, compared
to $1,316 in the 1997 period.


     Net Investment Income. Net investment income earned by the Company for the
1998 period increased 19.7% to $9,576, from $7,997 for the 1997 period. During
the 1998 period, the Company sold its entire common equity securities portfolio,
or approximately $22,000 of invested assets. From this sale, the Company
recognized an approximate $6,500 capital gain. The Company has focused its
short-term investment strategy upon fixed income securities in order to increase
realized income.

     Benefits to Policyholders. Total benefits to policyholders in the 1998
period increased 27.2% to $72,376 compared to $56,887 in the 1997 period.



                                       10
<PAGE>



Accident and health benefits to policyholders, excluding disability benefits, in
the 1998 period increased 27.8% to $68,536, compared to $53,643 in the 1997
period. The Company's accident and health loss ratio (the ratio of benefits to
policyholders to total accident and health premiums) was 68.1% in the 1998
period, compared to 71.0% in the 1997 period. The Company uses independent care
managers to monitor and control claims in its home health care coverage. The
amounts due to care management included in benefits to policyholders were
approximately $675 or .6% and $400 or .5% of premiums in the 1998 and 1997
periods, respectively. Disability benefits were $1,743 and $1,586 in the 1998
and 1997 periods, or 43.9% and 47.2% of premiums, respectively.

     Commissions. Commissions to agents increased 40.6% to $37,030 in the 1998
period compared to $26,345 in the 1997 period.

First year commissions on accident and health business in the 1998 period
increased 51.3% to $26,042, compared to $17,209 in the 1997 period,
corresponding to the increase in first year accident and health premiums and to
the issuance of younger age policies, which typically pay a higher first year
commission rate. The ratio of first year accident and health commissions to
first year accident and health premiums was 68.9% in the 1998 period and 66.5%
in the 1997 period. First year commissions on life business in the 1998 period
decreased 21.3% to $346, compared to $440 in the 1997 period. The ratio of first
year life commissions to first year life premiums was 87.4% in the 1998 period
compared to 78.8% in the 1997 period. First year disability commissions, at
58.6% of premiums, were $285 in the 1998 period.

Renewal commissions on accident and health business in the 1998 period increased
25.5% to $9,920, compared to $7,906 in the 1997 period, consistent with the
increase in renewal premiums discussed above. The ratio of renewal accident and
health commissions to renewal accident and health premiums was 15.6% in the 1998
period and 15.9% in the 1997 period. The ratio fluctuates in relation to the age
of the policies in force and the rates of commissions paid to the agents. The
ratio of renewal disability commissions to disability premiums was 9.1% in the
1998 period, accounting for $259 in 1998 commissions, compared to $254 in the
1997 period.

     Net Policy Acquisition Costs Deferred. The net deferred policy acquisition
costs in the 1998 period increased 21.1% to $20,309 compared to $16,775 in the
1997 period, consistent with the growth of the Company's business. This deferral
is net of amortization, which decreases or increases as the Company's actual
persistency is higher or lower than the persistency assumed for reserving
purposes. Generally, the deferral of policy acquisition costs remained
consistent with the growth of premiums. Management believes that these costs are
amortized more slowly in the 1998 period due to increased persistency of the
policies on which the costs were incurred.

     General and Administrative Expenses. General and administrative expenses in
the 1998 period increased 18.9% to $12,075, compared to $10,154 in the 1997
period. This increase was due to variable expense growth yet is below the 30.0%
rise in premiums. The Company attributes these savings to efficiencies in its
processing and reduction in ANIC expense of approximately $260 in the 1998
period.

     Provision for Federal Income Taxes. The provision for federal income taxes
recorded by the Company for the 1998 period increased 118.7% to $6,467, compared
to $2,958 for the 1997 period. This increase is primarily attributable to the
capital gains recognized on the sale of the Company's equity portfolio. The
effective tax rates of approximately 33.5% and 29.3% in the 


                                       11
<PAGE>


1998 and 1997 periods, respectively are below the normal federal corporate rate
as a result of credits from the small life insurance company deduction as well
as the Company's investments in tax-exempt bonds.


Liquidity and Capital Resources:

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

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

The Company's cash flows in the 1998 period were attributable to cash provided
by operations, cash used in investing, and cash provided by financing. The
Company's cash increased by approximately $34,610 in the 1998 period primarily
due to the sale of approximately $22,045 of its equity securities portfolio and
cash from operations of approximately $27,502. The major provider of cash from
operations was premiums used to fund additions to reserves of approximately
$37,077 in the 1998 period. The primary uses of cash were additions to policy
acquisition costs of $20,309 and the purchase of bonds of $27,794.

