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 September 30, 2000

                                       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.
                                                      23-1664166
                -------------------------------------------------

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 on the  Registrant's  common stock,  par value
$.10 per share, as of November 3, 2000 was 7,819,384.


<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 8 of this report. Our financial  statements  represent the consolidation
of our operations and our  subsidiaries,  Penn Treaty Network America  Insurance
Company ("Penn Treaty Network"),  American Network Insurance Company  ("American
Network"), American Independent Network Insurance Company of New York ("American
Independent"),   Penn  Treaty   (Bermuda)   Ltd.   ("Penn   Treaty   (Bermuda)")
(collectively  the  "Insurers"),  United Insurance Group Agency,  Inc.  ("United
Insurance Group"), Network Insurance Senior Health Division ("NISHD") and Senior
Financial Consultants (collectively the "Agencies"),  which are underwriters and
marketers of long-term care insurance  products.  Penn Treaty Network is also an
underwriter of life insurance products.


<PAGE>
<TABLE>
<CAPTION>

                                  PENN TREATY AMERICAN CORPORATION
                                        AND SUBSIDIARIES
                                  Consolidated Balance Sheets
                                     (amounts in thousands)
                                                                                      September 30,  December 31,
                                                                                         2000           1999
                                                                                         ----           ----
                                                                                      (unaudited)
<S>                                                                                     <C>          <C>
                               ASSETS
Investments:
  Bonds, available for sale at market (cost of $415,423 and $365,701, respectively)     $ 404,902    $ 353,688
  Equity securities at market value (cost of $16,885 and $17,853, respectively)            17,481       19,163
  Policy loans                                                                                169          150
                                                                                        ---------    ---------
Total investments                                                                         422,552      373,001
Cash and cash equivalents                                                                  32,896       17,347
Property and equipment, at cost, less accumulated depreciation of
  $5,333 and $4,515, respectively                                                          12,200       10,614
Unamortized deferred policy acquisition costs                                             240,610      208,519
Receivables from agents, less allowance for
  uncollectable amounts of $199 and $199, respectively                                      2,783        2,713
Accrued investment income                                                                   6,948        5,918
Federal income tax recoverable                                                               --          1,616
Cost in excess of fair value of net assets acquired, less
  accumulated amortization of $2,991 and $2,021, respectively                              27,387       22,357
Present value of future profits acquired                                                    2,455        2,767
Receivable from reinsurers                                                                 15,078       15,070
Other assets                                                                               40,636       37,717
                                                                                        ---------    ---------
    Total assets                                                                        $ 803,545    $ 697,639
                                                                                        =========    =========
                                          LIABILITIES
Policy reserves:
  Accident and health                                                                   $ 327,481    $ 260,046
  Life                                                                                     12,352       12,167
Policy and contract claims                                                                156,670      137,534
Accounts payable and other liabilities                                                     12,431       12,887
Federal income tax payable                                                                  2,044         --
Long-term debt                                                                             81,987       82,861
Deferred income taxes                                                                      34,239       33,459
                                                                                        ---------    ---------
    Total liabilities                                                                     627,204      538,954
                                                                                        ---------    ---------
Commitments and contingencies
                                      SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000 shares authorized, none outstanding                  --           --
Common stock, par value $.10; 25,000 shares authorized, 8,192 and 8,191 shares issued         819          819
Additional paid-in capital                                                                 53,744       53,655
Accumulated other comprehensive income                                                     (6,550)      (7,064)
Retained earnings                                                                         135,033      117,980
                                                                                        ---------    ---------
                                                                                          183,046      165,390
Less 915 and 915, respectively, common shares held in treasury, at cost                    (6,705)      (6,705)
                                                                                        ---------    ---------
                                                                                          176,341      158,685
                                                                                        ---------    ---------
    Total liabilities and shareholders' equity                                          $ 803,545    $ 697,639
                                                                                        =========    =========

          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          Nine Months Ended
                                                                                    September 30,             September 30,
                                                                                ----------------------    ----------------------
                                                                                   2000         1999         2000         1999
                                                                                   ----         ----         ----         ----
<S>                                                                             <C>          <C>          <C>          <C>
Revenue:
  Premium revenue                                                               $  91,963    $  72,165    $ 264,826    $ 211,366
  Net investment income                                                             6,874        5,967       19,671       16,721
  Net realized capital gains                                                          503          269        1,244        4,112
  Other income                                                                      2,383        1,564        6,743        4,661
                                                                                ---------    ---------    ---------    ---------
                                                                                  101,723       79,965      292,484      236,860
Benefits and expenses:
  Benefits to policyholders                                                        61,120       49,623      180,519      144,332
  Commissions                                                                      25,716       23,167       77,088       68,647
  Net policy acquisition costs deferred                                            (9,111)     (12,201)     (32,091)     (35,659)
  General and administrative expense                                               12,951       10,576       36,285       30,223
  Loss due to impairment of property and equipment                                   --           --           --          2,799
  Reserve for claim litigation                                                       (500)        --          1,000         --
  Interest expense                                                                  1,281        1,315        3,843        3,893
                                                                                ---------    ---------    ---------    ---------
                                                                                   91,457       72,480      266,644      214,235
                                                                                ---------    ---------    ---------    ---------

