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                                                                    EXHIBIT 10.4



                            REINSURER TRUST AGREEMENT


                            DATED AS OF JULY 28, 2005


                                      AMONG


                    IMAGINE INTERNATIONAL REINSURANCE LIMITED

                                   AS GRANTOR,


                  PENN TREATY NETWORK AMERICA INSURANCE COMPANY

                                 AS BENEFICIARY


                                       AND

                              THE BANK OF NEW YORK

                                   AS TRUSTEE

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                            REINSURER TRUST AGREEMENT

REINSURER TRUST AGREEMENT, dated as of July 28, 2005 (this "Agreement"), among
Imagine International Reinsurance Limited, an insurance company organized under
the laws of Ireland (the "Grantor"), Penn Treaty Network America Insurance
Company, an insurance company organized under the laws of Pennsylvania (the
"Beneficiary"), and The Bank of New York, a New York banking corporation (the
"Trustee") (the Grantor, the Beneficiary and the Trustee are hereinafter each
sometimes referred to individually as a "Party" and collectively as the
"Parties").

                                   WITNESSETH:

        WHEREAS, the Beneficiary has entered into the reinsurance agreement
listed in Exhibit A hereto (the "Reinsurance Agreement");

        WHEREAS, the Beneficiary desires the Grantor to secure payments of all
amounts at any time and from time to time owing by the Grantor to the
Beneficiary under or in connection with the Reinsurance Agreement;

        WHEREAS, the Grantor desires to transfer to the Trustee for deposit to a
trust account (the "Trust Account") such assets as it may desire to make subject
to this Agreement in order to secure payments under or in connection with the
Reinsurance Agreement, which Trust Account complies fully with 40 P.S. ss.
442.1(b)-(e) and Title 31 PA Code Ch. 163;

        WHEREAS, the Trustee has agreed to act as Trustee hereunder, and to hold
such assets in trust in the Trust Account for the sole use and benefit of the
Beneficiary; and

        WHEREAS, this Agreement is made for the sole use and benefit of the
Beneficiary and for the purpose of setting forth the duties and powers of the
Trustee with respect to the Trust Account;

        NOW, THEREFORE, for and in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Parties hereby agree as follows:

l.      DEPOSIT OF ASSETS TO THE TRUST ACCOUNT.

(a)     The Grantor hereby establishes the Trust Account, and the Trustee shall
        administer the Trust Account in its name as Trustee in accordance with
        the provisions of this Agreement.

(b)     Within three (3) business days of the date hereof, the Grantor shall
        transfer to the Trustee, for deposit to the Trust Account, the assets
        listed in Exhibit B hereto. The Grantor may transfer to the Trustee, for
        deposit to the Trust Account, such other assets as it may from time to
        time desire (all such assets are herein referred to individually as an
        "Asset" and collectively as the "Assets"). The Assets shall consist only
        of cash (United States legal tender) and Eligible Securities (as
        hereinafter defined).

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(c)     The Grantor hereby covenants, represents and warrants that (i) any
        Assets transferred by the Grantor to the Trustee for deposit to the
        Trust Account will be in such form that the Beneficiary whenever
        necessary may, and the Trustee upon direction by the Beneficiary will,
        negotiate any such Assets without consent or signature from the Grantor
        or any person in accordance with the terms of this Agreement, (ii) all
        Assets transferred by the Grantor to the Trustee for deposit to the
        Trust Account consist only of cash and Eligible Securities and (iii)
        this Agreement has been duly executed and delivered by the Grantor and
        constitutes Grantor's legal, valid and binding obligation, enforceable
        against Grantor in accordance with its terms (except to the extent such
        enforcement may be limited by applicable bankruptcy or similar laws of
        general application relating to or affecting the rights of creditors and
        by general equitable principles).

(d)     The Trustee shall have no responsibility to determine whether the Assets
        in the Trust Account are sufficient to secure the Grantor's liabilities
        under the Reinsurance Agreement.

2.      WITHDRAWAL OF ASSETS FROM THE TRUST ACCOUNT.

(a)     Without notice to or the consent of the Grantor, the Beneficiary shall
        have the right, at any time and from time to time, to withdraw from the
        Trust Account upon written notice to the Trustee (the "Withdrawal
        Notice") such Assets as are specified in such Withdrawal Notice. The
        Withdrawal Notice may designate a third party (the "Designee") to whom
        Assets specified therein shall be delivered. The Beneficiary need
        present no statement or document in addition to a Withdrawal Notice in
        order to withdraw any Assets.