The Company's cash decreased by approximately $38,136 in the 1997 period
primarily due to the purchase of approximately $71,898 of investments, which
more than offset cash from operations of approximately $19,169. The major
provider of cash from operations was premiums used to fund additions to reserves
of approximately $27,705 in the 1997 period.

The Company invests in securities and other investments authorized by applicable
state laws and regulations and follows an investment policy designed to maximize
yield to the extent consistent with liquidity requirements and preservation of
assets. The market value of the Company's bond portfolio represented
approximately 102.8% of its cost at June 30, 1998, compared to 102.5% at
December 31, 1997, with a current unrealized gain of $7,923 at June 30, 1998,
compared to $6,832 at December 31, 1997. Its equity portfolio, which consisted
primarily of preferred stock at June 30, 1998, exceeded cost by $145, compared
to 5,043 on December 31, 1997.

As of December 31, 1997, shareholders' equity was increased by approximately
$7,838 due to unrealized gains in the investment portfolio. As of June 30, 1998,
shareholders' equity was increased by approximately $5,325 due to unrealized
gains in the investment portfolio.

The Company's debt currently consists primarily of a mortgage note in the
approximate amount of $2,000 and $74,750 in convertible subordinated debt. The
convertible debt, issued in November 1996, is convertible at $28.44 per share
until November 2003. The debt carries a fixed interest 



                                       12
<PAGE>


coupon of 6.25%, payable semi-annually. The mortgage note is currently amortized
over 12 years, and has a balloon payment due on the remaining outstanding
balance in September 1998. Although the note carries a variable interest rate,
the Company has entered into an amortizing swap agreement with the same bank,
with a notional amount equal to the outstanding debt, which has the effect of
converting the note to a fixed rate of interest.

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

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

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

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

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

New Accounting Principles:

The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard 130, "Reporting Comprehensive Income," which requires that
changes in comprehensive income be 


                                       13
<PAGE>


shown in a financial statement with the same prominence as in other financial
statements. While not mandating a specific financial statement format, Statement
130 requires that an amount representing total comprehensive income be reported
for fiscal years beginning after December 15, 1997. Restatement for earlier
years is required for comparative purposes. The Company has adopted Statement
130.

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

In 1998, the FASB issued Statement 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," which revises employer's disclosures about
pension and other postretirement benefits. The Company expects that the adoption
of Statement 132, beginning in 1999, will have no material impact on its
financial condition or results of operations.

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




                                       14
<PAGE>


                            PART II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities

Not Applicable

Item 3. Defaults Upon Senior Securities

Not Applicable

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

The Company's Annual Meeting of Shareholders was held on May 22, 1998. At such
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) Election of three persons to the Company's Board of Directors as Class
I Directors to serve until the 2001 Annual Meeting of Shareholders and until
their successors are elected and have been qualified.

                                  Glen A. Levit

   5,685,741      Affirmative           0      Negative
   ---------                       ------
           0      Withheld         97,364      Abstentions and broker non-votes
   ---------                       ------


                                  Emile Ilchuck
   5,685,911      Affirmative           0      Negative
   ---------                       ------
           0      Withheld         97,194      Abstentions and broker non-votes
   ---------                       ------

                                  Jack D. Baum
   5,685,511      Affirmative           0      Negative
   ---------                       ------
           0      Withheld         97,594      Abstentions and broker non-votes
   ---------                       ------

     (2) Ratification of the selection of Coopers & Lybrand L.L.P. as
independent public accountants for the Company and its subsidiaries for the year
ending December 31, 1998.

   5,712,074      Affirmative      63,340      Negative
   ---------                       ------
           0      Withheld          7,691      Abstentions and broker non-votes
   ---------                       ------


                                       15
<PAGE>


     (3) Adoption of the Penn Treaty American Corporation 1998 Employee
Incentive Stock Option Plan.

   3,835,068      Affirmative   1,280,640      Negative
   ---------                    ---------
           0      Withheld         17,937      Abstentions and broker non-votes


Item 5. Other Information

     On May 11, 1998, the Company entered into a Change of Control Employment
Agreement with the following Director and Officer:

     Cameron B. Waite, Chief Financial Officer


Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

     Exhibit 10.46 - Material Contract with Cameron B. Waite
     Exhibit 10.47 - Penn Treaty American Corporation 1998 Incentive Stock
                     Option Plan
     Exhibit 11 - Earnings Per Share Calculation
     Exhibit 27 - Financial Data Schedule

(b)  Reports on Form 8-K:

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



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<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 12, 1998                /s/  Irving Levit
       ---------------                     ------------
                                           Irving Levit
                                           President

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




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