Income before federal income taxes                                                 10,266        7,485       25,840       22,625
Provision for federal income taxes                                                  3,490        2,470        8,786        7,466
                                                                                ---------    ---------    ---------    ---------
    Net income                                                                      6,776        5,015       17,054       15,159
                                                                                ---------    ---------    ---------    ---------

 Other comprehensive income:
    Unrealized holding gain (loss) arising during period                            5,197       (4,482)       2,022      (17,528)
    Income (tax) benefit from unrealized holdings                                  (1,767)       1,524         (687)       5,960
    Reclassification adjustment for (gain) loss included in net income               (503)        (269)      (1,244)      (4,112)
    Income (tax) benefit from reclassification adjustment                             171           91          423        1,397
                                                                                ---------    ---------    ---------    ---------

    Comprehensive income                                                        $   9,874    $   1,879    $  17,568    $     876
                                                                                =========    =========    =========    =========


Basic earnings per share                                                        $    0.93    $    0.66    $    2.34    $    2.00
Diluted earnings per share                                                      $    0.76    $    0.57    $    1.88    $    1.71


Weighted average number of shares outstanding                                       7,277        7,585        7,277        7,584
Weighted average number of shares outstanding (diluted)                             9,982       10,363        9,970       10,366

                 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 Nine Months Ended September 30,
                                   (unaudited)
                             (amounts in thousands)
                                                                    2000         1999
                                                                    ----         ----
<S>                                                              <C>          <C>
Net cash flow from operating activities:
  Net income                                                     $  17,054    $  15,159
  Adjustments to reconcile net income to cash
    provided by operations:
    Amortization of intangible assets                                1,552          814
    Policy acquisition costs, net                                  (32,091)     (35,659)
    Deferred income taxes                                              515        3,324
    Depreciation expense                                               818          840
    Net realized capital gains                                      (1,244)      (4,112)
    Realized loss on disposal of property and equipment               --          2,799
  Increase (decrease) due to change in:
    Receivables from agents                                            (70)         489
    Receivable from reinsurers                                          (8)      (1,048)
    Policy and contract claims                                      19,136       18,985
    Policy reserves                                                 67,620       54,866
    Accounts payable and other liabilities                            (456)       3,484
    Federal income taxes recoverable                                 1,616        1,794
    Federal income taxes payable                                     2,044          468
    Accrued investment income                                       (1,030)      (1,052)
    Other, net                                                      (3,105)      (2,503)
                                                                 ---------    ---------
      Cash provided by operations                                   72,351       58,648

Cash flow from (used in) investing activities:
  Net cash purchase of subsidiary                                   (6,000)      (9,194)
  Proceeds from sales of bonds                                      97,406       55,698
  Proceeds from sales of equity securities                          24,341       20,361
  Maturities of investments                                         10,282        4,741
  Purchase of bonds                                               (156,693)    (100,721)
  Purchase of equity securities                                    (22,867)     (19,921)
  Acquisition of property and equipment                             (2,404)      (2,986)
                                                                 ---------    ---------
      Cash used in investing                                       (55,935)     (52,022)

Cash flow (used in) from financing activities:
  Proceeds from exercise of stock options                                7           31
  Repayments of long-term debt                                        (874)         (43)
                                                                 ---------    ---------
      Cash used in financing                                          (867)         (12)
                                                                 ---------    ---------
Increase in cash and cash equivalents                               15,549        6,614
Cash balances:
  Beginning of period                                               17,347       38,402
                                                                 ---------    ---------
  End of period                                                  $  32,896    $  45,016
                                                                 =========    =========
  Acquisition of subsidiary with note payable                    $    --      $   7,167
                                                                 =========    =========

             See accompanying notes to consolidated financial statements

</TABLE>

                                       5
<PAGE>


NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS
September  30,  2000
(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, 1999 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.


1.   Investments:

     Management has  categorized  all of its investment  securities as available
     for sale since they may be sold in response  to changes in interest  rates,
     prepayments and similar  factors.  Investments in this  classification  are
     reported  at their  current  market  value  with net  unrealized  gains and
     losses, net of the applicable deferred income tax effect, being added to or
     deducted  from the  Company's  total  shareholders'  equity on the  balance
     sheet.  As of September  30, 2000,  shareholders'  equity was  decreased by
     $6,550 due to unrealized losses of $9,925 in the investment  portfolio.  As
     of December 31, 1999,  shareholders'  equity was decreased by $7,064 due to
     unrealized losses of $10,703 in the investment portfolio.