(b)     Upon receipt of a Withdrawal Notice, the Trustee shall immediately take
        any and all steps necessary to transfer the Assets specified in such
        Withdrawal Notice, including absolutely and unequivocally all rights,
        title and interest therein, and shall deliver such Assets to or for the
        account of the Beneficiary or such Designee as specified in such
        Withdrawal Notice. Promptly, but in no event more than three (3)
        business days, following receipt of a Withdrawal Notice, the Trustee
        shall provide a copy thereof to the Grantor. The Withdrawal Notice shall
        be in the form of Exhibit C hereto.

(c)     The Trustee shall allow no substitution or withdrawal of any Asset from
        the Trust Account except as provided in this Section 2 and Section 4.

(d)     The Grantor may request in writing to the Beneficiary (the "Grantor
        Withdrawal Request"), with a copy to the Trustee, that the Beneficiary
        allow the Grantor to withdraw Assets or reduce the amount of credit
        provided in any letters of credit held in the Trust Account, to the
        extent that the total market value of the Assets in the Trust Account
        exceeds (i) 100% of the amount of the Grantor's Obligations less (ii)
        the balance of the Funds Withheld Account. By countersigning a copy of
        such Grantor Withdrawal Request and providing a copy thereof to the
        Trustee, the Beneficiary, promptly (but in any event within three (3)
        business days) following receipt of such Grantor Withdrawal Request,
        shall instruct the Trustee to, and the Trustee shall, immediately remit
        to the Grantor such Assets designated to be withdrawn and comply with
        the

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        request for the reduction in the amount of credit provided under such
        letter of credit. The Grantor Withdrawal Request may designate a third
        party (the "Designee") to whom Assets specified therein shall be
        delivered. The Beneficiary need present no statement or document in
        addition to a Grantor Withdrawal Request in order to effect the Grantor
        Withdrawal Request. The Grantor Withdrawal Request shall be in the form
        of Exhibit D hereto.

3.      APPLICATION OF ASSETS.

(a)     The Beneficiary hereby covenants to the Grantor that it shall use and
        apply any withdrawn Assets, without diminution because of the insolvency
        of the Beneficiary or the Grantor, for the following purposes only:

        (i)     to pay or reimburse the Beneficiary for the unpaid or
                unreimbursed portion of the Grantor's share of any losses paid
                by the Beneficiary, and expense allowances due to the
                Beneficiary, or of unearned premiums due to the Beneficiary,
                under the Reinsurance Agreement;

        (ii)    where the Beneficiary has received a Termination Notice (as
                hereinafter defined) pursuant to Section 10 of this Agreement
                and where any of the Grantor's Obligations remain unliquidated
                and undischarged ten days prior to the Termination Date (as
                hereinafter defined), to withdraw amounts equal to the Grantor's
                Obligations less the balance of the Funds Withheld Account, and
                deposit such amounts in a separate account subject to a new
                trust agreement compliant with 31 PA Code ss. 163, apart from
                its other assets, in the name of the Beneficiary, in any bank or
                trust company organized in the United States, in trust for the
                uses and purposes specified in subparagraph (i) of this Section
                3(a).

(b)     The Trustee shall have no responsibility whatsoever to determine that
        any Assets withdrawn from the Trust Account pursuant to Section 2 of
        this Agreement will be used and applied in the manner contemplated by
        Section 3(a).

4.      REDEMPTION, INVESTMENT AND SUBSTITUTION OF ASSETS.

(a)     Upon call or maturity of an Asset, the Trustee may withdraw such Asset
        without the consent of the Beneficiary, if the Trustee provides notice
        to the Beneficiary, liquidates or redeems the Asset, and the proceeds
        are paid into the Trust Account no later than five (5) days after the
        liquidation or redemption of such Asset. The Trustee shall have the
        right to draw down the full amount of any letter of credit included as
        an Asset of the Trust Account on or after the fifth (5th) business day
        immediately preceding the termination or expiration of the then existing
        letter of credit in the event that a substitute letter of credit is not
        obtained and delivered to the Trustee at a time prior to such fifth
        (5th) business day. The Trustee shall hold the proceeds as Assets in the
        Trust Account should the Trustee be required to make such drawing prior
        to the termination or expiration as provided herein.