     The amortized cost and estimated market value of investments  available for
     sale as of September 30, 2000 and December 31, 1999 are as follows:

                              September 30, 2000           December 31, 1999
                              ------------------           -----------------
                             Amortized    Estimated      Amortized   Estimated
                               Cost      Market Value      Cost     Market Value
U.S. Treasury securities
  and obligations of U.S.
  Government authorities
  and agencies               $ 122,362    $ 122,864      $ 118,547   $ 116,698

Obligations of states and
  political sub-divisions          571          577            571         575

Mortgage backed securities      14,541       17,357         20,888      20,126

Debt securities issued by
 foreign governments            17,339       16,697         18,533      17,599

Corporate securities           260,610      247,407        207,162     198,690

Equities                        16,885       17,481         17,853      19,163

Policy Loans                       169          169            150         150
                             ---------    ---------      ---------   ---------

Total Investments            $ 432,477    $ 422,552      $ 383,704   $ 373,001
                             =========    =========      =========   =========

Net unrealized gain (loss)      (9,925)                    (10,703)
                             ---------                   ---------

                             $ 422,552                   $ 373,001
                             =========                   =========


                                       6
<PAGE>

2.   Policy Reserves and Policy and Contract Claims:

     Policy and contract claims reserves  include amounts  representing:  (1) an
estimate, based upon prior experience,  for accident and health claims reported,
and incurred but unreported losses; (2) the actual in force amounts for reported
life claims and an estimate of incurred but unreported  claims;  (3) an estimate
of  future  administrative  expenses,  which  would be  utilized  to  adjudicate
existing  claims.  The methods for making such  estimates and  establishing  the
resulting  liabilities are continually  reviewed and updated and any adjustments
resulting therefrom are reflected in earnings currently.


3.   New Accounting Principle:

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities,"   which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively referred to as "derivatives") and for hedging activities. SFAS No.
133, as amended by SFAS No. 137  "Deferral  of the  Effective  Date of FAS 133",
which is effective for all fiscal  quarters of all fiscal years  beginning after
June 15, 2000,  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.  We are currently  evaluating the impact of SFAS No.
133 as relates to the embedded option values in our investment portfolio.

4.   Statutory Regulation:

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

     The  Pennsylvania  and New York  Insurance  Departments  have  adopted  the
Codification  guidance,  effective  January 1, 2001.  We have not  estimated the
effect of the Codification  guidance upon our financial  condition or results of
operations.  There is no effect  upon our  financial  condition  or  results  of
operations  as  prepared  in  accordance  with  generally  accepted   accounting
principles.

5.   Acquisition of Business:

     On January 10, 2000,  PTNA  entered a purchase  agreement to acquire all of
the common stock of Network Insurance Senior Health Division (NISHD),  a Florida
brokerage  insurance agency.  The acquisition was effective January 1, 2000, for
cash of $6,000.  The  acquisition  is accounted for as a purchase,  for which we
recorded $6,000 of goodwill,  to be amortized over 20 years. The proforma effect
of  consolidating  the  financial  results  of  NISHD  prior  to 2000  would  be
immaterial to our financial condition or results of operations.


                                       7
<PAGE>


6.   Reconciliation of Earnings Per Share:

         The  following  describes  the  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.  Basic earnings per
share excludes  dilution and is computed by dividing income  available to common
shareholders 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.

<TABLE>
<CAPTION>
                                               Three Months Ended     Nine Months Ended
                                                  September 30,         September 30,
                                                ----------------    -----------------
                                                 2000      1999         2000      1999
                                                 ----      ----         ----      ----
<S>                                             <C>      <C>          <C>       <C>
Net income                                      $6,776   $ 5,015      $17,054   $15,159
Weighted average common shares outstanding       7,277     7,585        7,277     7,584
Basic earnings per share                        $ 0.93   $  0.66      $  2.34   $  2.00
                                                ======   =======      =======   =======

Net income                                      $6,776   $ 5,015      $17,054   $15,159
Adjustments net of tax:
     Interest expense on convertible debt          771       783        1,542     2,348
     Amortization of debt offering costs            60        61          180       183
                                                ------   -------      -------   -------
Diluted net income                              $7,606   $ 5,858      $18,777   $17,689
                                                ======   =======      =======   =======

Weighted average common shares outstanding       7,277     7,585        7,277     7,584
Common stock equivalents due to dilutive
     effect of stock options                        77       150           65       154
Shares converted from convertible debt           2,628     2,628        2,628     2,628
                                                ------   -------      -------   -------
Total outstanding shares for diluted earnings
     per share computation                       9,982    10,363        9,970    10,366
Diluted earnings per share                      $ 0.76   $  0.57      $  1.88   $  1.71
                                                ======   =======      =======   =======
</TABLE>


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


OVERVIEW

     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,  which we have developed over 28 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
the  purchase of both  nursing  home care and home health  care  coverage,  thus
providing  policyholders  with enhanced  protection  while broadening our policy
base.

     Our  insurance   subsidiaries   are  subject  to  the  insurance  laws  and
regulations of each state 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.


                                       8
<PAGE>

     Our results of  operations  are  affected  significantly  by the  following
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 ensure profitability,
subject to the constraints of competitive market conditions and state regulatory
approvals.  Premium levels are reviewed on new product  filings,  as well as for
rate increases as claims experience warrants.

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  termination  of policies
because, upon such unanticipated  termination,  we are required to expense fully
the deferred acquisition costs associated with the terminated policy.

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 will
receive.

Investment  income.  Our investment  portfolio  consists primarily of high-grade
fixed  income  securities.  Income  generated  from this  portfolio  is  largely
dependent upon prevailing  levels of interest rates. Due to the longevity of our
investment  portfolio duration  (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 September 30, 2000,
approximately  4.1% of our invested  assets were committed to high quality large
capitalization common stocks and preferred stocks of smaller corporations.

Lapsation and  persistency.  Factors that affect our results of  operations  are
lapsation  and  persistency,  both of which  relate to the renewal of  insurance
policies,  and  first  year  compared  to  renewal  premiums.  Lapsation  is the
termination of a policy by nonrenewal and,  pursuant to our policy, is automatic
if and when premiums become more than 31 days overdue;  however, policies may be
reinstated, if approved, within six months after the policy lapses.  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 business 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 a result of  non-renewal  of  policies,  including
those policies that have terminated by reason of death,  lapse due to nonpayment
of  premiums,  and/or  conversion  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,  due both to internal and
external  causes.  We  believe  that our  efforts to  address  any  policyholder
concerns or  questions in an expedient  fashion  help to ensure  ongoing  policy

                                       9
<PAGE>

renewal. We also believe that we enjoy a favorable  policyholder  reputation for
providing  desirable  policy  benefits,   minimal  premium  rate  increases  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. New government/ legislative initiatives have raised
public  awareness of the escalating  costs of long-term  care,  which we believe
boosts new sales and promotes renewal payments.  Recent initiatives also include
tax relief for certain long-term care insurance coverage, which promotes new and
renewal payments.

     Lapsation  and  persistency  can  positively  and  adversely  impact future
earnings.  Improved persistency  generally results in higher renewal premium and
reduced  amortization of deferred  acquisition costs than anticipated.  However,
higher persistency may lead to increased claims in future periods. Additionally,
increased  lapsation  can  result in  reduced  premium  collection,  accelerated
deferred  acquisition  cost  amortization  and  anti-selection  of  higher-risk,
remaining policyholders.


THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999:
(amounts in thousands, except per share data)

Premiums. Total premium revenue earned in the three month period ended September
30, 2000 (the "2000 quarter"),  including long-term care,  disability,  life and
Medicare supplement, increased 27.4% to $91,963, compared to $72,165 in the same
period in 1999 (the "1999 quarter").

     First year  long-term  care premiums  earned in the 2000 quarter  increased
13.6% to $27,240,  compared to $23,986 in the 1999  quarter.  We  attribute  our
growth  to the  development  and  sale  of our  group  product  line,  continued
improvements in product  offerings,  which  competitively  meet the needs of the
long term care  marketplace,  and growth from recent  expansion into new states,
such as New Jersey, Connecticut and New York.

     Renewal  premiums  earned in the 2000 quarter  increased  34.3% to $64,723,
compared to $48,179 in the 1999 quarter.  Renewal long-term care premiums earned
in the 2000 quarter increased 35.4% to $60,220,  compared to $44,471 in the 1999
quarter.  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 2000  quarter
increased  15.2%  to  $6,874,  from  $5,967  for the  1999  quarter.  Management
attributes this growth to more invested assets as a result of higher established
reserves, as well as higher interest rates achieved on newly invested funds.

Net Realized Capital Gains. During the 2000 quarter, we recognized capital gains
of  $503,  compared  to  gains of $269 in the 1999  quarter.  These  gains  were
recorded as a result of our normal treasury management operations.

Other Income.  We recorded  $2,383 in other income  during the 2000 quarter,  up
from $1,564 in the 1999 quarter.  The increase is  attributable  to  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. In addition, the 2000 quarter results include the receipt of
a settlement from a previously disclosed lawsuit. The details of the lawsuit are
undisclosed as a condition of the settlement agreement.

                                       10
<PAGE>

Benefits to  Policyholders.  Total benefits to policyholders in the 2000 quarter
increased  23.2% to $61,120,  compared to $49,623 in the 1999 quarter.  Our loss
ratio,  or  policyholder  benefits to premiums,  was 66.5% in the 2000  quarter,
compared to 68.8% in the 1999 quarter.

     During the 2000 quarter,  we  implemented a rate increase on certain of our
return of premium riders.  Individual  policyholders  were offered the option to
accept the rate  increase  on future  premium  payments  or to have prior  rider
payments  refunded  with  interest.  As a result of this option,  our loss ratio
during  the  quarter  was  reduced  due to the  cancellation  and return of this
premium and the subsequent  release of the related  reserves held for the future
payment of these benefits.

     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
these increases when deemed to be actuarially sound.