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(b)     From time to time, at the written order and direction of the Grantor or
        its designated investment advisor, the Trustee shall invest Assets in
        the Trust Account in Eligible Securities. The Trustee shall not be
        required to take any action with respect to the investment or
        reinvestment of Assets other than those actions set forth in this
        Section 4(b) or as otherwise directed by the Grantor or its designated
        investment advisor.

(c)     From time to time, subject to the prior written approval of the
        Beneficiary, the Grantor may direct the Trustee to substitute Assets of
        comparable value for other Assets then held in the Trust Account. The
        Trustee shall have no responsibility whatsoever to determine the value
        of such substituted securities or that such substituted securities
        constitute Eligible Securities.

(d)     All investments and substitutions of securities referred to in Sections
        4(b) and 4(c) above shall be in compliance with the relevant provisions
        of 31 PA Code ss. 163.6(a), (b), and (c). Any instruction or order
        concerning such investments or substitutions of securities shall be
        referred to herein as an "Investment Order". The Trustee shall execute
        Investment Orders and settle securities transactions by itself or by
        means of an agent or broker. The Trustee shall not be responsible for
        (i) ensuring compliance with 31 PA Code ss. 163.6(a), (b), and (c), or
        (ii) any act or omission, or for the solvency, of any such agent or
        broker.

(e)     When the Trustee is directed to deliver Assets against payment, delivery
        will be made in accordance with generally accepted market practice.

(f)     Any loss incurred from any investment pursuant to the terms of this
        Section 4 shall be borne exclusively by the Trust Account. The Trustee
        shall not be liable for any loss due to changes in market rates or
        penalties for early redemption.

5.      THE INCOME ACCOUNT.

All payments of interest, dividends and other income in respect of Assets in the
Trust Account shall be posted and credited by the Trustee, subject to deduction
of the Trustee's compensation and expenses as provided in Section 8, in the
separate income column of the custody ledger (the "Income Account") within the
Trust Account established and maintained by the Grantor at an office of the
Trustee in New York City. Promptly (but in any event within three (3) business
days) of such interest, dividends or other income being posted and credited by
the Trustee to the Income Account, such interest, dividend or other income shall
be paid to the Grantor or credited to an account of the Grantor in accordance
with written instructions provided from time to time by the Grantor to the
Trustee. Any interest, dividend or other income automatically posted and
credited on the payment date to the Income Account, which is not subsequently
received by the Trustee, shall be reimbursed by the Grantor to the Trustee and
the Trustee may debit the Income Account for this purpose.

6.      RIGHT TO VOTE ASSETS.

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The Trustee shall forward all annual and interim stockholder reports and all
proxies and proxy materials relating to the Assets in the Trust Account to the
Grantor. The Grantor shall have the full and unqualified right to vote any
Assets in the Trust Account.

7.      ADDITIONAL RIGHTS, DUTIES AND REPRESENTATIONS OF THE TRUSTEE.

(a)     Subject to Section 2(b) hereof, the Trustee shall notify the Grantor and
        the Beneficiary in writing within five days following each deposit to,
        or withdrawal from, the Trust Account.

(b)     Before accepting any Asset for deposit to the Trust Account, the Trustee
        shall determine that such Asset is in such form that the Beneficiary
        whenever necessary, or the Trustee upon direction by the Beneficiary,
        may negotiate such Asset without consent or signature from the Grantor
        or any person or entity in accordance with the terms of this Agreement.

(c)     The Trustee shall have no responsibility whatsoever to determine that
        any Assets in the Trust Account are or continue to be Eligible
        Securities.

(d)     The Trustee shall receive and hold all Assets in a safe place at an
        office of the Trustee in the State of New York. The Trustee may from
        time to time deposit any Assets in the Trust Account, for the sole
        purpose of the Trust Account and in the name of the Trustee, in a
        book-entry account maintained at the Federal Reserve Bank or in the
        Depository Trust Company, which is organized as a limited purpose trust
        company under the banking law of New York State and a member of the
        Federal Reserve System.