Commissions.  Commissions  to  agents  increased  11.0% to  $25,716  in the 2000
quarter, compared to $23,167 in the 1999 quarter.

     First year  commissions on accident and health business in the 2000 quarter
increased 12.7% to $18,009,  compared to $15,980 in the 1999 quarter.  The ratio
of first year accident and health  commissions to first year accident and health
premiums was 66.3% in the 2000 quarter and 68.0% in the 1999 quarter. 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, younger
policyholder sales receive a higher commission percentage.  The lower commission
percentage  in the 2000  quarter  is  reduced  by our  sale of  group  insurance
premium, which was primarily commission free.

     Renewal  commissions  on accident  and health  business in the 2000 quarter
increased  24.8% to $9,444,  compared to $7,565 in the 1999 quarter,  consistent
with the  increase in renewal  premiums  discussed  above when  adjusted for the
impact of  commission  free group  policies.  The ratio of renewal  accident and
health commissions to renewal accident and health premiums was 15.3% in the 2000
quarter and 16.6% in the 1999 quarter.

     Commission  expense  during the 2000  quarter was reduced by the netting of
$1,052 from override  commissions  paid to the Agencies by the Insurers.  During
the 1999 quarter, commissions were reduced by $753.

Net Policy Acquisition Costs Deferred. The net deferred policy acquisition costs
in the 2000 quarter  decreased  25.3% to $9,111  compared to $12,201 in the 1999
quarter.

     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.

     Net deferred  costs  declined as a percentage  of premiums  during the 2000
quarter  primarily due to lower first year  commissions  paid as a percentage of
first year premiums. First year commission rates were reduced as a result of our
sale of group policies,  which were largely  commission-free.  In addition,  the
income  statement  credit for deferred  costs is reduced due to lower first year
premium growth as a percentage of total portfolio  amortization  from prior year
deferrals.

                                       11
<PAGE>

General and Administrative Expenses.  General and administrative expenses in the
2000  quarter  increased  22.5% to  $12,951,  compared  to  $10,576  in the 1999
quarter. The 2000 and 1999 quarters include $1,963 and $2,006, respectively,  of
general and  administrative  expenses related to United Insurance Group expense.
Management  attributes  much of its expense growth to printing and  distribution
costs related to its new group product line and newer policy forms. In addition,
management believes that current cost savings initiatives, such as remote office
consolidation and outsourcing of certain administrative  functions,  has reduced
the level of overall  expenses  (excluding  United  Insurance Group and goodwill
amortization) as a percentage of premiums.

Reserve for Claim Litigation. During the first quarter of 2000, we established a
$1,500 reserve for the potential payment of a jury awarded  compensatory  damage
judgement of approximately $2,000. We subsequently filed a motion for remittitur
of this award.  During the 2000  quarter,  the award was reduced to $1,000.  The
plaintiff  has appealed this  decision,  which  requires the appellate  court to
reverse the new ruling or grant a new trial. We have reduced our reserve by $500
to $1,000 pending further development.

Provision for Federal  Income Taxes.  Our provision for federal  income taxes in
the 2000  quarter  increased  41.3% to $3,490,  compared  to $2,470 for the 1999
quarter.  The  effective  tax  rates  of  34.0%  and  33.0% in the 2000 and 1999
quarters,  respectively,  are at or below the normal federal corporate rate as a
result of credits form 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,  which are partially
offset by non-deductible goodwill amortization.

Comprehensive   Income.  During  the  2000  quarter,  our  investment  portfolio
generated  pre-tax  unrealized  gains  of  $4,694,   compared  to  1999  quarter
unrealized  losses of $4,751.  After  accounting  for deferred  taxes from these
gains and losses and net income,  shareholders'  equity increased by $9,874 from
comprehensive  income during the 2000 quarter,  compared to comprehensive income
of $1,879 in the 1999 quarter.


NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999:
(amounts in thousands, except per share data)

Premiums.  Total  premiums  earned in the nine month period ended  September 30,
2000  (the  "2000  period"),  including  long-term  care,  disability,  life and
Medicare  supplement,  increased 25.3% to $264,826,  compared to $211,366 in the
same period in 1999 (the "1999 period").

     First year long-term care premiums earned in the 2000 period increased 5.6%
to $77,687,  compared to $73,568 in the 1999 period.  We attribute our growth to
continued improvements in product offerings,  which competitively meet the needs
of the long-term  care  marketplace,  and growth from recent  expansion into new
states, such as New Jersey, Connecticut and New York. In addition, we introduced
our group plan in the 2000 period,  which  offers  long-term  care  insurance to
group members on a guaranteed acceptance basis.

     Renewal  premiums  earned in the 2000 period  increased  35.8% to $187,139,
compared to $137,798 in the 1999 period.  Renewal long-term care premiums earned
in the 2000 period increased 38.0% to $176,319, compared to $127,726 in the 1999
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  2000  period
increased  17.6%  to  $19,671,  from  $16,721  for the 1999  period.  Management
attributes this growth to more invested assets as a result of higher established
reserves. Investment income is reduced, however, by our use of invested cash for
the acquisition of NISHD on January 1, 2000.

                                       12
<PAGE>

Net Realized Capital Gains.  During the 2000 period, we recognized capital gains
of $1,244,  compared to gains of $4,112 in the 1999  period.  Capital  gains and
losses are generally  recorded as a result of our normal  investment  management
operations.  However,  in the 1999 period, we intentionally  recognized  capital
gains sufficient to offset expenses of  approximately  $2,800 as a result of the
impairment of certain of our fixed assets.

Other Income. We recorded $6,743 in other income during the 2000 period, up from
$4,661 in the 1999 period.  The increase is  attributable  to a settlement  of a
previously  disclosed  lawsuit,  of  which  the  details  are  undisclosed  as a
condition of the settlement  agreement,  and to income  generated from corporate
owned life insurance policies.

     In addition,  the 2000 period  includes the receipt of a settlement  from a
previously  disclosed  lawsuit.  The details of the lawsuit are undisclosed as a
condition of the settlement agreement.

Benefits to  Policyholders.  Total benefits to  policyholders in the 2000 period
increased 25.1% to $180,519,  compared to $144,332 in the 1999 period.  Our loss
ratio,  or  policyholder  benefits to  premiums,  was 68.2% in the 2000  period,
compared  to 68.3% in the 1999  period.  This ratio is  expected  to grow as the
percentage of new business premium to total premium decreases.

     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
these increases when deemed to be actuarially sound.

Commissions. Commissions to agents increased 12.3% to $77,088 in the 2000 period
compared to $68,647 in the 1999 period.

     First year  commissions on accident and health  business in the 2000 period
increased  6.0% to $50,382,  compared to $47,513 in the 1999 period,  due to the
increase in first year accident and health premiums.  Commission growth is lower
than premium  growth as no commission was paid for our new group  policies.  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,  younger  policyholder sales receive a higher commission  percentage.
The ratio of first year accident and health  commissions  to first year accident
and health premiums was 65.5% in the 2000 period and 65.7% in the 1999 period.

     Renewal  commissions  on  accident  and health  business in the 2000 period
increased 30.6% to $28,261,  compared to $21,647 in the 1999 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
15.7% in the 2000 period and 16.5% in the 1999 period.

     Commission  expense  during the 2000  period was  reduced by the netting of
$3,652 from override  commissions  paid to the Agencies by affiliated  insurers.
During the 1999  period,  commissions  were  reduced by $1,823.  The 2000 period
override commissions include approximately $1,200 from NISHD, which we purchased
in January 2000.

Net Policy Acquisition Costs Deferred. The net deferred policy acquisition costs
in the 2000 period  decreased  10.0% to $32,091  compared to $35,659 in the 1999
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

                                       13
<PAGE>

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.

     Although new premiums have  increased in the 2000 period,  lower first year
commissions  from our group  product line have resulted in lower  deferrals.  In
addition,  amortization  of previously  deferred  costs offsets a portion of the
current period  deferral,  especially  when new premium growth slows as has been
the case in the 2000 period.

General and Administrative Expenses.  General and administrative expenses in the
2000 period increased 20.1% to $36,285,  compared to $30,223 in the 1999 period.
The 2000 and 1999 periods  include $6,219 and $5,871,  respectively,  of general
and   administrative   expenses  related  to  United  Insurance  Group  expense.
Management believes that current cost savings initiatives, such as remote office
consolidation and outsourcing of certain administrative  functions,  has reduced
the  level  of  expenses   (excluding   United   Insurance  Group  and  goodwill
amortization)  as a percentage of premiums,  which declined to 11.4% in the 2000
period, compared to 11.5% in the 1999 period.

Loss Due to Impairment  of Property and  Equipment.  During the 1999 period,  we
determined to discontinue  our planned  implementation  of our LifePro  computer
system. At June 30, 1999, we had capitalized  $2,799 of expenditures  related to
this project,  including  licensing  costs and fees paid to outside  parties for
system  development  and  implementation.  As the  system  was not yet placed in
service, none of these costs had previously been depreciated on our Consolidated
Statements of Operations  and  Comprehensive  Income.  Upon  determining  not to
utilize these fixed assets,  their value became fully impaired and we recognized
the entire amount as current period expense.

In conjunction with our decision to discontinue our implementation  project,  we
filed suit against the software  manufacturer and several consultants,  alleging
misrepresentations  by all accused parties  regarding the system's  capabilities
and ability to meet our  expectations.  A portion of the lawsuit was settled for
an undisclosed amount as previously discussed. However, portions of the suit are
still in process.

Reserve for Claim  Litigation.  During the 2000 period,  we were notified that a
jury awarded a  compensatory  judgement of $24 and a punitive award of $2,000 in
favor of the plaintiff against one of our subsidiaries in a disputed claim case.
The trial judge  subsequently  remitted the award to $1,000.  The  plaintiff has
appealed  this  decision,  which  could  result in an  overturn  of the  court's
decision of the granting of a new trial. In the event that our continued efforts
are unsuccessful in full or in part to reduce the award, we established a $1,000
litigation reserve for the potential future payment of this judgement.