        Assets may be held in the name of Hare & Co., for which the Trustee
        agrees to remain responsible for such Assets as though the Assets were
        actually held at the Trustee's office in the State of New York. All
        Assets held in book-entry accounts, depositories, or in the name of Hare
        & Co. must be in a form so that the Beneficiary, or the Trustee upon
        direction of the Beneficiary, may negotiate the assets without consent
        or signature from the Grantor or any other person.

(e)     The Trustee shall accept and open all mail directed to the Grantor or
        the Beneficiary in care of the Trustee, and shall forward such mail on
        to the appropriate Party.

(f)     The Trustee shall provide to the Grantor and the Beneficiary statements
        of Assets in the Trust Account and statements of account (such
        statements to be in such form and content as Trustee customarily
        maintains for trust accounts similar to the Trust Account) showing all
        transactions in the Trust Account, the face amount of all Assets and the
        market value of all Assets (i) upon its inception, (ii) thereafter
        within fifteen (15) days of the end of each calendar month and (iii)
        thereafter within five (5) days of a request by the Grantor or the
        Beneficiary. Upon request, the Trustee shall also furnish to authorized
        representatives of the Grantor and the Beneficiary, access to the
        Trustee's then-existing on-line electronic account reporting system,
        which system allows users to view and print the status of and activities
        in the Trust Account.

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(g)     The Trustee shall keep records of the administration of the Trust
        Account. Upon the request of the Grantor or the Beneficiary, the Trustee
        shall promptly permit the Grantor or the Beneficiary, their respective
        agents, employees or independent auditors to examine, audit, excerpt,
        transcribe and copy, during the Trustee's normal business hours, any
        books, documents, papers and records relating to the Trust Account or
        the Assets.

(h)     To the extent provided herein, the Trustee is authorized to follow and
        rely upon all instructions given by officers named in incumbency
        certificates furnished to the Trustee from time to time by the Grantor
        and the Beneficiary, respectively, and by attorneys-in-fact acting under
        written authority furnished to the Trustee by the Grantor or the
        Beneficiary, including, without limitation, instructions given by
        letter, facsimile transmission, telegram, teletype, cablegram or
        electronic media, if the Trustee believes such instructions to be
        genuine and to have been signed, sent or presented by the proper party
        or parties. The Trustee shall not incur any liability to anyone
        resulting from actions taken by the Trustee in reliance on such
        instructions, absent Trustee's negligence, willful misconduct or lack of
        good faith.

(i)     The duties and obligations of the Trustee shall only be such as are
        specifically set forth in this Agreement, as it may from time to time be
        amended, and no implied duties or obligations shall be read into this
        Agreement against the Trustee. The Trustee shall not be liable except
        for its own negligence, willful misconduct or lack of good faith.

(j)     No provision of this Agreement shall require the Trustee to take any
        action which, in the Trustee's reasonable judgment, would result in any
        violation of this Agreement or any provision of law.

(k)     Anything in this Agreement to the contrary notwithstanding, in no event
        shall the Trustee be liable under or in connection with this Agreement
        for indirect, special, incidental, punitive or consequential losses or
        damages of any kind whatsoever, including but not limited to lost
        profits, whether or not foreseeable, even if the Trustee has been
        advised of the possibility thereof and regardless of the form of action
        in which such damages are sought.

(l)     The Trustee shall not change the name or the account number of the Trust
        Account without the prior written consent of the Beneficiary.

(m)     The Trustee hereby represents and warrants that this Agreement has been
        duly executed and delivered by it and constitutes the Trustee's legal,
        valid and binding obligation, enforceable against the Trustee in
        accordance with its terms (except to the extent such enforcement may be
        limited by applicable bankruptcy or similar laws of general application
        relating to or affecting the rights of creditors and by general
        equitable principles).

(n)     The Trustee shall not be responsible or liable for any failure or delay
        in the performance of its obligations under this Agreement arising out
        of or caused, directly or indirectly, by circumstances beyond its
        reasonable control, including without limitation, acts of God;
        earthquakes; fires; floods; wars; civil or military disturbances;
        sabotage; epidemics; riots; interruptions, loss or malfunctions of
        utilities, computer (hardware or software) or

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        communications service; accidents; labor disputes; acts of civil or
        military authority or governmental actions; it being understood that any
        such party shall use its best efforts to resume performance as soon as
        practicable under the circumstances. The Trustee may consult with
        counsel of its own choice and at its own expense and shall have full and
        complete authorization and protection for any action taken, omitted or
        suffered by it hereunder in good faith in accordance with the written
        advice of such counsel and in the absence of negligence, willful
        misconduct or lack of good faith.

(o)     All payments to be made by the Trustee under this Agreement shall be
        made only from the Trust Account and only to the extent that the Trustee
        shall have received sufficient funds from the Trust Account to make such
        payments in accordance with the terms hereof. The Trustee will not be
        required to advance, expend risk or disburse its own funds in the
        administration of the Trust Account.

(p)     Upon execution of this Agreement, the Grantor and the Beneficiary shall
        each provide Trustee with a fully executed W-8 or W-9 Internal Revenue
        Service form, which shall include its Tax Identification Number as
        assigned by the United States Internal Revenue Service if applicable.

8.      THE TRUSTEE'S COMPENSATION, EXPENSES, ETC.

(a)     The Grantor shall pay the Trustee, as compensation for its services
        under this Agreement, a fee computed at rates determined by the Trustee
        from time to time and communicated in writing to the Grantor. The
        Grantor shall pay or reimburse the Trustee for all of the Trustee's
        expenses and disbursements in connection with its duties under this
        Agreement (including attorney's fees and expenses), except any such
        expense or disbursement as may arise from the Trustee's negligence,
        willful misconduct, or lack of good faith. The Trustee shall be entitled
        to deduct its compensation and expenses from payments of dividends,
        interest and other income in respect of the Assets held in the Trust
        Account prior to the deposit thereof to the Income Account as provided
        in Section 5 of this Agreement. The Grantor and the Beneficiary jointly
        and severally hereby indemnify the Trustee for, and hold it harmless
        against, any loss, liability, costs or expenses (including attorney's
        fees and expenses) incurred or made without negligence, willful
        misconduct or lack of good faith on the part of the Trustee, arising out
        of or in connection with the performance of its obligations in
        accordance with the provisions of this Agreement, including any loss,
        liability, costs or expenses arising out of or in connection with the
        status of the Trustee and its nominee as the holder of record of the
        Assets. The Grantor and Beneficiary hereby acknowledge that the
        foregoing indemnities shall survive the resignation or discharge of the
        Trustee or the termination of this Agreement and hereby grant the
        Trustee a lien, right of set-off and security interest in the funds in
        the Income Account for the payment of any claim for compensation,
        reimbursement or indemnity hereunder.

(b)     No Assets shall be withdrawn from the Trust Account or used in any
        manner for paying compensation to, or reimbursement or indemnification
        of, the Trustee.

9.      RESIGNATION OR REMOVAL OF THE TRUSTEE.

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(a)     The Trustee may resign at any time by giving 90 days' written notice
        thereof to the Beneficiary and to the Grantor. The Trustee may be
        removed by the Grantor's delivery of 90 days' written notice of removal
        to the Trustee and the Beneficiary. Such resignation or removal shall
        become effective no later than 90 days after notice is given and the
        acceptance of appointment by a successor trustee and the transfer to
        such successor trustee of all Assets in the Trust Account in accordance
        with Section 9(b).

(b)     Upon receipt by the proper Parties of the Trustee's notice of
        resignation or the Grantor's notice of removal, the Grantor and the
        Beneficiary shall appoint and approve a successor trustee. Any successor
        trustee shall be a "qualified United States financial institution" as
        defined in 40 P.S. ss. 442.1(g) and shall not be a Parent, a Subsidiary
        or an Affiliate of the Grantor or the Beneficiary. The successor trustee
        must be organized, or in the case of a foreign banking organization
        licensed, under the laws of the United States or any state thereof and
        must have been granted authority to operate with fiduciary powers.

(c)     Upon the acceptance of the appointment as Trustee hereunder by a
        successor trustee, the execution of a trust agreement that complies with
        40 P.S. ss. 442.1(b)-(e) and 31 PA Code ss. 163, and the transfer to
        such successor trustee of the possession and title to all Assets in the
        Trust Account, the resignation or removal of the Trustee shall become
        effective. Thereupon, such successor trustee shall succeed to and become
        vested with all the rights, powers, privileges and duties of the
        resigning or removed Trustee, and the resigning or removed Trustee shall
        be discharged from any future duties and obligations under this
        Agreement, but the resigning or removed Trustee shall continue after
        such resignation or removal to be entitled to the benefits of the
        indemnities provided herein for the Trustee.