Provision for Federal  Income Taxes.  Our provision for federal income taxes for
the 2000  period  decreased  17.7% to  $8,786,  compared  to $7,466 for the 1999
period. The effective tax rates of 34.0% and 33.0% in the 2000 and 1999 periods,
respectively,  are at or 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,  which are partially
offset by non-deductible goodwill amortization.

Comprehensive Income. During the 2000 period, our investment portfolio generated
pre-tax  unrealized gains of $778,  compared to 1999 period unrealized losses of
$21,640.  After  accounting for deferred  taxes from these gains,  shareholders'
equity and net income increased by $17,568 from comprehensive  income during the
2000 period, compared to comprehensive income of $876 in the 1999 period.

                                       14
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES:

     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
provided,  and may  continue to provide,  cash through  public  offerings of our
common stock, other 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  commissioners.  Statutory  earnings
are generally lower than earnings reported in accordance with generally accepted
accounting  principles  due to the immediate or  accelerated  recognition of all
costs  associated with premium growth and benefit  reserves.  We have not and do
not  intend  to pay  shareholder  dividends  in the  near  future  due to  these
requirements,  choosing to retain statutory surplus to support continued premium
growth.

     In the 2000 period,  our cash flows were  attributable  to cash provided by
operations,  cash  used in  investing  and  cash  used in  financing.  Our  cash
increased by $15,549 in the 2000 period  primarily  due to the maturity and sale
of  $132,029  of our  bonds  and  equity  securities  portfolio  and  cash  from
operations of $72,351.  The major  provider of cash from  operations was premium
revenue  used to fund  reserve  additions  of $86,756.  The primary uses of cash
during  the 2000  period  were the  purchase  of  $179,560  in bonds and  equity
securities,  $77,088 paid as agent commissions, and $6,000 used for the purchase
of NISHD.

     Our cash flows in the 1999 period  were  attributable  to cash  provided by
operations,  cash  used in  investing  and  cash  used in  financing.  Our  cash
increased by $6,614 in the 1999 period primarily due to the maturity and sale of
$80,800 of our bonds and equity securities portfolio and cash from operations of
$58,648.  The major  provider of cash from  operations was premiums used to fund
additions  to reserves of $73,851 in the 1999  period.  The primary uses of cash
were  commissions  paid to agents of $68,647,  the  purchase of bonds and equity
securities of $120,642 and net cash of $9,194 paid for the acquisition of United
Insurance Group.

     We invest 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.  At  September  30,  2000,  the  market  value  of  our  bond  portfolio
represented  97.5% of our cost,  compared to 96.7% at December 31, 1999,  with a
current  unrealized  loss of $10,521  at  September  30,  2000,  compared  to an
unrealized loss of $12,013 at December 31, 1999. Our equity  portfolio  exceeded
cost  by  $596  and  $1,310  at  September  30,  2000  and  December  31,  1999,
respectively.

     As of September 30, 2000,  shareholders' equity was decreased by $6,550 due
to unrealized losses of $9,925 in the investment  portfolio.  As of December 31,
1999,  shareholders'  equity was decreased by $7,064 due to unrealized losses of
$10,703 in the investment portfolio.

     Our debt currently consists primarily of a mortgage note in the approximate
amount of $1,700 and $74,750 in convertible  subordinated  debt. The convertible
debt,  issued in November 1996, is  convertible  into common stock at $28.44 per
share until November  2003.  The debt carries a fixed interest  coupon of 6.25%,
payable  semi-annually.  The mortgage note is currently amortized over 15 years,
and has a balloon payment due on the remaining  outstanding  balance in December
2003.  Although the note carries a variable  interest rate, we have 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 of 6.85%.

                                       15
<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, with a current outstanding balance of $5,554 at September 30,
2000. The remainder of the purchase was for cash.

     Our company consists of the Insurers, the Agencies and a non-insurer parent
company,  Penn Treaty American  Corporation (the "Parent").  The Parent directly
controls  100% of the voting stock of the  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.

     In addition to the United Insurance Group installment note obligation,  the
Parent  currently has the  obligation of making  semi-annual  interest  payments
attributable  to its  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 from its current  investments,  dividend
capabilities  of United  Insurance Group and from its line of credit to meet its
obligations  throughout 2000 and 2001. We may need to raise  additional funds in
order to meet future cash requirements beyond the foreseeable future.