10.     TERMINATION OF THE TRUST ACCOUNT.

(a)     The Trust Account and this Agreement, except for the indemnities
        provided herein, may be terminated only after (i) the Grantor or the
        Beneficiary has given the Trustee written notice of its intention to
        terminate the Trust Account (the "Notice of Intention"), and (ii) the
        Trustee has given the Grantor and the Beneficiary the written notice
        specified in Section 10(b). The Notice of Intention shall specify the
        date on which the notifying Party intends the Trust Account to terminate
        (the "Proposed Date"). The Grantor is prohibited from terminating the
        Reinsurer Trust Agreement on the basis of the insolvency of the
        Beneficiary.

(b)     Within five business days following receipt by the Trustee of the Notice
        of Intention, the Trustee shall give written notification (the
        "Termination Notice") to the Beneficiary and the Grantor of the date
        (the "Termination Date") on which the Trust Account and this Agreement
        shall terminate. The Termination Date shall be (a) the Proposed Date if
        the Proposed Date is at least 30 days but no more than 45 days
        subsequent to the date the Termination Notice is given; (b) 30 days
        subsequent to the date the Termination Notice is given, if the Proposed
        Date is fewer than 30 days subsequent to the date the Termination Notice
        is given; or (c) 45 days subsequent to the date the Termination Notice
        is given, if the Proposed Date is more than 45 days subsequent to the
        date the Termination Notice is given. The Termination Notice shall be in
        the form of Exhibit E hereto.

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(c)     On the Termination Date, upon receipt of written approval of the
        Beneficiary, the Trustee shall transfer to the Grantor any Assets
        remaining in the Trust Account, at which time all liability of the
        Trustee with respect to such Assets shall cease.

11.     DEFINITIONS.

Except as the context shall otherwise require, the following terms shall have
the following meanings for all purposes of this Agreement (the definitions to be
applicable to both the singular and the plural forms of each term defined if
both forms of such term are used in this Agreement):

The term "Affiliate" with respect to any corporation shall mean a corporation
which directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such corporation.

The term "Beneficiary" shall have the meaning set forth in the preamble of this
Agreement and shall include any successor of the Beneficiary by operation of law
including, without limitation, any liquidator, rehabilitator, receiver or
conservator.

The term "control" (including the related terms "controlled by" and "under
common control with") shall mean the ownership, directly or indirectly, of more
than 10% of the voting stock of a corporation.

The term "Eligible Securities" means and shall include certificates of deposit
issued by a United States bank and payable in United States legal tender,
including those issued by the Trustee, and securities, including securities
issued by the Trustee, representing investments with a rating of 1 or 2 under
the National Association of Insurance Commissioners SVO rating system, that
qualify as admitted assets in Pennsylvania; provided that no such securities
shall have been issued by a Parent, a Subsidiary or an Affiliate of either the
Grantor or the Beneficiary. Eligible Securities shall also include clean,
irrevocable and unconditional letters of credit issued by qualifying United
States financial institutions and meeting the terms and conditions of 40 P.S.
ss. 442.1(b)-(e) and 31 PA Code ss. 163.

The term "Funds Withheld Account" means the account established as such on the
books of the Beneficiary in connection with the Reinsurance Agreement as a
liability to the Grantor.

The term "Grantor's Obligations" shall mean, as applicable to the Reinsurance
Agreement, (a) losses paid by the Beneficiary but not recovered from the
Grantor, (b) claim reserves for losses reported and outstanding, (c) claim
reserves for losses incurred but not reported, (d) active life reserves, (e)
reserves for unearned premiums and (f) expense allowances payable but not
recovered from the Grantor.

The term "person" shall mean and include an individual, a corporation, a
partnership, an association, a trust, an unincorporated organization or a
government or political subdivision thereof.

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The term "Parent" shall mean an institution that, directly or indirectly,
controls another institution.

The term "Subsidiary" shall mean an institution controlled, directly or
indirectly, by another institution.