     We believe that our insurance  subsidiaries'  capital and surplus presently
meet or exceed the requirements in all jurisdictions in which they are licensed.
Our  continued  growth is dependent  upon our ability to (1) continue  marketing
efforts to expand our historical markets,  (2) continue to expand our network of
agents and  effectively  market our  products  and (3) 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 our insurance  subsidiaries,  can be met
through 2000 by funds generated from non-insurance subsidiary dividends, current
and future financial  reinsurance  transactions,  off-shore  reinsurance through
Penn Treaty (Bermuda) and the  availability of our line of credit  facility.  We
expect future capital market activities will be necessary to support our ongoing
growth;  however,  we  continue to seek  alternative  measures.  If  alternative
measures  to  support  our  growth,   such  as   reinsurance   agreements,   are
unsuccessful,  we believe that additional  capital would be required as early as
2001.

     In the event (1) we fail to  maintain  minimum  loss ratios  calculated  in
accordance  with statutory  guidelines,  (2) we fail to meet other  requirements
mandated  and enforced by  regulatory  authorities,  (3) we have adverse  claims
experience in the future,  (4) we are unable to obtain  additional  financing to
support  future growth or (5) the economy  continues to affect the buying powers
of senior citizens,  our results of operations,  liquidity and capital resources
could be adversely affected.

     Certain  statements  that we have  made in this  report  may be  considered
forward-looking  within the meaning of the Private Securities  Litigation Reform
Act of 1995.  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 our operations  will not differ
materially  from our  expectations.  Factors which could cause actual results to
differ  from  expectations  include,  among  others,  the  adequacy  of our loss
reserves and our ability to meet statutory surplus  requirements,  especially in
light of our recent  growth,  our ability to qualify new insurance  products for
sale in certain states, our ability to comply with government  regulations,  the
impact of securities  transactions,  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 ourselves from adverse  litigation,  and
our  ability  to expand  our  network  of  productive  independent  agents.  For
additional  information,  please refer to  "Overview"  in this report and to our
other reports filed with the Securities and Exchange Commission.

                                       16
<PAGE>

NEW ACCOUNTING PRINCIPLE:

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities,"   which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively referred to as "derivatives") and for hedging activities. SFAS No.
133, as amended by SFAS No. 137  "Deferral  of the  Effective  Date of FAS 133",
which is effective for all fiscal  quarters of all fiscal years  beginning after
June 15, 2000,  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.  We are currently  evaluating the impact of SFAS No.
133 as relates to the embedded option values in our investment portfolio.


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 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.  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 79.2% of total liabilities
and  reinsurance  receivables on unpaid losses  represent 1.9% of total assets).
Long-term  debt,  although  not  carried  at  fair  value,  is  included  in the
hypothetical effect calculation.

     The  hypothetical  effects of changes in market rates or prices on the fair
values of financial  instruments as of September 30, 2000,  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  $14,000,000  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  September  30,  2000 would  have  resulted  in an  approximate
$26,000,000  decrease in the net fair value.  If interest rates had decreased by

                                       17
<PAGE>

100 and 200 basis points,  there would have been an approximate  $15,000,000 and
$32,000,000  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 our minimal  invested  amount 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 September 30, 2000.

                            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.

     During the 2000 period, we were notified that a jury awarded a compensatory
judgement  of  $24,000  and a  punitive  award  of  $2,000,000  in  favor of the
plaintiff  against one of our  subsidiaries  in a disputed claim case. The trial
judge subsequently remitted the award to $1,000,000.  The plaintiff has appealed
this decision,  which could result in an overturn of the court's decision or the
granting  of  a  new  trial.  In  the  event  that  our  continued  efforts  are
unsuccessful in full or in part to reduce the award, we established a $1,000,000
litigation reserve for the potential future payment of this judgement.

     We do not believe that the eventual outcome of any of the suits to which we
are  currently  a party will have a  material  adverse  effect on our  financial
condition  or results of  operations.  However,  the outcome of any single event
could have a material impact upon the quarterly or annual  financial  results of
the period in which it occurs.

     During the 1999  period,  we  determined  to file a lawsuit  regarding  the
impairment of certain of our fixed assets. During the 2000 quarter, a portion of
that  lawsuit was  settled.  The details are  undisclosed  as a condition of the
settlement agreement.

ITEM 2. Changes in Securities

Not Applicable


ITEM 3. Defaults Upon Senior Securities

Not Applicable


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

Not Applicable


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ITEM 5. Other Information

Subsequent  to the end of the third  quarter of 2000,  we announced the death of
Glen A. Levit, 33, Senior Vice President and President of the Insurers.

ITEM 6. Exhibits and Reports on Form 8-K

(a)     Exhibits:

        Exhibit 27 -    Financial Data Schedule

(b)     Reports on Form 8-K:

        The Company  filed no  reports on  Form 8-K  during  the  quarter  ended
        September 30, 2000.


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                                   SIGNATURES

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

                                            PENN TREATY AMERICAN CORPORATION
                                                                    Registrant


Date:  November 14, 2000                   /s/  Irving Levit
       -----------------                   -------------------------------------
                                                Irving Levit
                                                Chairman of the Board, President
                                                And Chief Executive Officer

Date:  November 14, 2000                   /s/  Cameron B. Waite
       -----------------                   -------------------------------------
                                                Cameron B. Waite
                                                Chief Financial Officer