12.     GOVERNING LAW AND WAIVER OF JURY TRIAL.

(a) This Agreement and any amendments hereto shall be administered, governed by
and construed in accordance with the internal substantive laws of the State of
New York.

(b) Each of the Beneficiary, the Grantor and the Trustee hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to
this Agreement.

13.     SUCCESSORS AND ASSIGNS.

No Party may assign this Agreement or any of its rights or obligations
hereunder, whether by merger, consolidation, sale of all or substantially all of
its assets, liquidation, rehabilitation, dissolution or otherwise, except as
expressly permitted by Section 9.

14.     SEVERABILITY.

In the event that any provision of this Agreement shall be declared invalid or
unenforceable by any regulatory body or court having jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remaining portions of this Agreement.

15.     ENTIRE AGREEMENT.

This Agreement constitutes the entire agreement among the Parties, and there are
no understandings or agreements, conditions or qualifications relative to this
Agreement that are not fully expressed in this Agreement.

16.     AMENDMENTS.

This Agreement and any exhibits hereto may be modified or otherwise amended, and
the observance of any term of this Agreement may be waived, if such
modification, amendment or waiver is in writing and signed by the Parties.

17.     NOTICES, ETC.

Unless otherwise provided in this Agreement, all notices, directions, requests,
demands, acknowledgments and other communications required or permitted to be
given or made under the terms hereof shall be in writing and shall be deemed to
have been duly given or made (a)(i) when delivered personally, (ii) when made or
given by prepaid telex, telegraph, telecopier, facsimile or

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electronic media, or (iii) in the case of mail delivery, upon the expiration of
three days after any such notice, direction, request, demand, acknowledgment or
other communication shall have been deposited in the United States mail for
transmission by first class mail, postage prepaid, or upon receipt thereof,
whichever shall first occur and (b) when addressed as follows:

        If to the Grantor:

            Imagine International Reinsurance Limited
            43 St. Stephen's Green
            Dublin 2, Ireland
            Attention: Director
            Facsimile: 011-353-1-669-1848
            Telephone: 011-353-1-669-1850

        If to the Beneficiary:

            Penn Treaty Network America Insurance Company
            3440 Lehigh Street
            Allentown, PA   18103
            Attention: Brian Duncan, VP & Controller
            Facsimile: (610) 965-0668
            Telephone: (610) 965-2222

        If to the Trustee:

            The Bank of New York
            101 Barclay Street, 8w
            New York, NY 10286
            Attention: Insurance Trust
            Facsimile: (212) 815 - 5877
            Phone: (212) 815 - 3233

Each Party may from time to time designate a different address for notices,
directions, requests, demands, acknowledgments and other communications by
giving written notice of such change to the other Parties. All notices,
directions, requests, demands, acknowledgments and other communications relating
to the Beneficiary's approval of the Grantor's authorization to substitute
Assets and to the termination of the Trust Account shall be in writing and may
be made or given by prepaid telex, telegraph, telecopier, facsimile or
electronic media.

18.     HEADINGS. The headings of the Sections and the Table of Contents have
        been inserted for convenience of reference only and shall not be deemed
        to constitute a part of this Agreement.

19.     COUNTERPARTS. This Agreement may be executed in any number of
        counterparts, each of which when so executed and delivered shall
        constitute an original, but such counterparts together shall constitute
        but one and the same Agreement.

<PAGE>

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                          The signature page follows.]

<PAGE>

        IN WITNESS WHEREOF, the Parties have caused this Reinsurer Trust
Agreement to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.

                           IMAGINE INTERNATIONAL REINSURANCE LIMITED, as Grantor


                           By: /s/ J. Doyle
                               ------------
                                   Name: J. Doyle
                                   Title: Chief Risk Officer

                           By: /s/ Antoinette Glennon
                               ----------------------
                                   Name: Antoinette Glennon
                                   Title: Finance


                           PENN TREATY NETWORK AMERICA INSURANCE COMPANY,
                           as Beneficiary


                           By: /s/ Cameron B. Waite
                               --------------------
                                   Name: Cameron B. Waite
                                   Title: Executive Vice President


                           THE BANK OF NEW YORK, as Trustee


                           By: /s/ Robert W. Rich
                               ------------------
                                   Name: Robert W. Rich
                                   Title: Vice President